October 27, 2017 / 3:47 AM / a year ago

Breakingviews - China's Baidu stumbles in getting back to basics

HONG KONG (Reuters Breakingviews) - China’s Baidu has stumbled in getting back to basics. Investors wiped more than 10 percent, or slightly more than $9 billion, from the web giant’s market value in late U.S. trading on Thursday after it forecast disappointing sales for the rest of 2017. Baidu has cut costs and narrowed its focus to revitalise its search business. Unfortunately, that has yet to translate into less volatile results.

Robin Li, co-founder, chairman and chief executive officer of Baidu, speaks at the Wall Street Journal Digital conference in Laguna Beach, California, U.S. October 17, 2017. REUTERS/Mike Blake

The search-engine operator said it expects revenue for the three months to December to be between 22.2 billion yuan and 23.4 billion yuan. At the midpoint, that’s a hefty 25 percent uplift on the same period a year earlier. But expectations matter, especially in growth industries, and this was about 8 percent less than what analysts polled by Thomson Reuters were expecting. Shares of the U.S.-listed Baidu duly tumbled.

The timing is awkward: Baidu’s main search unit has just started to recover after it was hit by a scandal last year over dubious medical advertising. Still, this looks like a one-off.

That is because the recent sale of an unprofitable food-delivery unit has depressed overall sales. But growth in its core business still looks strong. Helped by news feeds on its mobile app, advertising sales in the three months to September topped 20.1 billion yuan, up 22 percent from a year earlier.

Baidu is also more focused than it has been in years. After ill-judged forays into movie ticketing, delivering takeaways and other “online-to-offline” services, Baidu is shifting resources back to the search app. It is slashing other operating expenses, which is helping lift operating margins.

Yet investors remain jumpy. Before Thursday’s sell-off, shares of Baidu had rallied 59 percent this year. In absolute terms that is impressive, but that performance lags arch-rivals Tencent and Alibaba by 24 and 35 percentage points respectively. More predictability would help regain investors’ trust.


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