For the first time since 2005, the Chinese tech Giant recorded a loss of more than 9% in after-hours trading. Baidu is facing the challenge of finding new growth areas as its core-business – ads – has been hit by a slowing domestic economy. According to analysts, this can only get worse, due to the trade war with the US.
Baidu closed its first three months of 2019 with revenues of $3.59 billion, corresponding to a 15% increase from the same period last year. Online marketing revenues – representing almost 75% of Baidu's total sales – increased by 3% year after year. Other business areas of the company grew up to 73%.
However, content costs increased by up to 47% – $917 million – mostly due to several investments made into iQiyi, Baidu's video streaming platform. Research and development expenses also grew by 26%, corresponding to $621 million.
As a result, the Chinese dreadnought recorded a net loss of $49 million in the first quarter. That's pretty bad news when compared to the $970 million profit made in the same quarter of the previous year.
Baidu is indisputably China's biggest search service, holding 67% of the market – according to StatCounter. It fuels itself mostly with ad revenues. Despite the slowing down of the economy, other Chinese tech giants such as Alibaba and Tencent closed the quarter with positive results.
Experts say that the growing economic tension between the US and China are further contributing to a reduction in advertisement budgets spent by companies. In addition, there is a growing number of start-ups such as ByteDance (a platform hosting hugely popular short videos).
To set the ground for a new growth phase, Baidu is investing money in new business areas: artificial intelligence, self-driving cars, original video productions and a better content feed system. However, the biggest concern is to attract a young audience towards Baidu's apps to increase ad revenues.
“We predict that online marketing will be facing a hard time,” said Herman Yu, Baidu's CFO. “We will use this opportunity to improve our monetizing capabilities and operational efficiency, and we acknowledge the importance of investing for a sustainable long term growth”. For the second quarter, Baidu is expecting revenues between $3.6 billion and $3.85 billion, with a 2% increase in annual growth.