China's Baidu announces economic downturn could dike sales

There is another sign that the world's second largest economy faces headwinds in the middle of a trade route between it and the American Baidu business, whose revenues are driven by Chinese companies in medical, retail and other industries, is a barometer for the health of China's private sector.

"On the possible massive decline, right now, what We have said, the confidence level from the private sector, from entrepreneurs, is not so high," said Baidu CEO Robin Li analysts when the company reported revenues from the third quarter in New York.

"If we say in the next couple of months, the confidence level changes, things will change to the positive direction," says Mr. Li. "But we do not know exactly what's going to happen."

For the third quarter ended September 30, Baidu analysts estimate and reported 28.2 billion yuan, or 4.1[ads1]1 billion dollars, in revenue, up 27% from the same period last year. The growth was driven in part by an increase in users, and in the meantime used on Baidu's app, the company said. Analysts asked by FactSet predicted $ 4.03 billion in revenue.

The quarterly net profit was 12.4 billion yuan, an increase of 56% the previous year.

But Baidu said that revenue growth is likely to decrease throughout the rest of the year. It forecasts fourth quarter revenue to grow 15% to 20% from the same period the year before, compared to 27% increase in the July-September period.

Baidu US receipts increased 0.9% to close at $ 183.37 on Tuesday, slipping 0.75% in after-trade after the results were released. Stocks are down more than 20% so far, similar to other Chinese technology giants.

Mr. Li said while the current period may remind some people about the global financial crisis a decade ago, he sees it differently. "It's about the traditional industry, more about entrepreneur confidence, and it can change very quickly," he said. "In the long run, I am still very optimistic about Baidu's future and China's future."

China's economic expansion has fallen to its weakest pace since the financial crisis. An official activity meter in China's manufacturing sector fell for more than two years in October.

Raymond Feng, an analyst with Pacific Epok research firm in Shanghai, said while the macroeconomic effect already weighs on China's overall advertising market, online advertising is more secure than traditional ads.

But in view of macroeconomic slowdown and new competitors, including new online video platforms, Baidu will probably face strong competition in online advertising, he said.

Another factor that could hurt the company's earnings is the Chinese government's tightening of regulations in various sectors, said Baidus Finance Director Herman Yu.

Politics that affect sectors such as video games, real estate, financial services and online trading can hit customers who advertise on Baidus platforms, "said Yu in the earnings call. While Baidu is not dependent on any particular industry for advertising, he said, the cumulative effect on several industries, "a little here and there, collapsed because we probably will not grow as fast as we will like before."

In the video game industry, regulators have not approved the sale of new titles since March, when a government reorganization began. Uncertainty factors still dream about which agency will regulate the industry.

-Micah Maidenberg in New York contributed to this article.

Write to Yoko Kubota at yoko.kubota@wsj.com