Baidu shares rose over 8% in US afternoon trading after reporting second-quarter earnings that beat market expectations as it managed to stave off newer rivals such as TikTok parents ByteDance in the advertising space.
June quarter results:
- Revenue of 26.3 billion yuan, or $ 3.83 billion, according to the exchange rate published in the company's income statement. This was an increase of 1% year on year or 9% in the quarter. Revenues beat the market's expectations of 25.76 billion yuan.
- Earnings per share of 10.11 yuan, beating estimates of 6.1
Expectations were low. The stock had fallen almost 40% this year, and investors were worried about the impact of increased competition and stricter censorship of the Chinese government on online videos that could hurt advertising revenue.
But Baidu reported on numbers that were happy with the market. After posting its first loss since 2005 in the first quarter of this year, the Chinese internet giant returned to a net profit in the second quarter.
The core area for advertising and marketing services was revenue of 19.5 billion yuan, down 2% year-on-year but up 12% in the quarter. Given that this represents around three-quarters of the company's revenues, the signs of stabilization were welcomed.
The search giant has also been criticized for its slow shift to mobile as consumers spend an increasing amount of time on so-called "super apps". These are products like Tencent & # 39; s WeChat or Ant Financials Alipay where a user can do a variety of things, from payments to food ordering – all within an app.
Baidu has also faced new competition from ByteDance, the owner of the social media app TikTok, which recently launched a search product.
Robin Li, CEO of Baidu.
Nelson Ching | Bloomberg | Getty Images
In the face of this competition, Baidu managed to grow strongly for its own mobile app, which includes everything from search to videos. Daily active users for the app reached $ 188 million in June, up 27% year-on-year. Search queries in the app grew over 20%.
Baidu's iQiyi streaming service also posted subscriber numbers of 100.5 million in June 2019, up 50% on the previous year.
"Over the past few months, facing severe external challenges and a weak macro environment, the company initiated a series of transformative changes, including organizational structure, personnel and business consolidation," Baidu CEO Robin Li said in a letter to employees. "These changes have caused temporary pain, but the positive effect will be far-reaching, enabling a more solid and long-term future for Baidu."
Baidu is still not out of the woods, with headwinds in the advertising market likely to remain.
"I would say the results for this quarter are just" less bad "or better than investors feared," Xueru Zhang, a senior analyst at 86Research, told CNBC. "The advertising market still shows no signs of improvement. What Baidu can do is improve its own products."
"At least, the top line stabilized (in terms of) quarter-to-quarter growth, while year-round is still challenging in the second half of 2019," Zhang added.
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