China’s largest search engine, Baidu, struggles on earnings

Baidu, China’s largest search engine, with over 80 percent  of market share in that country, has had its worse quarter in terms of profit since their IPO more than 11 years ago.

In their Q2 2016 earnings report, net income dropped by 34 percent from the previous period. They still are very profitable, showing a net income of $363.2 million, but that profit continues to drop quarter over quarter as the company sees more and more scrutiny over their search ad practices.

The Wall Street Journal reports Baidu’s “advertising practices came under scrutiny after the death of a young man who undertook a cancer treatment he found through a Baidu online ad.” They added, “Shares in the company have fallen nearly 15% this year, and Baidu lowered its revenue forecast by nearly 10% ahead of its earnings report Friday in Asia.”

Growth has been an issue for Baidu, but here are the highlights the company wants you to read:

• Mobile search monthly active users (MAUs) were 667 million for the month of June 2016, an increase of six percent year over year.
• Mobile maps MAUs were 343 million for the month of June 2016, an increase of 13 percent year over year.
• Gross merchandise value (GMV) for Transaction Services totaled RMB 18.0 billion ($2.7 billion) for the second quarter of 2016, an increase of 166 percent year over year.
• Baidu Wallet activated accounts reached 80 million at the end of June 2016, an increase of 131 percent year over year.

The company’s total revenues in the second quarter of 2016 were $2.748 billion, a 10.2-percent increase from the corresponding period in 2015, and a 16.3 percent year-over-year increase. Meanwhile, mobile revenue represented 62 percent of total revenues for the second quarter of 2016, compared to 50 percent for the corresponding period in 2015. Net income attributable to Baidu in the second quarter of 2016 was $363.2 million, a 34.1-percent decrease from the corresponding period in 2015.

“Although Baidu is facing a public relations crisis, we don’t think any other local search engine can replace the firm in the near term,” Morningstar analyst Marie Sun wrote in a recent note. “As long as the Chinese government keeps Google out of mainland China, we believe Baidu will maintain its leading position.”

The company shared their outlook for the future, saying they expect total revenues ranging from $2.714 billion to $2.796 billion for the third quarter of 2016, representing a decrease of 1.9 percent to an increase of 1.1 percent year over year.

Their stock was at $166 per share and dropped to a low of $157 after the earnings release was announced. It closed today at $159.60, a decrease of $6.03, or 3.64 percent.