China's Baidu Beats Estimates, Stock Surges, Despite Massive Profit Drop

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Despite negative headwinds, Baidu (NASDAQ:BIDU) was able to beat estimates, with shares of the visitor rising well-nigh 8% in afterwards-hours trading mail-earnings.

Baidu posted a cyberspace income of $344 million (ii.41 billion RMB) on revenue of $3.73 billion (26.3 billion RMB) for the quarter ending June 30. While its internet income has improved compared to the previous quarter, it's downwardly 62% pct compared to the aforementioned period concluding twelvemonth. Analysts polled by Refinitiv were expecting revenue of $3.66 billion (25.76 billion RMB).

In a statement, the company's CFO Herman Yu said despite "the weak macro environment, our self-directed healthcare initiative, industry-specific policy changes and large influx of advertisement inventory".

Revenue from online marketing services, which can be viewed as a practiced proxy of business' confidence in the broader health of the consumer economy, fell about 9%, to $2.72 billion (19.2 billion RMB).

Despite the growing competitiveness of the broader Chinese app ecosystem and search market, Baidu executives are confident that their own metrics give them a solid base to grow from. Baidu reported that their mobile app was being used past 188 million users every day, up 27% from the same period last twelvemonth, while in-app search queries grew over 20% year over twelvemonth and smart mini-program MAUs reached 270 meg, up 49% sequentially.

Baidu'due south AI business also experienced increased uptake during the past quarter, with Baidu's AI Open Platform growing 37% year on year to ane.three million developer accounts.

Some other one of Baidu's growth stories this quarter has been revenue from streaming service iQIYI, often chosen the Netflix (NASDAQ:NFLX) of Red china. Revenue from the service jumped xv% compared to the same time concluding yr, hitting $1.01 billion (7.11 billion RMB). Baidu says that the service crossed the 100 million subscriber mark this quarter. Initially, the platform had a cross-licensing agreement with Netflix (which doesn't operate in People's republic of china) but this was discontinued after analytics were disappointing.

Dealing with the Downturn

Baidu has lost its smooth, but still has managed to survive. All signs indicated that this quarter should accept been a catastrophe for the visitor, but it, along with other Prc net stocks aren't fairing that badly which shows that despite the trade state of war and an overdue recession there is even so some resilience left in the Chinese economic system.

The next chapter in Baidu'due south story needs to be dealing with the downturn -- both in its own fortunes, and somewhen the broader Chinese economic system. As argued before, protectionism has made Baidu complacent. Non having to deal with the innovation machine that is Google (NASDAQ:GOOG) has meant that the company got to rest on its laurels. Baidu had an episode before this year where it was criticized for the quality of its search results favoring sites from its ain news aggregator or SEO-laden spam instead of relevant results.

That existence said, it looks like Baidu has been making significant investments in the correct sectors that will be profitable over the long term. Big investments in AI, and marketing those finish products to all levels of authorities in China, will significantly expand the company's total addressable market (TAM) as CFO Robin Li pointed out during its concluding quarter's earnings. Baidu is also making big strides within the phonation assistant and smart speaker sector, with its DuerOS, although significant evidence suggests that this sector could be overinflated and the revenue potential isn't what it seems.

Going forward, Baidu said it expects its overall revenue for the electric current quarter to be betwixt $iii.81 billion to $four.04 billion (26.ix billion RMB to 28.v billion RMB). But should the intensity of the search engine wars rut up, even more than, the terminal results might be on the disappointing side.