Baidu Warns of Revenue Drop, Signaling Trouble for China's Private Sector -- Update

BEIJING--Chinese search-engine giant Baidu Inc. (BIDU) warned its first-quarter revenue could drop 5% to 13% as the coronavirus epidemic wallops many of the sectors that fuel its bread-and-butter advertising business.

The Beijing-based company, once called the Google of China, said travel, real estate, and other businesses that rely on offline spending have slashed their marketing. The outbreak has frozen swaths of China's economy, forcing millions of people to remain indoors and keeping factories and businesses closed for weeks.

"The coronavirus outbreak has undoubtedly impacted our economy," Chief Executive Robin Li said in a call with analysts on Friday, China time. "The near term-impact on our business has been negative."

Baidu (BIDU) is among the latest Chinese companies to be hit by the epidemic. Earlier this month, Alibaba Group Holding Ltd. said the coronavirus outbreak is hampering the online-retail giant and might slow growth.

Baidu's (BIDU) core business relies on ads from Chinese retail, health-care and other companies, and is considered a gauge for the health of China's private sector. It delayed the release of its quarterly results by more than two weeks amid the epidemic. The company projected its core revenue for the first quarter could drop by 10% to 18% compared with a year ago.

Herman Yu, chief financial officer, said Baidu (BIDU) expects to see "negative growth," especially from the first half of the current quarter. As of Thursday, China had confirmed nearly 79,000 cases and almost 2,800 deaths from the coronavirus.

"We see weakness because of the coronavirus and because of the extended holiday and the fact that people were doing quarantine," Mr. Yu said during the call. "A lot of shops weren't open and a lot of offline activity was impacted." Many businesses in China extended their Lunar New Year holiday, which started in January, by weeks due to the epidemic.

The gloomy forecast overshadowed Baidu's (BIDU) better-than-expected performance in the quarter that ended Dec. 31.

In the fourth quarter, its revenue climbed 6% to 28.88 billion yuan ($4.1 billion) compared with a year ago. Profit tripled to 6.35 billion yuan, or 18.25 yuan an American depositary receipt. Analysts had expected a profit of 12.22 yuan an ADR on 28 billion yuan in revenue.

Company executives said customers are flocking to Baidu (BIDU) to search for reliable medical information--which could translate into a long-term traffic boost for its Baidu (BIDU) app. Healthcare-related queries were up 35% in December.

After the outbreak ends, "advertisers and, more broadly, users will still come because this is where they will find reliable information," Mr. Yu said. "The traffic growth will benefit other advertisers."

In October-December, the company's online marketing revenue fell 2% to 20.8 billion yuan.

Baidu (BIDU) has been trying to push beyond its search business by expanding into new areas connected to artificial intelligence, including autonomous driving and smart speakers. Revenue from a segment called "other"--which includes its cloud and smart device businesses--grew 35%, to 8.1 billion yuan, compared with a year ago.

Its video-streaming platform iQiyi said fourth-quarter revenue rose 7% to 7.5 billion yuan. That was bolstered by a 21% jump in paying subscribers while advertising on the platform fell 15% compared with a year earlier.

Write to Shan Li at shan.li@wsj.com and Maria Armental at maria.armental@wsj.com


  (END) Dow Jones Newswires
  02-28-20 0111ET
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