Baidu Posts Loss as Search Giant Grapples With Slowing China

(Bloomberg) -- Baidu Inc. posted a loss for the first time since going public in 2005 as China’s biggest online search engine struggles with a changing local market and slowing economy.

The net loss was 327 million yuan ($47.5 million) for the three months ended March, compared with the 187.5 million yuan loss expected by analysts. The Beijing-based company also forecast sales below estimates and said Hailong Xiang, the 14-year veteran who ran the search business, has resigned. Baidu’s American depositary receipts fell more than 7% in extended trading.

Baidu is fighting on a number of fronts as the slowing Chinese economy dampens advertising sales and its desktop search business loses users to smartphones. While it is sinking billions into new technologies from artificial intelligence to self-driving cars, Baidu’s more urgent need is to attract younger users to its apps to keep ad revenue growing. Rivals like Bytedance Ltd. are already winning over advertisers in products from news feeds to short video apps.

“It seems like Baidu is facing multiple headwinds in addition to macro weakness,” Alicia Yap, an analyst at Citigroup Inc., said in a report after the results.

Revenue rose 15% to 24.1 billion yuan, slightly below estimates for 24.3 billion yuan. The company said revenue in the June quarter will be 25.1 billion yuan to 26.6 billion yuan, as much as 14% below analyst projections.

Baidu merged its search and mobile business with Shen Dou promoted to head the new combined department, Chairman Robin Li said in a letter to employees after the results. And its board authorized a new $1 billion stock buyback program.

“For senior managers, saying ‘I have tried’ is not enough and we need to make sure we win in the battlegrounds that we must win,” Li wrote. “Facing the uncertainties of the external environment and changes of the market, we cannot wait, we cannot put our hope all on others, and we cannot fear.”

Baidu’s loss was fueled by escalating costs in content and marketing. The Beijing-based company partnered with state broadcaster CCTV to promote its digital wallet during the Lunar New Year. The search giant may have spent as much as 1.9 billion yuan on the “red envelope” giveaway, according to Vey-Sern Ling, an analyst with Bloomberg Intelligence.

“Baidu’s value as the starting point of info search is being challenged as contents become even more segregated and with fiercer competition,” analysts at China Renaissance led by Ella Ji wrote in a research note before the results. “Lack of product differentiation leads to low-efficient users-acquisition spending, putting more pressure on its operating margin.”

(Updates with chairman’s comment in seventh paragraph.)

To contact the reporter on this story: Zheping Huang in Hong Kong at zhuang245@bloomberg.net

To contact the editors responsible for this story: Edwin Chan at echan273@bloomberg.net, Robert Fenner

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