Baidu ADRs Sink in After-Hours Trade on Revenue Outlook
Baidu Inc. (BIDU), owner of China’s dominant Internet search engine, tumbled in after-market trading in New York after forecasting its second-quarter sales may grow at the slowest pace in more than two years.
American depositary receipts of the Beijing-based company slid 9.3 percent to $123.26 by 7:59 p.m. yesterday in New York, after slumping to $121.11 earlier, data compiled by Bloomberg show. The stock fell 2.7 percent to $135.83 during normal trading hours.
Baidu’s forecast that revenue growth may slow to 56 percent this quarter raised concern that China’s economic slowdown may curtail advertising spending by companies. Still, Chief Executive Officer Robin Li said today that he expects “healthy” growth in sales of search-engine keywords, and the company will step up efforts to sign up advertisers outside the biggest Chinese cities.
“The guidance was disappointing,” said Qi Guo, an analyst at ThinkEquity Partners LLC in San Francisco. He said he intends to keep his buy rating on the stock because he expects search- engine companies can weather China’s slowing economy better than those that rely on sales of online display advertising.
Revenue is expected to rise to between 5.34 billion yuan ($847 million) and 5.46 billion yuan in the second quarter, Baidu said in a statement released after the 4 p.m. close yesterday. That compares with a 5.48 billion yuan average of analysts’ estimates compiled by Bloomberg.
The increase would be the slowest since the fourth quarter of 2009, when sales climbed 39 percent from the year-earlier period. Revenue was 3.4 billion yuan in the second quarter last year.
Baidu’s sales last year were boosted by increases in ad spending by Chinese daily coupon sites, a trend that won’t be repeated this year, according to ThinkEquity’s Guo.
“It is a solid guidance for the second-quarter,” Baidu Chief Financial Officer Jennifer Li said in a conference call today. The outlook reflects a “normal” seasonal variation, she said.
Net income in the first quarter climbed to 1.88 billion yuan, or an adjusted 5.48 yuan per ADR, from 1.07 billion yuan a year earlier, according to the statement. Profit matched the 1.88 billion yuan average of 10 analysts’ estimates collated by Bloomberg. Revenue rose 75 percent to 4.26 billion yuan.
“Spending by larger customers have been driving Baidu’s results,” Kelvin Ho, who rates Baidu a buy at Yuanta Securities in Hong Kong, said before the earnings release. “In the long term, Baidu’s market position is still very good.”
Baidu Trailing Tencent
This year, Baidu’s stock has underperformed the 48 percent gain in the Hong Kong-traded shares of Tencent Holdings Ltd. (700), China’s biggest online-games company, and the 40 percent advance in Youku Inc. (YOKU), the biggest local online video operator.
Baidu accounted for 78.5 percent of China’s search-engine market by revenue last quarter, compared with 16.6 percent for Google Inc. (GOOG), according to researcher Analysys International.
Google has been losing ground in China’s search-engine market since January 2010, when the Mountain View, California- based company said it was no longer willing to comply with Chinese regulation to self-censor Web content. Two months later, the U.S. company shut its Google.cn service and redirected Chinese users to its site in Hong Kong.
Large advertisers that make up less than 1 percent of Baidu’s customer base are contributing as much as 20 percent of the company’s revenue, according to an April 20 Morgan Stanley report. Improved keyword matching technology in Baidu’s Phoenix Nest advertising system helped boost sales to bigger clients, according to the U.S. bank.
Online advertising sales in China may increase 39 percent this year, outpacing the 4.6 percent growth in ad sales for newspapers, and 11 percent for television, according to a report this month by Nomura Holdings Inc.
Chinese advertisers are allocating a bigger percentage of their spending to online, Baidu CEO Li said today. He forecasts the company’s advertising sales growth will be “better” in the second half.
Baidu has expanded its Phoenix Nest system for customers that place ads on its mobile search service, Li said. Still, mobile advertising is expected to make up a small percentage of overall revenue, he said.
Tencent plans to offer “performance-based” advertising services this year, and seeks to increase sales from its search- engine, President Martin Lau said last month.
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