Photographer: Tomohiro Ohsumi/Bloomberg

Baidu Boosts Content Spending as Search Recovers From New Rules

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  • Video and news aggregation are key to attracting users
  • Company’s new president affirms commitment to develop AI

Baidu Inc. will boost spending on content for its video streaming and news aggregation services as its tries to nurse its core internet search business back to health.

The strategy is designed to attract new users as China’s biggest search provider enters a critical period after sales in 2016 grew at the slowest pace on record. The company earlier forecast second-quarter sales that lagged behind most analyst estimates and its shares fell in after-hours trade.

Government and self-imposed advertising restrictions, introduced after an outcry about medical ads on Baidu, have hurt sales and placed greater pressure on the Beijing-based company’s push into new businesses. Baidu’s online-to-offline services, including group buying unit Nuomi and food deliveries division Waimai, have failed to dominate the market amid rampant costs and fierce competition. Now it’s redoubling efforts to become a leading player in artificial intelligence.

Newly-hired group president Qi Lu used a conference call to emphasize Baidu’s commitment to AI-related products. He singled out its news aggregation app, cloud computing services, driverless cars, DuerOS personal assistant and internet loans businesses as key products that will be driven by the rise of artificial intelligence. Andrew Ng, who had been leading its AI push, announced his resignation last month.

“Growth in the core business is not coming in as fast as we expected - the guidance for the second quarter was a bit light," New Street Research analyst Kirk Boodry said, noting the lack of clarity. "Nothing we heard on the call changes our view that the search advertising revenue growth is slowing.

Boodry added that many firms are pushing into AI, including China’s biggest web companies Alibaba Group Holding Ltd. and Tencent Holdings Ltd.

“Why would anyone think that Baidu is going to be a leader in AI-machine driven finance applications versus an Alibaba or a Tencent?”

The company projected revenue of 20.47 billion yuan ($2.97 billion) to 20.98 billion yuan in the June quarter, compared with analysts’ average estimate of 20.94 billion yuan. Shares declined as much as 6.3 percent in extended trading after closing at $187.86 in New York.

While Baidu’s news aggregation app had previously been flagged as a material source of revenue in 2017, Lu said the focus was on making it more popular with customers rather than growing revenue. But he did not provide any timing for when any of the AI products would start returning a profit or material revenue despite repeated requests for more detail from analysts.

Baidu’s video service struck a deal this week to gain license content from Netflix Inc.

"We’re still on the path to recovery from last year’s incidents," Baidu’s outgoing Chief Financial Officer Jennifer Li told investors, adding that it will cut spending on Nuomi while moving it to an ad-based business model. "We do not expect Nuomi to be a significant contributor to margin drag going forward."

Baidu founder Robin Li was silent for much of the call, with Lu and Jennifer Li handling most of the questions. The latter will step down from her position to become the chief executive of Baidu Capital, the company’s investment arm.

The company also posted first-quarter results, with sales rising 6.8 percent to 16.89 billion yuan in the quarter. Net income fell 11 percent to 1.78 billion yuan, compared with the 1.67 billion yuan estimated by analysts.

Baidu has long been regarded as the Google of China and once dominated the country’s online ad market. But Alibaba and Tencent, along with smaller firms, have eaten into its market share.

Attempts to diversify into food delivery and group-buying have failed to deliver strong sales growth. In 2015, the company’s founder pledged to invest 20 billion yuan over three years to become the dominant player in on-demand services, but it lost market share.

— With assistance by David Ramli

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