Photographer: Anthony Kwan/Bloomberg

Baidu Sales Beat Estimates on News Feed, Search Advertising

  • Company files to begin IPO process for iQiyi video service
  • Revenue forecast for current quarter misses analysts estimates

Baidu Inc. posted fourth-quarter sales that topped analyst estimates on the rising popularity of its news aggregation service and its traditional web search business.

Revenue was 23.6 billion yuan ($3.62 billion) in the three months ended December, the Beijing-based company said in a statement. That compares with the 23.1 billion yuan average of analyst estimates. Baidu’s U.S. shares gained more than 4 percent in extended trading after the results were released.

The sales beat is an important milestone for Baidu, which needs shareholders to back the company while it invests billions of dollars into moonshot projects including driverless cars and artificial intelligence. Those efforts are years away from generating substantial revenue, with the company forced to rely on its news feed and the mainstay internet search advertising business.

The news feed product, which competes with market leader Jinri Toutiao, uses artificial intelligence to decide what content users want to read and has rapidly become a major source of ad revenue.

“We expect Baidu to be one of the top three players of the mobile news feed ad market together with Toutiao and Tencent," Jefferies equity analyst Karen Chan said in a report before the earnings release. Jefferies expects the news feed to generate 10 billion yuan in revenue during 2018.

Net income attributable to Baidu was 4.2 billion yuan, compared with the 3.97 billion yuan that analysts predicted. Adjusted earnings per share were 15 yuan. Analysts projected 13.

The company forecast sales in the March quarter of 19.9 billion to 21 billion yuan, compared with the 21.2 billion yuan expected by analysts.

Baidu said it plans a listing of its popular video streaming service iQiyi, raising cash to buy and make content as it competes against rival offerings from Tencent Holdings Ltd. and Alibaba Group Holding Ltd. The proposed number of American depository receipts to be offered and sold in the proposed IPO hasn’t yet been determined. Baidu expects to remain the controlling shareholder after the completion of the proposed public offering.

The long-mooted move to list iQiyi is the latest in a series of efforts by the search giant to shed costly side businesses and refocus on what it sees as its core strength - products driven by artificial intelligence. It sold control of its unprofitable food delivery business and merged its travel operations into Ctrip.com International Ltd.

“An upside catalyst would be the potential listing of iQiyi," Chan told clients in a note before the earnings release. "We expect content investment to remain heavy in 2018 with Tencent Video and Baidu iQiyi solidifying their market leadership, mostly through increasing in-house content production."

A 2016 attempt by Chief Executive Officer Robin Li to buy iQiyi valued the company at $2.8 billion. That plan failed to get board approval after some shareholders protested the value on the offer. Since then, valuations of the streaming video company have sky-rocketed; both Jefferies and CICC Research value the business at about $15 billion.

— With assistance by David Ramli

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