BEIJING: Baidu Inc.’s profit fell 18.9% in the first quarter even as revenue jumped, as the Chinese Internet company reorganized and spent more on video content and other services outside its core search-engine business.
Baidu’s revenue increased 24% to 15.82 billion yuan ($2.44 billion) from the same period last year, with revenue from mobile services accounting for 60% of the total revenue, up from 50% for the same period in 2015.
The performance slightly exceeded analysts’ expectations, sending the company’s American depositary receipts up 4.29% to $194 in after-hours trading.
Baidu, which runs China’s leading search engine, is in sharp-elbowed competition with rivals Alibaba Group Holding Ltd. and Tencent Holdings Ltd. to provide a seamless array of services, from payments to food delivery and group-buying discounts, accessed by smartphones.
Baidu’s CEO and founder, Robin Li, told analysts on Friday that the company is investing heavily to provide customers and merchants with a fully integrated platform that includes expanding its online-to-offline services.
Analysts said the company’s online-to-offline services, particularly its food delivery service, face stronger competition after Alibaba’s recent $1.25 billion investment in Ele.me, which will join forces with Alibaba’s own Koubei platform. Mr. Li said Baidu’s food delivery affiliate Baidu Takeout Delivery, which just closed another round of financing, is valued at $2.5 billion.
Baidu said Nuomi, its group-buying platform, had made significant progress and now has more than 20% of the market share, compared with 10% at the beginning of last year. “This is an integral part of the overall Baidu core business including search and maps,” Mr. Li told analysts.
The effort to diversify into businesses beyond search, however, is proving costly. Baidu’s online video wing, iQiyi, is reaching 20% penetration among Chinese mobile users, compared with Alibaba’s Youku Tudou’s 11.5% and Tencent Video’s 10.4%, according ITG Investment Research. Overall company content costs rose to 8.7% over the quarter from 4.8% in the same period a year ago, mainly due to iQiyi and, analysts said, its ramped-up costs to bring the hottest shows to users.
Overall, Baidu reported a profit of 1.99 billion yuan, or 5.38 yuan (83 cents) per American depositary receipt, down from 2.45 billion yuan, or 6.76 yuan per ADR, a year earlier.
In recent weeks, Baidu has restructured many of its businesses, combining search, maps and mobile–the company’s most profitable core services–into one division. Mr. Li said he’ll be spending more time on the company’s newer businesses, including ventures into autonomous-driving cars and Internet finance, to make Baidu more efficient and robust.
While mobile revenue helped increase Baidu’s overall top line, its mobile-payment system still lags behind competitors like Alipay and WeChat Pay, which have hundreds of millions of users. The company said the number of activated Baidu Wallet accounts reached 65 million at the end of March, an increase of more than 150% year over year.
A small but growing part of the company’s business, analysts said, is advertising from smaller merchants via a recently launched platform Local Express, which has about 200,000 customers.
“Usually the first quarter, because of Chinese New Year, is a very weak quarter for Baidu in terms of number of advertisers,” said Henry Guo, an analyst at ITG Investment Research. “This time they showed strong growth, ” he said, and small and medium enterprises “are the driving force for this.”
For the current quarter, Baidu forecast revenue of 20.11 billion yuan to 20.58 billion yuan.
