Baidu posts 7% revenue decline due to coronavirus

Strong video, cloud, and smart device growth for the company, but advertisers have been unwilling to spend.
Written by Andrew Silver, Contributor

Baidu struggled to monetise COVID-19 traffic surges during the first quarter of 2020, posting revenues of 22.5 billion yuan, approximately $3.18 billion, down 7% compared to the same quarter a year ago. But it has an optimistic outlook for the rest of the year as it believes the pandemic shows signs of being under control in China and said usage statistics have been promising.

China's economy shrunk 6.8% in the first quarter due to COVID-19, the first drop since quarterly GDP reporting began 28 years ago. Baidu CEO Robin Li said during an earnings conference call on Tuesday that this was due to malls and movie theatres being shut down and most outdoor activities coming to a halt in China under shelter-in-place orders during the first quarter.

Baidu executives reported strong growth in video streaming, cloud, and smart devices. In March 2020, IQYI subscribers increased 23% to 119 million, while Baidu App daily-active users increased by 28% to 222 million. In-app search queries, meanwhile, were up 45% and feed time up 51%. Daily voice queries of the Baidu IME mobile keyboard also increased by 185% to 1 billion and DuerOS monthly voice queries were up to 6.5 billion, an almost three-fold increase.

Despite this surge, Baidu took hits from advertising and marketing losses. Revenues for streaming service IQIYI reached 7.6 billion yuan, up 9% year on year, with membership revenue growing 35%, but advertising revenue declined 27%. Revenues for Baidu Core declined 13% to 15.3 billion yuan.

Based on activity in the past few weeks, Baidu believes things will turn around as travel restrictions are gradually lifted, with people expected to travel, businesses and hospitals expected to slowly open back up, and advertisers to come back.

"The Chinese economy is rebounding," Li said.

Baidu's preliminary estimates for second-quarter revenue is between 25 billion yuan and 27.3 billion yuan, which would be a decline of somewhere between 5% up to growth of 4%.

One challenge Baidu currently faces is competition from short-video streaming sites such as TikTok, whose parent company ByteDance last year launched its own search engine.

Although Baidu didn't specifically call out TikTok during the conference call, it admitted short-video site competitors were posing as a challenge.

Instead of focusing on short videos, Baidu said its approach would be to focus on topics -- such as health care information -- with interspersed video ads which it said are more profitable because users will stick around for longer. Baidu doesn't believe users will spend an hour watching 15-second videos, execs said.

Baidu added that it would continue to offer new features in its app and monetise as much as it can, it said.

Adjusted earnings before interest, tax, depreciation, and amortisation (EBITDA) was 2.85 billion yuan, increasing 61% and adjusted EBITDA margin was 13%.

Research and development expenses amounted to 4.4 billion yuan, up 7%, and Baidu's net income was 3.08 billion yuan -- around $435 million.

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