Baidu Profits Again Fall Sharply

Baidu Inc. on Thursday gave downbeat revenue projections for the current period following a second consecutive sharp drop in quarterly profit.

The Chinese internet giant—which has had a near monopoly on China's internet-search traffic since Google Inc. pulled out of the country in 2010 over censorship concerns—has struggled to catch up with competitors at the same time that it is facing increased regulatory pressure.

Chinese authorities have ordered the company to revamp its advertising practices following the death of a college student who had cancer and had taken a therapy he found through a sponsored Baidu link.

Users have long criticized Baidu's search results, saying sponsored ads weren't clearly labeled and misleading medical advertising often ranked higher.

While advertising accounts for the bulk of its revenue, Baidu has been trying to expand beyond search, a bold—and costly—move that is weighing on results.

In the most recent period, expenses rose 17% to 15.4 billion yuan while gross profit margin narrowed to 52.2% from 60.8% a year earlier.

Its video unit, which Baidu had tried to sell to an investing group led by its chief executive reduced operating margins, on an adjusted basis, by 5.5 percentage points in the most recent quarter, Baidu said. Transaction services—which include its group-buying platform, takeout delivery service and mobile-payment system—cut adjusted operating margins by 25.4 percentage points.

Still, the investment drove a closely watched measure of total transaction value, with transaction services' gross merchandise value surging to 18 billion yuan ($2.7 billion), up from $2.5 billion in the previous quarter.

Meanwhile, the number of activated Baidu Wallet accounts reached 80 million in the second quarter, up 23% from the previous quarter and more than double from the year-ago period.

Over all, Baidu reported a profit of 2.40 billion yuan, or 6.57 yuan (99 cents) an American depositary receipt, down from 3.25 billion yuan, or 10.19 yuan an ADR, a year earlier. Excluding stock-based compensation and other items, profit fell to 8.08 yuan ($1.22) from 11.39 yuan a year earlier.

Revenue rose 10% to 18.26 billion yuan ($2.75 billion), with revenue from mobile services accounting for 62% of total revenue, compared with 60% in the previous quarter and 50% in the year-ago period.

The company cut its revenue projection last month, citing lower medical advertising as Chinese regulators heighten scrutiny of the fast-growing medical sector.

For the current quarter, Baidu projects 18.04 billion yuan ($2.71 billion) to 18.58 yuan ($2.8 billion), compared with analysts' estimate of 19.93 billion yuan, according to Thomson Reuters.

ADRs, down 12% this year, fell 1% to $163.80 in after-hours trading.

Write to Maria Armental at [e-mail]

(END) Dow Jones Newswires

July 28, 2016 21:25 ET (01:25 GMT)

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