Baidu (BIDU) Shares off Sharply After Slashing 2Q Sales Outlook

Shares of Baidu Inc. were off -8.42 or -5.15 percent to $155.13 per share in Tuesday’s premarket after the company cut its second quarter revenue forecast. The company cited pressure from Chinese regulators over search engine advertising policies. Baidu stock closed at $163.55, down -0.74 or -0.44 percent in Monday’s regular trading session.

Stock Analysis

Beijing, China based Baidu Inc. was founded by Eric Xu and Robin Li in 2000 and is the Chinese search engine counterpart of Google.
In addition to Baidu’s search engine, the company offers 57 search and community services including an online encyclopedia similar to Wikipedia called Baidu Balke. Unlike Wikipedia however, Baidu Balke can only be edited by registered users due to Chinese law. Baidu also hosts a music service, Baidu Music, which has over 150 million active users per month. As of March of last year, Baidu was ranked 4th overall in Alexa’s Internet rankings.

In a press release yesterday, Baidu said it now expects 2016 second quarter revenue in the range of RMB 18.100 billion ($2.807 billion) to RMB 18.200 billion ($2.823 billion). The company had previously issued guidance of RMB 20.110 billion ($3.119 billion) to RMB 20.580 billion ($3.192 billion).

According to Baidu, the revision to its guidance was due to stricter guidelines for advertising regulations for medical organizations. The revisions to Baidu’s guidelines were requested by Chinese regulators after a college student died of cancer after treatment from a bogus therapy the student found through Baidu’s search engine. Due to the incident, Baidu can only provide online market services to medical organizations with strict qualifications.

The Chinese government’s regulatory authorities continue to review online marketing practices of healthcare, medical, pharmaceutical and similar businesses, which have affected Baidu in a reduction or delay in spending from a large portion of the company’s medical customers.  Compliance with the new regulations could happen over a prolonged period of time, according to Baidu. High end medical customers that have reduced or delayed spending are expected to comply with the new regulations over time. Baidu expects spending from these customers to recover gradually.

Baidu's founder, Chairman and Chief Executive Officer Robin Li stated in the company’s press release that, “Baidu provides a strong, unique value proposition to its users and customers by helping users find whatever it is they are looking for, and connecting online marketers with those users. This role comes with great social responsibility and user experience is our top priority. Although a significant portion of our revenue is sacrificed, the steps we have taken to further bolster a healthy, safe and trustworthy online and offline ecosystem will result in long term benefit and reward for Baidu.”

In addition to the medical guidelines, Chinese regulators want the company to limit the percentage of marketing information on each web page to no more than 30 percent, or four ads per web page. Due to the second quarter revision, many analysts estimate that third quarter guidance may be lower than analyst forecasts.

Other News About BIDU

Baidu Teams Up With Auto-Related Firms in Move Beyond Search

Baidu is entering a joint venture to provide auto insurance with a $50 million investment in Bitauto.

Baidu Wants to Bring Self-Driving Cars to the Masses by 2021

Company wants to launch self-driving cars in several countries at once.

Other Stocks in the News

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Alibaba says closely watched sales metric may not remain the standard

Founder Jack Ma says that gross merchandise volume or GMV wouldn’t necessarily remain the industry standard.

Published on Jun 14, 2016
By Jay Hawk
Jay Hawk
Jay Hawk enjoyed a 12-year professional financial markets career incorporating extensive first hand futures and options experience obtained by trading in the stock, commodity and forex markets on U.S. exchanges. Since retiring as a full-time financial market professional, he has been actively trading stock, commodities, forex and options for his own account and managing funds for others, as well as writing financial market commentary and educational articles.

Copyrighted 2016. Content published with author's permission.

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