Still Strong, China’s Baidu Sees Revenue Growth Fading

Sales rose 33 percent to 18.7 billion yuan ($2.89 billion) in the December quarter from a year earlier, the Beijing-based company said Thursday in a statement.

Online-marketing sales rose 27% as the number of active online-marketing customers improved 6.1% to roughly 555,000 and revenue per customer increased 17%.

As the largest search engine in China, Baidu reportedly has a market share of more than 79 percent and total users of up to 600 million. It reported more than a seven-fold rise in fourth quarter net income to 24.7 billion yuan, though much of that came from gains recognised as a result of Baidu’s exchange of Qunar shares with Ctrip.

E-commerce, location-based services, online finance, medical services and educational training, which are all part of the service sector, were the biggest contributors to Baidu’s revenue a year ago, according to Robin Li.

Tourism Minister Arief Yahya said around 1.1 million Chinese tourists visited the country past year, a markedly low number given that research company GfK’s latest report said that China accounted for 109 million outbound tourists in 2015, with retail spend of US$229 billion. “Consolidating its travel units helps with profitability”. In addition, including the gains recognized from the Qunar deal, EPS for the quarter jumped up to $11.10 (71.90 yuan).

Looking forward to the first quarter, Baidu expects revenue of 15.41 billion yuan to 15.97 billion yuan.

Alphabet Inc’s (NASDAQ:GOOGL) search engine, Google, is trying its best to make its position stable in the Chinese market, considered a gold pot for internet companies.

“Even as China’s overall growth slows, services and domestic consumption are growing”. However, if the deal is proposed and the video streaming site undergoes initial public offering (IPO), Baidu’s operating margins will likely surge up to 26%. Fitch is unlikely to consider upgrading Baidu before it develops new business lines that significantly diversify the source of cash generation from current operations, assuming such a move does not affect the company’s financial profile. Furthermore, the Chinese search giant is working on Artificial Intelligence (AI) called “deep learning”, which will make search results more efficient through personal computers that operate like a human brain.

“In 2016, we also expect a step-up investment in content cost, but at a slightly more moderate pace than 2015”, Chief Financial Officer Jennifer Li said.