TOKYO -- With millions of Chinese quarantined at home to combat the spread of the new coronavirus, Baidu and Weibo, China's top search engine and short messaging platform, have seen a surge in traffic to their websites, but are warning investors that their revenues are set to fall in the short term.
"Search queries for 'coronavirus' exceeded 1 billion during the Chinese New Year period," said Robin Li Yanhong, Baidu's founding chairman and CEO, during an earnings call on Feb. 28. Chinese people flocked to Baidu's search engine "to fact check and find the most reliable information," he said.
Data analysis by Nomura's Hong Kong-based internet and new media analysts Jialong Shi and Thomas Shen supports Li's findings. A research report on Feb. 13 by the pair confirmed the Baidu app was the leading search engine in China, with weekly time spent on it over the Lunar New Year period -- from Jan. 20 to Feb. 2 -- up by 20% on the same time last year.
The spike in traffic, according to Li, was helped by what he called the "authoritative" nature of the information on Baidu. In an emergency situation, where news feeds are churning out items, so-called fake news can abound, he said, without specifying how to define "fake" and "accurate" news. The flow of information on the internet is strictly censored and controlled in China.
"In order to avoid unreliable material, we are seeing people come to Baidu to get information they are sure is correct," Li claimed.
Microblogging and social media platform Weibo has seen similar effects.
"Our user scale, platform traffic and time spend all grew significantly owing to our continued efforts on product and content optimization of hot events," said CEO Wang Gaofei, during a conference call on Feb. 26. "The robust traffic growth during the epidemic is primarily attributable to the natural advantage we hold as China's leading social media platform."
Like Li, Weibo's Wang is proud to be helping the government in the spread of information. "Weibo has enabled the wider dissemination of official information from the media and government, allowed the public to hear a broad discussion of professional opinion, and more importantly, has helped the general public to get a quicker response from government agencies," he said.
Weibo's strong role as an information source was also backed up by the Nomura report. The site's daily active users soared by 27% during the Lunar New Year period, the report found, while those of rival WeChat remained flat and QQ dropped 3%, both of which are owned by Tencent Holdings. In terms of increase in total time spent on the site, Weibo saw a 31% jump, outpacing 15% for WeChat and 10% for QQ. "Weibo provided a rare means for [people at the] grassroots to share their experiences and thoughts during the outbreak of the epidemic," said Nomura's Shi and Shen.
However, the heightened momentum will not translate into top line boosts for either company. Revenue guidance for the first quarter from Baidu is between 21 billion yuan to 22.9 billion yuan ($3 billion to $3.3 billion), a drop of between 5% to 13% year-on-year, while Weibo anticipates a decrease of 15% to 20% year-on-year on a constant currency basis.
Baidu's downbeat outlook took analysts by surprise. In a quick take report on Feb. 28, Thomas Chong from Jefferies said Baidu's mid-point first quarter revenue guidance of 21.95 billion yuan was 6.3% behind consensus and 3.5% behind his estimate. For Hans Chung and Zoe Deng from KeyBanc Capital Markets, the actual mid-point guidance came out below its "recently lowered estimate" of 22.5 billion yuan.
The same goes for Weibo. Shi and Shen from Nomura kept their "neutral" ratings on Feb. 27, saying Weibo's "big exposure to those advertising verticals that were badly hit by COVID-19 restricted its ability to convert such windfall gains in time spent into financial gains as shown by the weak guidance." They added that Weibo was "unlikely to maintain such high engagement levels after the epidemic, given its event-driven usage pattern."
Moody's Investors Service confirmed Weibo's credit rating at "Baa1" with a stable outlook on Friday, but Lina Choi, its lead analyst for the Chinese company, expects "Weibo's revenue growth will be dampened by China's slowing economic growth, adding uncertainty to cash flow and raising leverage."
Choi earlier in February said Chinese internet and online companies like Baidu and Alibaba Group Holding were "leveraging their strong technology platforms, robust supply chain capabilities and large user bases to help the government combat the outbreak, which we expect will further strengthen their leading market positions, primarily through higher user stickiness." She specifically mentioned the strength of Baidu in how it has integrated the outbreak into its map app, by leveraging its big data and artificial intelligence capabilities to visualize the outbound destinations of people traveling from Wuhan.
Daniel Zhang, chairman and CEO of e-commerce group Alibaba, said in his company's earnings conference call on Feb. 13 that the coronavirus contagion could be a potential gamechanger, comparing it with the effects of the SARS outbreak in 2003. "Seventeen years ago, the e-commerce business experienced tremendous growth after SARS. We believe that adversity will be followed by change in behavior among consumers and enterprises and bring ensuing opportunities," he said.