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Nikkei Markets

Baidu predicts stronger revenue growth amid rising costs

Investments in artificial intelligence will only grow, CEO Li writes to employees

  © Reuters

HONG KONG (NikkeiMarkets) -- Baidu on Friday forecast stronger revenue growth for the January-March quarter as China's top search-engine operator continues to spend heavily on video-streaming content to attract more users online.

The Beijing-based company is relying on its streaming business to offset the pressure in online marketing as a slowing Chinese economy clouds spending on advertising. It had previously warned that an ongoing trade spat between the U.S. and China will affect spending in the real estate, financial services and e-commerce businesses.

Brokerage Jefferies last month warned that growth in overall online advertising market could taper down to 15% to 20% this year, from 30% last year.

"When you look at our search and feed, our priority is to grow our organic traffic," Herman Yu, chief financial officer of Baidu, told analysts in a conference call. "That would be a function of our investment in marketing and content cost, and also a function of the number of apps we decide to promote."

Baidu on Friday reported a better-than-expected fourth-quarter profit. But its earnings slumped 50% amid a sharp surge in content costs as the company sought to attract more users to its news-feed, short-video platform and streaming service iQiyi, the Chinese equivalent of Netflix.

Content costs surged 96% to 7.3 billion yuan ($1.09 billion. Surging costs pushed Baidu's operating profit 77% lower, although the spending helped the company's revenue from other businesses, including iQiyi, to more than double. IQiyi, which competes with Alibaba Group Holding's Youku, added 37 million users during the quarter.

Yu said Baidu may further accelerate its marketing spending this year, as the company makes more investments in existing apps, and potentially more.

In the first quarter, the costs are likely to increase as the company invested heavily in television promotions on Chinese New Year and Lantern Festival, Chief Executive Robin Li said.

"We could be increasing (costs) on a sequential basis up to 1 billion yuan," Li said.

Baidu expects revenue for the quarter ending March 31 to come in between 23.5 billion yuan and 24.7 billion yuan, a 12% to 18% increase from the year-ago period.

Net profit for the quarter ended Dec. 31 stood at 2.1 billion yuan, compared with 4.2 billion yuan a year ago. Revenue grew 22% to 27.2 billion yuan.

Baidu's revenue from online market business that includes news-feed and video app increased 10%, although the revenue per online customer fell 4%.

Last year, Baidu embarked on a strategy to exit some of its noncore businesses such as home delivery and taxi-hailing services and focus on new growth areas such as artificial intelligence or AI platforms to enhance the performance of its search engine and autonomous driving operations.

"In the new year, we will continue to firmly adhere to the strategy of shaping the mobile foundation and winning the AI era," Li said in an internal email to employees on Friday. "In the future, our investment in the field of artificial intelligence will only grow, and will not decrease."

Baidu shares rose 3.8% to $178.40 in U.S. after-hours trading on Thursday after the results were released. The stock had earlier climbed 0.4% to $171.81 in regular trading in New York.

-- Carrie Chen

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