Baidu beats the street as it caps expenditure
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Baidu beats the street as it caps expenditure

Chinese internet giant Baidu beat consensus estimates last week when it released earnings that showed a robust business keeping its costs in check. The company saw its search advertising business squeezed by government restrictions in 2016, but its second quarter results demonstrate that this sector has finally stabilized in 2017. Taken in tandem with its shrinking general and traffic acquisition costs, this helped to push net income up by an incredible 83%. It also eased investors’ concerns by announcing that it was considering a change in operational structure to let its growing finance unit operate more independently.

Baidu’s share price has risen by 18% in the last month alone

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SOURCE: Yahoo Finance

Baidu managed to beat the Street on revenue, reporting a 14% year-over-year rise to 20.9 billion yuan. Analysts had expected a figure of 20.7 billion yuan. However, the most striking metric was undoubtedly net income, which rose to 4.4 billion yuan, significantly higher than the 2.9 billion yuan that observers estimated. The disparity between these two figures reflects the extent to which Baidu has managed to keep its costs down in the second quarter, most notably by reducing its marketing spend.

Baidu has seen strong performance across the board. Its tailored newsfeed product, which uses an algorithm to pick and choose what news you see based on your browsing habits, was particularly a source of more traffic. Advertising around this service could reach 5.8 billion yuan – or 7% of total sales – in fiscal 2017, according to Jefferies Group analyst Karen Chan. The company is also investing hard in its open-source Apollo driverless cars program and other artificial intelligence research.

Disclosure

Dominion holds Baidu in its Global Trends Ecommerce Fund.


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