Baidu, once considered China’s answer to Google, needs to search harder for growth.
The search-engine giant has lost $63 billion in market value in the past 15 months. The selloff seems overdone, but the company’s long-term prospects are still highly uncertain.
Late Monday, Baidu reported flat revenue growth and a 62% drop in net profit for the quarter through June. However, expectations had gotten so low that these dismal results beat consensus estimates, according to S&P Global Market Intelligence. Baidu’s Nasdaq-listed stock jumped 8% in after-hours trading.
The company used to get lumped together with Alibaba and Tencent under the BAT umbrella, but that acronym for Chinese tech’s holy trinity is getting outdated. In terms of market value, Baidu has slipped behind other listed Chinese internet companies like Meituan and
However, it is privately owned Bytedance, valued at $78 billion in a funding round last year, that poses the greatest competitive threat to Baidu. Bytedance owns two apps with viral content: news aggregator Toutiao and short-video app TikTok, known as Douyin in China.
These addictive apps—Chinese internet users on average spend 68 minutes on them every day—have soaked up ad dollars. Bytedance’s share of online advertising in China is expected to rise to 19% this year, according to Bernstein estimates, from 4% two years ago. Baidu has been a victim. Its advertising revenue last quarter was 9% lower than in the prior-year period. Bytedance has also launched a search portal recently.
Baidu, now worth $36 billion in market value, may find some support in the short term. The stock fetches just 1.5 times its book value. Excluding roughly $10 billion of net cash and short-term investments on its balance sheet and an additional $11 billion invested in other internet companies, the core Baidu business is valued at a mere $15 billion. The longer-term investments include a 57% stake in online-video subsidiary
and a 19% stake in travel giant Ctrip.com.
But a cheap valuation is no strategy. Baidu desperately needs new platforms for growth. So far, there is little sign it has the kind of popular apps necessary to turn its core business around.
Write to Jacky Wong at JACKY.WONG@wsj.com
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