Baidu delivers more bad news to investors

Robin Li, founder of Baidu Inc, meets the media at an IT summit in Shenzhen, Guangdong province. [Photo provided to China Daily]

Baidu Inc warned that curbs on online advertising will hurt revenue growth for the next two to three quarters, delivering the latest dose of bad news to investors in China's largest internet search service.

The company forecast lower-than-expected sales of 18.04 billion yuan ($2.7 billion) to 18.58 billion yuan this quarter, hit by government limits on the amount of ads it can show users.

The bottom of that range translates to a decline of 1.9 percent, which would be the first drop at the search giant founded by Robin Li since at least 2007.

"The implementation of new regulations and the stricter standards that we proactively imposed to make our platform more robust will likely suppress revenue for the next two to three quarters," Li said. "This period of uncertainty will pass."

The company, which has endured a number of setbacks to the business since the start of the year, is now looking beyond the next few quarters.

Li described how Netflix-like iQiyi will be an "important pillar" as the company ventures outside of search and into areas from media to artificial intelligence and the cloud.

But it would likely be another 12 months before revenue and profits could start returning to their normal pace of growth, said Kirk Boodry, an analyst at New Street Research.

"You can get past the regulatory hurdles but then people have to make a decision on whether the advertising revenue growth by that point is going to be spread among a lot more players," he said.

"It's hard to draw a direct line between artificial intelligence and revenue growth outside of search."

Baidu sounded its cautionary note after also posting a 34 percent plunge in second-quarter net income, it largest since at least 2007.

Customer growth will continue to slow as it adapts to the new government guidelines, Chief Financial Officer Jennifer Li told analysts on a conference call.

"Because we're having higher entry requirements for new customers I would expect that the overall customer accounts would not be exponentially growing as you would typically see in the past," she said.

Bloomberg