Baidu profit weighed down by O2O push

Baidu's company logo is seen at its headquarters in Beijing December 17, 2014. [Photo/Agencies]

Baidu Inc's quarterly profit missed analysts' estimates as China's biggest Internet search company spent heavily to diversify away from its core search advertising business, which is becoming less profitable and more competitive.

Baidu's shares fell more than 8 percent in extended trading on Monday after the company's current-quarter revenue forecast also fell short of analysts' expectations.

The Chinese company has been investing heavily to diversify away from its bread-and-butter search advertising business, which is less profitable on smartphones than on PCs, especially as there are more mobile internet users than PC users in the country.

Baidu said last month it would invest $3.2 billion in "online to offline" services where mobile internet users are linked to nearby offline services such as buying cinema tickets, booking taxis, getting restaurant deals as well as its maps and Baidu Wallet services.

The management does not feel comfortable to give an upbeat guidance because of the lower visibility with these new initiatives, Summit Research analyst Henry Guo said.

Baidu forecast current-quarter revenue would rise 34.4-37.4 percent to a range of 18.17 billion yuan ($2.93 billion) to 18.58 billion yuan.

But the forecast fell short of analysts' average estimate of 18.79 billion yuan, according to Thomson Reuters.

Baidu's efforts to develop and market these new initiatives also meant costs surged in the second quarter ended June 30.

Selling, general and administrative expenses jumped 81 percent, mainly due to promote O2O, while R&D costs rose 56.2 percent, primarily due to hiring more personnel.

The company's net revenue rose 38.3 percent to 16.58 billion yuan, narrowly beating estimates of 16.57 billion yuan. The mobile business contributed half of the revenue, same as in the first quarter.

Net income attributable to Baidu rose 3.2 percent to 3.66 billion yuan. On a per shares basis, Baidu earned 10.19 yuan per American depositary share, well short of analysts' expectations of 10.58 yuan.

Baidu's shares were down 8.17 percent at $181.50 in trading after the bell.