Baidu Profit Weighed Down by Offline Mobile Services Push

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 (roughly Rs. 20,491 crores) 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 CNY 18.17 billion (roughly Rs. 18,762 crores) to CNY 18.58 billion.

But the forecast fell short of analysts' average estimate of CNY 18.79 billion, according to Thomson Reuters I/B/E/S.

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 CNY 16.57 billion. The mobile business contributed half of the revenue, same as in the first quarter.

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

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

© Thomson Reuters 2015