Baidu, China’s answer to Google, has its own search under way for new business lines. It is struggling to increase revenues via advertising and video streaming against tough local competition. Baidu should abandon its hopes of catching up with rivals and find new peers instead.
Baidu has failed to track the shift in Chinese users from desktops to mobile — giving rivals such as Tencent the lead. Now, smaller peers have started chipping away at Baidu’s ad sales, its main source of revenue. Viewers on video platforms such as ByteDance are growing. Baidu has fought back by splashing out on a video-streaming business and launching several short video apps in a bid to salvage top-line losses.
Yet ploughing cash into these areas has brought little return, setting a low bar for Wednesday’s fourth-quarter results. A mere 5 per cent sales increase topped expectations. Although demand for streaming video is high, Baidu’s Netflix-like affiliate, the lossmaking iQIYI, lost subscribers quarter on quarter. Full year, both its streaming video and its core search online advertising revenues fell.
Yet business units given less attention by rivals, such as artificial intelligence and cloud services, are making a positive difference. Non-marketing revenues grew more than 50 per cent in the fourth quarter. These business lines have potential usefulness in fashionable areas such as automated cars.
Last month, Baidu set up a smart electric car company with local automaker Geely. Research and development in self-driving cars in the US could pay off faster than continued spending on highly-contested markets in China. Baidu’s share price is up 130 per cent in the past year. It trades on 29 times forward earnings — twice the levels from a year earlier. This partly reflects investor hopes for non-core business lines.
Baidu should take notice and continue its search for new themes. Slowing wasteful, defensive investing would help lift ebitda margins of 28 per cent — 9 points below Tencent’s. That could add more pizzazz to the share price as the expected second listing in Hong Kong draws near.
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