This Thursday on May 16, Baidu Inc. released its unaudited first quarter financial results for the quarter ended March 31, 2019. According to Bloomberg data, Baidu reported a loss for the first time since its IPO in 2005.
The net loss for the first quarter was 327 million yuan ($47.5 million), compared with the 187.5 million yuan loss expected by analysts. Baidu also forecasted second quarter sales below analysts’ consensus and also announced the resignation of its senior vice president Hailong Xiang, who was in charge of the search business. Although the company announced a $1 billion stock repurchase plan, the stock price has seen a steep drop of 9.7% in after-hours trading.
Baidu’s loss was primarily fueled by escalating costs in content and marketing. Partnered with state broadcaster CCTV to promote its digital wallet during the Lunar New Year, Baidu may have spent as much as 1.9 billion yuan on the “red envelop” giveaway, according to Vey -Sern Ling, an analyst with Bloomberg Intelligence. At the same time, revenue growth slowed.
Baidu’s CFO affirmed that the marketing projects to promote Baidu APP and other mobile products during the Lunar New Year negatively impacted Baidu’s profitability in the short term.
In addition to the revenue loss, senior vice president Xiang Hailong’s resignation played an important role in the stock plunge.
Xiang Hailong joined Baidu after his company was acquired by Baidu in 2005. Having led Baidu’s search system for 14 years, he managed about 90% of Baidu’s revenue.
In the era of Xiang, the majority of Baidu’s revenues were driven by advertising on its online search platform. Online marketing accounted for 73% of its total revenues in the first quarter.
However, in the newly released internal letter from Robin Li to Baidu’s staff, the search company has transitioned its strategy by creating the Mobile Internet Group (MIG). Following Xiang’s departure, Shen Dou has been promoted to senior vice president and is fully responsible for the MIG business.
These results show that although Baidu has invested billions of dollars in frontier technologies such as artificial intelligence and autonomous driving, the more pressing task is to attract younger users to its mobile app in order to maintain its advertising revenue growth. However, in this regard, ByteDance, the world’s most valuable startup, has outperformed Baidu in the areas such as news streaming and short video while generating massive advertising revenues.