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What's in Store for Baidu in 2017?

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Part 8
What's in Store for Baidu in 2017? PART 8 OF 8

When Will Baidu Return to Growth?

Tepid outlook for 1Q17

Baidu (BIDU) investors are hungry for growth following a disruptive platform cleanup that resulted in a top line fall in 2016. Will 2017 be the year for Baidu to return to growth? It’s likely, but it’s also unlikely to happen immediately.

Baidu’s 1Q17 guidance looks feeble compared to consensus expectations. The company is looking for 1Q17 revenue in the range of 16.5 billion Chinese yuan to 17.0 billion yuan (or $2.4 billion–$2.5 billion). Its revenue in the previous year’s quarter was more than 15.8 billion yuan. On average, analysts are looking for 1Q17 revenue of at least 17.0 billion yuan.

When Will Baidu Return to Growth?

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Could 2017 be better than 2016 for Baidu?

Baidu’s guidance signals that its management is cautious about a rapid return to growth in 2017. However, while Baidu may not return to meaningful growth in the quarter, growth is likely to pick up in 2Q17, with 2017 generally ending up being better than 2016. The chart above shows Baidu’s annual revenue trend.

ARPU soars despite advertiser losses

Though the Baidu platform cleanup resulted in the company’s number of advertisers falling 13.7% quarter-over-quarter in 4Q16, its ARPU (average revenue per user) actually improved 13% quarter-over-quarter, helping the company to mitigate its overall top line fall.

The cleanup of the Baidu platform is also likely to draw more quality advertisers. The cleanup should also help to strengthen user trust in Baidu’s services, thus increasing engagement, which is important for attracting ad spending.

Video service is promising

Though the focus is usually on Baidu’s core advertising operations, the company has been working to unlock revenue streams outside of the advertising space. 

Its streaming video service, iQiyi, for instance, is showing promising growth signs. Baidu has increased its investment in content for iQiyi as it steers the business into a paid service. However, that approach means facing giants such as Netflix (NFLX), Amazon (AMZN), and Alibaba (BABA) in China (FXI) (MCHI) and beyond.

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