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What Makes Baidu Optimistic?

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Baidu sold non-strategic delivery business

Baidu (BIDU) expects strong second-quarter results after exiting the food delivery business and spinning off its online entertainment unit iQIYI (IQ). Baidu initially sold its online food delivery business to Ele.me, and subsequently took a stake in Ele.me. Baidu later sold its stake in Ele.me to Alibaba (BABA), which is buying out other Ele.me investors to get full ownership of the delivery business. Baidu spun off iQIYI through an IPO in the US. The IPO raised $2.3 billion. iQIYI was responsible for driving Baidu’s content costs up 59% YoY (year-over-year) to $669 million in the first quarter.

Baidu wants to focus on AI-based businesses

Exiting the delivery business and spinning off iQIYI are expected to reduce Baidu’s financial burden, and more importantly, make way for the company to focus on artificial-intelligence-based businesses such as autonomous driving and cloud computing. Baidu is also banking on AI (artificial intelligence) to improve its online services, which now include news aggregation.

The company makes most of its money from providing online advertising services. It exited the first quarter with 475,000 advertising customers.

Baidu eyeing at least $3.9 billion in revenue

Baidu guided second-quarter revenue between $3.9 billion and $4.1 billion, above the estimate of $3.8 billion. Baidu’s revenue rose 31% YoY to $3.3 billion in the first quarter, coming in above the consensus estimate of $3.2 billion. Facebook (FB) and Google parent Alphabet (GOOGL) also smashed consensus estimates in the first quarter. Snap (SNAP), the American social media and camera company backed by Baidu’s domestic rival Tencent (TCEHY), missed revenue estimates in the first quarter.

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