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Shares Of Chinese Search Giant Baidu Tumble on Lowered Forecast

June 13, 2016, 10:39 PM UTC
Security guards chat near a Baidu logo at the Baidu headquarters in Beijing on December 17, 2014. Baidu, China's leading search engine, and ride sharing company Uber announced a strategic investment and cooperation agreement on December 17. AFP PHOTO / Greg BAKER (Photo credit should read GREG BAKER/AFP/Getty Images)
Photograph by Greg Baker — AFP/Getty Images

(Reuters) – Chinese online search giant Baidu cut its revenue forecast for the current quarter, saying regulatory scrutiny into healthcare and related ads was hurting its advertising revenue.

The company’s shares plunged 6% in extended trading on Monday.

Chinese regulators imposed limits last month on the number of medical ads carried by Baidu after the death of a 21-year-old student who underwent an experimental cancer treatment, which he found using the company’s search engine.

Baidu cut its revenue forecast for the second quarter to $2.81 billion-$2.82 billion from $3.12 billion-$3.19 billion, citing “a reduction or delay in spend from a significant portion of medical customers.”

Baidu said its move to reduce the number of sponsored links on its platform to improve user experience also weighed on its forecast.

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“Regulatory authorities continue to review the online marketing practices of medical, pharmaceutical, healthcare and other similar businesses, and have also implemented stricter advertising regulations for medical organizations,” Baidu said.

The company, however, added that it expected to recover business from “high quality” medical customers gradually as they adjust their practices to comply with the new regulations.

Analysts estimate that healthcare accounts for about 20-30% of Baidu’s search revenue, which represents more than 80% of the company’s total sales.

Baidu’s shares (BIDU) were trading at $153.60 after the bell.

Up to Monday’s close, the stock had fallen about 16% since April 29, the last trading day before China’s internet regulator announced the probe.