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Baidu Is Blaming Its Disappointing Revenue Outlook on the Communist Party Congress

October 27, 2017, 8:35 AM UTC
Chinese motorists pass  by the Chinese W
Chinese motorists pass by the Chinese Web search giant Baidu's headoffice in Beijing on February 10, 2010. The Nasdaq-listed Baidu said net profit rose 48.2 percent in the fourth quarter to 62.7 million USD while revenue increased 39.8 percent to 184.7 million USD, and it expected to benefit from growing customer confidence after Google's threat to pull out of China. AFP PHOTO/SIMON LIM (Photo credit should read SIMON LIM/AFP/Getty Images)
SIMON LIM/AFP/Getty Images

Chinese search engine giant Baidu Inc offered a disappointing revenue outlook for the rest of the year, blaming lost advertising sales during this month’s Communist Party Congress and sending its shares sliding.

Baidu, which is seeking to get back on a firmer footing after a series of setbacks, said it had reined in marketing to show respect as Beijing held the sensitive gathering where it reaffirmed the position of President Xi Jinping.

It predicted fourth-quarter revenue growth of 22% to 29% from a year earlier, below an average analyst forecast of 36%. For the third-quarter, revenue jumped 29% to 23.49 billion yuan ($3.5 billion), in line with expectations.

Baidu‘s U.S.-listed shares plummeted more than 10% in extended trading, highlighting concerns over the firm’s prospects as it looks to reshape its business around artificial intelligence and autonomous driving.

“The (Congress) might be a contributing factor, but it’s not the whole picture,” said Mark Natkin, Beijing-based managing director at Marbridge Consulting, adding Baidu‘s core search business was facing a saturated market.

“They need a new trick and they’ve chosen AI, which is a long game. Until that bears fruit they need to find a way to keep investors and employees on board.”

Baidu Chief Financial Officer Herman Yu told an analysts’ call that the recent sale of the firm’s loss-making food delivery unit would also mean a loss of revenue and said sales from AI would take time to come through.

Read More: How Baidu Plans to Win the Artificial Intelligence Market

In latest quarter, Baidu posted a 69% jump in operating income to 4.7 billion yuan ($707 million). Net income more than doubled to 7.9 billion yuan, helped by the food delivery unit sale.

Baidu is trying to recover after its content and advertising businesses were hit by a recent drive to regulate and censor online media, a strategic priority under president Xi.

Read More: China’s Baidu Has Pledged $1.5 Billion to Speed Up Autonomous Driving

That comes on top of a major setback last year when the death of a student with cancer was tied to healthcare advertising he had found on Baidu‘s platforms. The case spurred public anger and led to strict new regulations.

Progress has, however, been slow. Baidu said its ad business had 486,000 active online marketing customers in the third-quarter, a 3% gain from the previous quarter but still down 7% from a year earlier.

Baidu Chief Executive Robin Li added that the company has created China’s “largest database to combat fake news”, cooperating with 600 organisations to identify problem content.

The search firm was hit with steep penalties in September for failing to remove fake news, including content deemed offensive to the Communist Party.