Baidu Reports Solid Results and Drops a Surprise That Really Isn't

Chinese search provider Baidu, Inc. (BIDU 3.95%) just put to rest any lingering doubts investors may have had about the company's return to growth.

For the just completed 2017 fourth quarter, Baidu reported revenue of $3.62 billion, up 29% year over year, while topping consensus estimates for $3.56 billion. It also exceeded the high end of Baidu's own forecast of $3.52 billion. Baidu's adjusted earnings per share of $2.29 soared past analysts' expectations of $2.05. 

Baidu returns solidly to growth. Image source: Baidu.

Data source: SEC filings. Differences result from exchange rates. 

Mobile revenue represented 76% of the total, compared with 65% in the prior-year quarter.

Online advertising produced the largest share of Baidu's revenue, increasing to $3.14 billion, up 26% year over year.

Baidu's active online marketing customers numbered 460,000 for the quarter, a 2% increase over the prior-year quarter. The company had warned last quarter that advertising would be curtailed in light of China's 19th Party Congress out of "respect" for the proceedings. Customer spending continued its upward trend, with revenue per online marketing customer increasing 25% year over year to $6,800.

Sales from Baidu's other services segment continued to march higher, up 53% year over year to $482 million. This includes revenue from streaming video, cloud computing, and financial services.

Robin Li, Baidu's co-founder and CEO, stated: "We ... built strong momentum by adopting AI-first in our mobile businesses and investing in new AI businesses. As we enter 2018, we will continue to strengthen Baidu's search business, fuel feed's growth, and differentiate iQiyi with AI."

Future first

Baidu continues to invest in forward-looking technologies, including artificial intelligence and self-driving cars. Research and development spending of $569 million increased 25% year over year, as the company added staff in pursuit of these future revenue drivers.

Baidu revealed a host of collaborations for its Apollo 2.0 self-driving-car platform, which has garnered more than 90 partners to date. The company also announced that China's Ministry of Science and Technology designated Apollo as the national autonomous-driving open platform. Baidu said it plans a $1.5 billion Apollo Fund to invest in autonomous-driving start-ups and expand the segments ecosystem.

Baidu's Apollo self-driving-car platform now boasts 90 partners. Image source: Baidu.

In a move that came as a surprise to no one, Baidu announced that its streaming video subsidiary, iQiyi had filed a draft registration statement with the U.S. Securities and Exchange Commission for a proposed initial public offering. Baidu plans to remain the controlling shareholder following the listing. By spinning off the segment, Baidu will raise capital to subsidize its spiraling content costs for the streaming unit. In the fourth quarter, Baidu spent $576 million on content, up 46% from the year-ago period. Programming costs now devour 16% of Baidu's total revenue.

A look ahead

For the upcoming first quarter, Baidu forecast revenue of $3.135 billion at the midpoint of its guidance, representing a 32.5% year-over-year increase, excluding disposed businesses.

Baidu also said that effective Jan. 1, it adopted a new revenue accounting standard, which nets value added taxes against revenue, rather than being booked as a cost of revenue. If that standard had been in place in 2017, revenue would have been 5.6%. This new standard has already been reflected in its forecast.

With three consecutive quarters of consistently improving results, it looks like Baidu is well on the road to recovery.