Baidu Is Partying Like It's 2015

China's online search leader exceeds the high end of its top-line guidance for the first quarter, and its guidance implies that accelerating growth may be possible in the current period.

Rick Munarriz
Rick Munarriz
Apr 27, 2018 at 8:10AM
Technology and Telecom

Getting back to basics is a good look for Baidu's (NASDAQ:BIDU) financial statements. China's leading search engine came through with its best top-line growth since 2015 for this year's first quarter. Revenue topped the high end of its earlier guidance -- as it did last time out -- with earnings growing even faster.

Revenue rose 31%, to $3.33 billion for the quarter, ahead of the $3.05 billion to $3.22 billion that it was targeting back in February. If you back out the mobile gaming and Baidu Deliveries units that it cut loose last year, Baidu's top line would be growing even faster. 

The results get better as we work our way down the income statement. Operating income soared 128%, to $728 million, as operating margin expanded to 22% from a 13% showing a year earlier. Adjusted earnings rose to $2.60 a share, well above the profit of $1.00 a share the company scored during last year's first quarter. 

Baidu building in its U.S. offices.

Image source: Baidu.

Searching for growth

Thursday afternoon's report clocked in with Baidu's highest growth since the fourth quarter of 2015 and it isn't a surprise. Baidu's financial performance since 2016 initially was held back by regulators requiring Chinese search engines to scale back on high-paying medical ads following the death of a cancer patient seeking help through a bogus treatment center he found on Baidu. This resulted in a year of rough year-over-year comparisons. Bottom-line growth was kept in check by costly streaming-video offerings, meal-delivery services, and mobile gaming, but now it's selling or spinning off those margin squeezers. 

Baidu is back to basics and for now, it's working. Online marketing revenue -- Baidu's bread-and-butter business accounting for 82% of its revenue -- rose 23% over the past year. Baidu's Rolodex of active online marketing customers only has grown 5%, to 475,000, over the past year, but that naturally means that the average marketer is spending more on the platform (19% more, if you're curious). 

Guidance for the current quarter calls for the heady growth to continue. Baidu is targeting $3.97 billion to $4.17 billion in revenue for the second quarter, up 26% to 33% since the prior year. It would be an uptick of 28% to 34% if we back out the disposed businesses.

If Baidu lands at the high end of that range, it once again would be its strongest period of revenue growth since 2015. Baidu doesn't provide earnings guidance, but the gains on the bottom line should continue to outperform the top-line performance as the paid search cash cow continues to drive profit growth.