Please ensure Javascript is enabled for purposes of website accessibility

Baidu Gets Bludgeoned by China’s Censors Again

By Leo Sun - Apr 11, 2020 at 11:12AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

China’s top search engine temporarily suspends some of its news feeds.

Baidu (BIDU 1.86%), the owner of China's top search engine, recently suspended some newsfeed channels within its mobile app to "comply with government directives." It warned that the suspension could reduce its ad revenue from those channels, but didn't specify the exact channels or the actual revenue impact.

Baidu said it would "conduct maintenance" on the newsfeed channels starting on April 8, and it would enhance its monitoring practices to strengthen the "quality and integrity" of its content. It didn't say if or when those channels would return but emphasized the rest of the Baidu app would continue operating normally.

This isn't the first time Baidu was slammed by Chinese regulators. Let's take a look back at Baidu's clashes with Chinese censors, and how this latest setback could curb its near-term growth.

A woman looks out from behind layers of tape labeled "censored".

Image source: Getty Images.

A search engine for a totalitarian government

Baidu conquered China's search market after Alphabet's Google left the country in 2010. It controls 73% of the market today, according to StatCounter. Baidu proactively censors "objectionable" content -- including articles about Tiananmen Square or Taiwan -- but still attracts attention from regulators on a regular basis.

In 2016, the government forced Baidu to remove healthcare-related ads following the death of a student who bought an experimental cancer treatment advertised on the platform. In 2017, China's Cyberspace Administration imposed "maximum" fines on Baidu, Tencent (TCEHY -0.24%), and SINA for allegedly spreading fake news and failing to block offensive content on their Tieba, WeChat, and Weibo social platforms, respectively. 

In early 2019, the Cyberspace Administration temporarily suspended some of Baidu and Sohu.com's news services as part of a six-month campaign to scrub the internet of "negative and harmful" content. Therefore, China's latest crackdown on Baidu seems like a continuation of those draconian measures, which were all aimed at tightening the government's grip on nearly 900 million internet users.

How could these crackdowns hurt Baidu?

Baidu's revenue growth decelerated over the past year as its core advertising business grappled with China's economic slowdown, competition from rivals like Tencent and ByteDance, and the COVID-19 outbreak in late 2019 and early 2020.

A Chinese flag superimposed on a circuit board.

Image source: Getty Images.

Baidu's ad revenue has declined annually over the past three quarters, and it expects another drop in the current quarter. Baidu is trying to revive that business by expanding its mobile app into an ecosystem of Mini Programs, which let users access games, e-commerce services, deliveries, and more without ever leaving the app.

That expansion is widely considered a response against Tencent's messaging platform WeChat, which hosts 1.2 billion monthly active users (MAUs) and over 2 million Mini Programs. Last quarter, daily active users (DAUs) on Baidu's mobile app grew 21% annually to 195 million, while users of its Mini Programs surged 114% to 316 million.

Baidu still reaches a smaller mobile audience than WeChat, but it's gradually gaining ground. That growth complements the expansion of its DuerOS virtual assistant across smart speakers and other devices, its Apollo driverless platform, and AI services -- all of which could reduce its long-term dependence on its core search engine.

However, the government-mandated suspension of "certain" newsfeed channels within the app could throttle its growth in users and ad revenue. That slowdown might cause Baidu to lose ground to popular news apps like ByteDance's Toutiao or Tencent News, which is tethered to WeChat.

But let's not jump to conclusions ... yet

The suspension marks another setback for Baidu, which was also recently hit by allegations of inflated growth figures at its video unit iQiyi (IQ 4.05%). It also highlights how easily China's cyberspace regulators can force companies to remove objectionable content, and how intense the competition is between tech giants like Baidu, Tencent, and ByteDance.

However, investors shouldn't assume that the Cyberspace Administration will fine or discipline Baidu. Online dating giant Momo (MOMO 4.95%) notably faced a similar ordeal last year, but its services were fully restored after it cleaned up its platforms. Therefore, the suspension could just be a speed bump instead of road spikes for Baidu -- but investors should still monitor the situation for other red flags.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Baidu, Inc. Stock Quote
Baidu, Inc.
BIDU
$151.49 (1.86%) $2.76
Tencent Holdings Limited Stock Quote
Tencent Holdings Limited
TCEHY
$45.28 (-0.24%) $0.11
MOMO Stock Quote
MOMO
MOMO
$5.30 (4.95%) $0.25
iQIYI, Inc. Stock Quote
iQIYI, Inc.
IQ
$4.37 (4.05%) $0.17

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
311%
 
S&P 500 Returns
110%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 07/02/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.