What happened
Shares of Baidu (BIDU 0.98%) charged sharply higher on Tuesday, surging as much as 11.7%. As of 3:24 p.m. ET, the stock was still up 8.5%.
The catalyst that sent the Chinese tech giant higher was mixed quarterly earnings results that were still better than expected.
So what
For the fourth quarter, Baidu generated revenue of 33.1 billion yuan (roughly $5.2 billion), up 9% year over year. The company reported net income of 1.7 billion yuan ($269 million), a decline of 67% compared to the prior-year period. This resulted in earnings per share (EPS) of 11.60 yuan ($1.82).
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To put those numbers in context, analysts' consensus estimates were calling for revenue of 32.3 billion yuan ($5.12 billion) and EPS of 9.39 yuan ($1.47).
Baidu reported a slowdown in its core online advertising business, which grew just 1% year over year, the result of a decline in consumer spending, which in turn resulted in lower ad rates.
What surprised investors was the robust contribution from the company's non-core businesses -- including Baidu Cloud, artificial intelligence, and self-driving cars -- as revenue from these businesses surged 63% year over year, helping fill the shortfall from its advertising business.
Additionally, the results from iQiyi (IQ 5.24%), the company's streaming video platform, were much better than expected. Revenue of 7.4 billion yuan ($1.16 billion) was down about 1% year over year. The good news was that iQiyi's cost-cutting initiatives reduced losses by 25% compared to the prior-year period.
Now what
Many technology companies -- including Baidu -- have faced regulatory crackdowns by the Chinese government, and these have weighed on results. At this point, analysts posit that the worst may be over, removing a significant overhang that had investors watching from the distance.
The improving performance of Baidu's adjacent businesses is great news for investors and bodes well when there's a rebound in the advertising segment.
