Credit: Shutterstock photoBaidu ( BIDU ) is scheduled to announced its Q4 and full year earnings on Thursday, February 23. The company has witnessed strong growth in its transaction services and online video streaming businesses through the first three quarters of the year. Although Baidu's top line growth in recent months has been hindered by a revision in regulatory policy that drove down marketing revenue, the company has continued to witness strong growth in non-core revenue streams.
Outlook For Q4 & Full Year
Through the first three quarters of the year, Baidu's search services revenue growth has been hindered by a revision in regulatory policy that drove down marketing revenues through the quarter. In China, online ads and marketingpractices for medical, pharmaceutical, and healthcare products and services on online platforms now have to go through mandatory regulatory approvals. This trend is expected to continue through the December quarter as well, with the most severe impact expected in the coming quarter.
Baidu has witnessed solid revenue growth in two of its smaller revenue streams over the the last 2-3 years - its online video streaming platform iQiyi, which is similar to Netflix ( NFLX ), and transaction services. Both segments witnessed over 70% revenue growth in 2015, which was slightly lower than the triple digit growth in the previous year. Baidu has pumped in money to these divisions to develop the infrastructure for its video streaming and transaction services platforms to fuel growth. Furthermore, Baidu has also invested heavily in content acquisition costs, bandwidth costs for the video business and traffic acquisition costs for the transaction business, in addition to absorbing high marketing expenses for both. As a result, the revenue surge in these segments is complemented by operating losses. These divisions are likely to be operating at a loss over next couple of years as well.
Since Baidu has operated its streaming video business at a loss over the past few years, there were reports in December last year that the company could spin off the iQiyi division. Earlier last year, a consortium of investors led by Baidu CEO Robin Li wanted to buy out the iQiyi business for $2.3 billion, but later dropped the bid after investors claimed that the price was too low. Various market research firms and hedge funds estimate iQiyi's valuation at anywhere between $2.5 billion and $5.5 billion. More recently, Baidu announced that it has raised funding for the video streaming business which would help it acquire more content and help the company focus on long-term growth.
Baidu's management expects Q4 revenues to be around RMB 18.1 billion (or $2.7 billion at an exchange rate of RMB 6.67 per $1.00). As a result, full year revenues could be around RMB 70.4 billion or $10.7 billion, which is slightly lower than the Reuters' consensus estimate of around RMB 71.4 billion. For the full year, we expect the smaller revenue streams to drive most of the company's revenue growth.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
