Baidu shares soar 8% despite operating loss of 437 billion yuan in Q1

Chinese search engine giant Baidu (NASDAQ: BIDU) reported total revenues of 22.5 billion Chinese yuan (US$3.18 billion) in the first quarter of 2020, marking a 7% decline year-on-year.

Revenue from Baidu Core – the company’s main products and services – were also down, coming in at 15.3 billion yuan (US$2.16 billion), decreasing 13% year-on-year.

Adjusted earnings per share came in at 8.84 yuan (US$1.25) per American depository share (ADS), up 219% from the same quarter a year prior. This surpasses Wall Street estimates of 3.99 yuan per ADS.

Following the results, Baidu’s share price jumped up over 8.0% to hit a two-month high of US$117.99 per share at 05:00 HKT on 19 May 2020, based on IG trading data.

Baidu shares also rose to become one of the ten most active equity counters on IG’s trading platform on Tuesday.

Read also: Why JD.com's share price skyrocket to a 2.5-year high despite lower earnings?

Baidu suffered a Q1 operating loss of 437 billion yuan

Nevertheless, the incorporated company posted an operating loss of RMB 437 million (US$62 million) and an operating margin of -2% for the quarter.

On the other hand, Baidu Core, which covers earnings from its main products and services including the search engine and Baidu App offering, saw operating income of 1.8 billion yuan (US$261 million) alongside an operating margin was 12%.

Breaking down the company’s revenue by segment, online marketing revenues were 14.2 billion yuan (US$2.01 billion), decreasing 19% year-on-year. Other revenues were 8.3 billion yuan (US$1.17 billion), increasing 28% from a year ago, which the company attributed to the strong growth in video streaming platform iQIYI membership, cloud service and smart devices.

Revenue from iQIYI reached 7.6 billion yuan (US$1.08 billion), up 9% year over year. iQIYI membership revenue grew 35% year over year, offset by online advertising revenue declining 27% from a year ago.

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Baidu App hit 222 million daily active users in March 2020

In terms of daily active users (DAUs), the company preferred to highlight its performance for the month of March 2020 – one month after the peak of Covid-19 in China.

The Baidu App saw a DAU total of 222 million in March 2020, up 28% year-on-year. In-app search queries grew 45% from March 2019, while feed time spent rose 51%.

Meanwhile, Baijiahao publisher accounts reached 3.0 million DAUs, up 44% year-on-year in March 2020. The company attributed this to more original content creators joining Baidu, thanks to ‘the large user scale of the Baidu platform, including Baidu App, Haokan, Quanmin and Baidu Wiki’.

The company also noted that more app developers are migrating to Baidu Smart Mini Program ("SMP"), which allows users to access information and services within Baidu App. In March 2020, Baidu SMP monthly active users on Baidu App reached 354 million, up 96% year over year.

Finally, iQiyi – Baidu’s video streaming offering, achieved a total subscriber base of 118.9 million in March 2020, up 23% year-on-year.

Baidu repurchased US$185 million shares in Q1 2020

For Baidu investors, it should be noted that the company completed a bond offering of US$1.0 billion in April 2020, consisting of US$600 million of 3.075% notes due in 2025 and US$400 million of 3.425% notes due in 2030.

The company stated in its Q1 earnings release that the proceeds are expected to be used to repay maturing bonds and for general corporate use.

In the first quarter of 2020, Baidu also returned US$185 million to shareholders under the 2019 Share Repurchase Program, as its open market ADS price fell to a 7-year low of US$84 per share amid the 23 March global stock market crash.

This brings the cumulative repurchase total to approximately US$1.4 billion under the 2018 and 2019 Repurchase Programs.

Additionally, Baidu's board of directors recently approved a 2020 Share Repurchase Program effective until July 1, 2021, under which the company may repurchase up to US$1 billion of its shares.

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Baidu expects Q2 growth rate to be between -5% to 4%

For the second quarter of 2020, Baidu expects revenues to be between 25 billion yuan (US$3.5 billion) and 27.3 billion yuan (US$3.9 billion), while disclaiming that ‘the Covid-19 situation in China is evolving, and business visibility is very limited’.

This would represent a growth rate of between -5% to 4% year-on-year, which then assumes that the Baidu Core revenue will grow between -8% to 2% from Q2 of 2019.

‘The above forecast reflects Baidu's current and preliminary view, which is subject to substantial uncertainty,’ the company concluded.

As of 19 May 2020, Baidu's stocks have a 'buy' rating from 26 out of 39 analysts polled by Factset.

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