HONG KONG — China’s top search engine Baidu has unveiled its first loss in 14 years, amid regulatory headwinds, a softer Chinese economy and the departure of top talent.
Known as the “Google of China,” Nasdaq-listed Baidu lost 327 million yuan ($49 million) in the January-March quarter, according to its filing on Thursday night U.S. time. It is the company’s first net loss since listing in 2005.
The weak showing risks knocking Baidu out of the so-called Big Three tech companies of China, alongside e-commerce platform Alibaba Group Holding and social media leader Tencent Holdings. Though often grouped together as the “BAT” companies, Baidu is increasingly lagged behind the two companies in financial performance.
“When we talk about BAT, B no longer stands for Baidu; it refers to ByteDance,” said a venture capitalist who focuses on Chinese tech companies. ByteDance is the operator of hugely popular short video app TikTok and the company last year surpassed Silicon Valley ride-sharing heavyweight Uber in valuation according to research company CB Insights.
On Wednesday, New York-listed Alibaba said net income rose more than 250% on the year to reach 23.4 billion yuan during the January-March quarter, and Hong Kong-listed Tencent’s net income jumped 17% to 27.2 billion yuan.
While the rivals cultivate new areas of revenue, such as electronic payment, cloud services and online games, Baidu still relies heavily on its search engine. Baidu enjoyed a more than 90% share of that sector when Google shut down its Chinese search engine in 2010, but that share has dropped to roughly 70%, as domestic rivals have grown market share.
Baidu’s quarterly sales grew 15% on the year to 24.1 billion yuan, lower than the projected 29.3 billion yuan by Refinitiv.
The weaker performance was accompanied by news that veteran executive, Xiang Hailong, senior vice president of the search business, would quit the company for ‘personal reasons’ after 14 years with Baidu.
Analysts are waiting to see how Baidu will deal with the setback of Xiang’s exit. Xiang is the latest among a growing number of top executives to leave the company. Last year, Lu Qi, the captain of Baidu’s artificial intelligence unit, left the company for “personal reasons,” raising doubts about how Baidu will transform from a search engine to a cutting edge AI company. Lin Yuanqing, former head of Baidu’s Institute of Deep Learning, also resigned in 2017.
Baidu has faced controversy in China over whether it has abused its monopoly on internet search by prioritizing paid for results. Sales from search-focused online marketing accounted for 73% of Baidu’s total revenues in the quarter.
But the performance of that division has been suffering. “Despite government policies to improve the market condition for SMEs, we anticipate online marketing in the near term to face a challenging environment,” Herman Yu, Baidu’s finance chief, said in a statement.
As a result, Baidu said its second-quarter revenue forecast would range from 25.1 billion yuan to 26.6 billion yuan, posing a 2% decrease compared to a year ago on the lower end.
Beijing’s tougher scrutiny of health care, gaming, and financial services had thrown a chilling effect on its online ad sales, Yu said. In addition, China’s economic slowdown has taken a toll on many industries, which has dealt another blow to Baidu’s advertising business, he added.
Shares of Baidu were down nearly 10% in the aftermarket trading on Thursday. The net worth of Robin Li, the company’s founder and CEO, shrunk to $14.6 billion in 2018 from $17.1 billion a year before, according to Forbes’ China Richest List published in October.
“Baidu’s trouble will likely last for a long time,” said Ming Lu, a Shanghai-based analyst with financial network SmartKarma. Many of Baidu’s new initiatives remain loss-making, Lu said, while its major revenue driver has lost steam amid the economic downturn and fiercer competition with Chinese social media and entertainment giant Tencent Holdings.
Since its online gaming business was hit by regulatory headwinds last year, Tencent has stepped up efforts to cash in on its advertising business.
Baidi said it is seeking new growth opportunities from China’s “Smart City” development, a government-led project that aims to digitalize and smarten up the operation of Chinese cities with cloud and AI technology — a sector that Alibaba and Tencent have already invested heavily.
Shunsuke Tabeta in Chongqing contributed to this report.