Chinese language web large Baidu performing like a startup: Tim Culpan

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Financial Express - Business News, Stock Market News


Traders already know that Baidu’s ad-based enterprise mannequin is an dependancy it wants to interrupt. (Reuters)

Oh come on, Baidu Inc., you’re an grownup now. As a 19-year previous Chinese language web large, the U.S.-listed firm is performing extra like an adolescent startup than a accountable member of the company group. Simply take a look at its earnings. Fourth-quarter income climbed 22 %, which is respectable although not stellar. However the way it acquired there has all of the hallmarks of a younger firm that’s burning VC cash: Working revenue plunged 77 %. Content material prices climbed 96 % from a 12 months earlier as the corporate pushed its iQiyi video service and the Baidu feeds content material community. A few of that could possibly be justified by the truth that different income, which incorporates iQiyi, climbed 104 %.

But for those who take a look at iQiyi Inc. particularly, income climbed 46 % whereas working prices escalated by 83 %. Again in April, iQiyi CEO Yu Gong mentioned that content material prices would average and the period of irrational investments would quickly be over. Nicely, iQiyi, and by extension Baidu, are nonetheless caught in that period.

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Content material isn’t the one value that’s spiraling. The rise in bandwidth spending – which is unfold between video, feed and cloud – outpaced company income progress. As did visitors acquisition prices. Each are indicators not of a mature firm having fun with economies of scale, however an upstart spending past its means to drive gross sales.

An actual concern is gross sales, basic and administrative bills, which expanded 64 % “primarily attributable to elevated funding in channel and promotional advertising, in addition to in personnel associated bills.”

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I’ve crushed my drum earlier than about advertising outpacing income in China’s tech sector, and Baidu’s fourth-quarter numbers bear this out. Core income climbed 7.four % whereas working prices climbed 23 %. The conclusion is that Baidu has to work tougher for each dime in gross sales. For instance, the corporate added extra on-line advertising clients however common income for every fell four %.

Traders already know that Baidu’s ad-based enterprise mannequin is an dependancy it wants to interrupt. Administration additionally should resolve when to halt this extreme spending so it might deal with margins and profitability.

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