Chinese search giant Baidu Inc (Nasdaq: BIDU) reported better-than-expected second-quarter revenue on Tuesday, driven by growth in its online advertising business. However, the stock traded lower by more than 5 percent Wednesday on concerns about rising costs.
Baidu reported adjusted earnings per American depositary share of $2.74 on revenue of $3.93 billion. EPS was in-line with consensus analyst estimates, but revenue topped Wall Street estimates of $3.76 billion. Revenue was up 32 percent compared to a year ago. Mobile revenue represented 77 percent of total net revenue.
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Gross margin was 53.8 percent, up from 53.1 percent a year ago.
Baidu reported 148 million daily active users for Baidu App, up 17 percent. The company said its DuerOS 3.0 system is installed on 90 million devices and handled more than 400 million voice queries in June.
“We continue to increase our investments in AI-powered businesses with strong synergies and divest from non-core businesses,” CFO Herman Yu says in a statement. “This has resulted in an acceleration of our revenue growth and allowed us to redeploy capital raised from non-core business divestures to create long-term shareholder value and increase return on capital.”
While the headline numbers were good for Baidu, the stock dipped on Wednesday on concerns over rising costs. Content costs in the second quarter were up 68 percent to $788 million. Traffic acquisition cost was also up 9 percent to $408 million. Selling, general and administrative expenses ballooned 54 percent to $681 million.
Looking ahead, Baidu guided for third-quarter revenue growth of between 23 and 30 percent, in line with consensus analyst estimates.
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Bank of America analyst Eddie Leung says margins will take a hit from growing investments, but Baidu’s advertising business is booming. “Baidu’s core biz, which includes search and news feed, continues to post healthy growth,” Leung says.
Despite difficult 2017 comparisons, he estimates core advertising revenue growth will stay in the mid-to-high teens in the next several quarters. “Competition and costs remain risks,” Leung says.
Bank of America has a “buy” rating and $332 price target for BIDU stock.
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Baidu Inc (BIDU) Stock Drops On Cost Concerns originally appeared on usnews.com
