Baidu’s (NASDAQ: BIDU) core business has been under scrutiny for some time due its disappointing performance. In an indication that the company’s third-quarter results will be affected by the weakness in search service and unfavorable market conditions, analysts predict a 59% fall in earnings to $1.14 per share. Revenues are seen dropping 5% to $3.89 billion, which is broadly in line with the management’s own guidance. The results will be published on Wednesday after the closing bell.
The softness in online marketing services is likely to persist in the to-be-reported quarter. The curbs imposed by the Chinese Government recently will continue to drag down the gaming, healthcare and financial services segments.
Baidu remains under constant pressure to innovate due to growing competition, especially from Tencent (TME) and Alibaba (BABA). The company is currently busy expanding the product portfolio, with focus on mobile ecosystem and artificial intelligence technology. Initial estimates show that the efforts have started paying off and contributing to revenue growth.
The initiatives seem to have offset the weakness in the core business to some extent, which accounts for about two-thirds of the revenues. Third-quarter results might also benefit from the solutions being developed by the Baidu team for the field of autonomous driving.
When it comes to profitability, high expenses related to the expansion program could be a concern, in addition to the heavy investments in content, cloud computing and smart home technologies.
The tech firm, which is often referred to as the Google (GOOG) of China, recently impressed the market by reporting above-consensus earnings for the June-quarter, despite a year-over-year decline and muted revenue growth. The number of daily active users of the Baidu app grew about 27% and iQIYI subscribers increased 50%.
Last week, Alibaba reported broad-based growth for the second quarter, which resulted in double-digit earnings and top-line growth. The music streaming arm of Tencent will be publishing its September-quarter results on November 11 after the closing bell.
Baidu’s stock plunged to a six-year low a few weeks ago, continuing the downtrend that started nearly a year ago. The shares bounced back soon after the second-quarter results in August, but failed to sustain the momentum.