Chinese search giant Baidu’s earnings overshadowed by US probe
Baidu’s streaming service iQIYI said it is cooperating with US investigation into its finances, operations, investments.
Chinese search engine giant Baidu Inc posted its quarterly revenue a notch ahead of estimates, but its shares slid in extended trade after its streaming service, iQIYI, said it was being investigated by the United States Securities and Exchange Commission (SEC).
Baidu’s second-quarter revenue fell 1 percent to 26.0 billion yuan ($3.8bn) from the same period a year earlier but was better than an average analyst estimate of 25.7 billion yuan ($3.7bn).
It forecast a third-quarter revenue of 26.3 billion yuan ($3.8bn) to 28.7 billion yuan ($4.1bn), in line with estimates and which compares with 28 billion yuan ($4bn) for the same quarter a year ago.
But the results were overshadowed by iQIYI’s disclosure of the investigation. Shares in iQIYI, a Netflix-like video-streaming service, plunged as much as 19 percent while Baidu shares dropped 5.5 percent in after-hours trade. Both are listed on the US’s tech-heavy Nasdaq exchange.
iQIYI said in a statement it was cooperating with the SEC which was seeking financial and operating records dating from January 1, 2018, as well as documents related to acquisitions and investments identified in a report issued by short-seller firm Wolfpack Research in April.
It said it could not predict the timing, outcome or consequences of the probe and had hired professional advisers to conduct an internal review.
Wolfpack accused iQIYI of inflating user numbers, revenue and the prices it pays for content.
The SEC investigation comes at a time when Washington has threatened to delist Chinese companies that do not meet US accounting standards amid escalating tensions between the world’s two largest economies.
Baidu’s Netflix-style video streaming service iQIYI debuted on the US Nasdaq exchange in March, 2018 [File: Victor J Blue/Bloomberg]
Baidu Chief Financial Officer Herman Yu told a conference call the company was unable to comment directly on the probe into iQIYI’s but added the matter might take longer than normal to resolve due to the coronavirus pandemic.
“Having an independent set of eyes reviewing the situation is meant to put allegations to rest,” Yu said. Baidu owns 56 percent of iQIYI and commands more than 90 percent of voting power on its board.
Baidu CEO Robin Li said he expects geopolitical tensions to bring about “hiccups” for its business but that prospects for its artificial intelligence division meant the company was “cautiously optimistic” about the second half.
Baidu’s revenue from advertising remains under pressure as big businesses in industries such as travel and financial services continue to pull back on advertisement spending.
Revenue from its online marketing services, which includes search, news feeds and video apps, fell 8 percent to 17.7 billion yuan ($2.6bn) in the second quarter.