BEIJING—Souring confidence in China’s economy and a regulatory clampdown in the private sector could spell trouble ahead for
revenue, executives with the search-engine company warned.
It is another sign the world’s second-biggest economy is facing headwinds amid a trade row between it and the U.S. Baidu’s business, whose revenues are driven by ads from Chinese companies in medical, retail and other industries, is a barometer for the health of China’s private sector.
“On the possible massive slowdown, right now, what we have been saying is that the confidence level from the private sector, from the entrepreneurs, are not that high,” Baidu Chief Executive Robin Li told analysts as the company reported third-quarter earnings Tuesday in New York.
“If, let’s say, during the next couple of months, the confidence level changes, things will change to the positive direction,” Mr. Li said. “But we don’t know exactly what is going to happen.”
For the third quarter ended Sept. 30, Baidu beat analyst estimates and posted 28.2 billion yuan, or $4.11 billion, in revenue, up 27% from the same period last year. The growth was driven partly by an increase in users and in the time spent on Baidu’s app, the company said. Analysts polled by FactSet predicted $4.03 billion in revenue.
Its quarterly net profit was 12.4 billion yuan, up 56% year over year.
But Baidu said its revenue growth will likely slow down through the rest of the year. It forecast fourth-quarter revenue to grow 15% to 20% from the same period a year earlier, compared with the 27% increase posted in the July-September period.
Baidu’s American depositary receipts rose 0.9% to close at $183.37 Tuesday, and slipped 0.75% in after-hours trading after the results were released. Shares are down more than 20% year to date, similar to other Chinese technology giants.
Mr. Li said while the present period might remind some people of the global financial crisis a decade ago, he views it differently. “Right now, it’s more about the traditional industry, more about entrepreneur confidence, and that can change very quickly,” he said. “Longer term, I’m still very optimistic about the future of Baidu and the future of China.”
Raymond Feng, an analyst with research firm Pacific Epoch in Shanghai, said while the macroeconomic impact is already weighing on China’s overall advertising market, online advertising is somewhat safer than traditional ads.
Still, given the macroeconomic slowdown as well as emerging competitors, including new online video platforms, Baidu is likely to face fiercer competition in online advertising, he said.
Another factor that could dent the company’s earnings is the Chinese government’s tightening of regulations in various sectors, said Baidu’s Chief Financial Officer Herman Yu.
Policies affecting sectors such as videogames, real estate, financial services and online commerce could hit customers that advertise on Baidu’s platforms, Mr. Yu said in the earnings call. While Baidu isn’t dependent on any particular industry for advertisements, he said, the cumulative impact across several industries, “a little bit here and there, added together cause us to probably grow not as fast as we would like to as before.”
In the videogames industry, regulators haven’t approved the sale of new titles since March, when a government reorganization started. Uncertainties still linger about which agency will regulate the industry.
—Micah Maidenberg in New York contributed to this article.
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