Baidu Earnings Preview: Will Profits Continue To Soar From Core Businesses?
Baidu (NASDAQ:BIDU) is scheduled to announce its second quarter earnings on July 31. The company reported a strong 20% increase in net revenue to RMB 84.8 billion ($13 billion) through 2017. This trend continued in the March quarter, with a 24% increase in net revenue to RMB 20.9 billion ($3.3 billion). Revenue growth has been complemented by a massive increase in the company’s operating income in the same period, resulting in a meaningful improvement in operating profit margins. Correspondingly, Baidu’s net income and earnings per ADS have soared in recent quarters. Earnings per ADS was up 65% on a y-o-y basis to RMB 52.41 ($8.06) through 2017, which accelerated to a 90% y-o-y growth in Q1 to RMB 13.03 ($2.08).
A key development for Baidu was the IPO of its video streaming platform iQiyi in the first quarter. While this could slow down revenue growth, it could help Baidu’s profitability in the near term given that iQiyi had been operating at significant losses in the last couple of years. Despite the loss in revenues from iQiyi spin off, Baidu’s strong revenue growth is expected to continue through 2018 on an organic basis.
For the June quarter, we expect the revenue growth to continue at over 20% on a y-o-y basis. We forecast online marketing revenue to increase in the high teens to around RMB 21 billion ($3 billion). On the other hand, other services revenue is likely to continue its growth spree, with a 65% y-o-y growth forecast to RMB 5 billion ($730 million). We forecast its adjusted EBITDA margin to expand by almost 2 percentage points to over 30%. Resulting net income and earnings per ADS are expected to increase 25% y-o-y to RMB 7 billion ($1 billion) and RMB 20 ($ 2.90), respectively. Our revenue forecasts are slightly lower than consensus estimates, while earnings per ADS forecasts are in line with consensus estimates. We have summarized our expectations on our interactive Baidu earnings preview dashboard. If you disagree with our estimates, you can modify segment revenues and margins to gauge how it would impact the company’s earnings for the quarter.
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