Baidu Inc. (NASDAQ: BIDU) is set to release its second-quarter earnings results on Monday, August 19 after the market closes. The results will be hurt by expenses related to the investments in non-core areas including cloud, artificial intelligence, and content due to the slowdown in the search service business in the Chinese market.

The company generated a substantial majority of its revenue from online marketing services, a considerable majority of which are derived from pay-for-performance services. Baidu’s revenue from online marketing has increased in recent years and is expected to continue on the upward journey.

Baidu’s business continues to depend on its ability to retain existing advertisers or attract new ones. The company believes its large user base and traffic to provide advertisers with a broad reach and optimal monetization results. However, it banks on advertisers’ choice of getting expected returns from expenditures made on Baidu’s platform.

Baidu likely to report weak Q2 earnings on Aug 19
Photo Courtesy: Baidu / Facebook post

The company faced significant competition in almost every aspect of its business, including internet search, feed services, online marketing services as well as internet video services. The main competitors include China-based internet companies, such as Alibaba (NYSE: BABA), Tencent, ByteDance, Sohu (NASDAQ: SOHU), and Qihoo 360. Apart from this, Alphabet’s (NASDAQ: GOOGL) subsidiary Google is likely to give stiff competition to Baidu in the internet search market.

Analysts expect the company’s earnings to plunge by 71.60% to $0.86 per share and revenue to decline by 2.50% to $3.65 billion for the second quarter. In comparison, during the previous year quarter, Baidu posted a profit of $3.03 per share on revenue of $3.74 billion. The company has surprised investors by beating analysts’ expectations thrice in the past four quarters.

For the first quarter, Baidu slipped to a loss from a profit last year, due to higher costs and expenses. Revenues rose by 15% supported by strong contributions from both the business segments. Revenues from Baidu Core moved up 8% and those from iQIYI, the video streaming arm of Baidu, climbed 43%. At the end of March 2019, the company had 174 million daily active users, up 28% from the year-ago period.

Also read: iQIYI Q2 earnings preview

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The search-powered artificial intelligence is expected to continue strengthening Baidu’s mobile foundation as its new AI businesses are making strong progress. In March, Baidu’s mobile reaches expanded to 1.1 billion monthly active devices, while DuerOS voice assistant installed base reached 275 million devices and generated 2.37 billion mobile voice queries.

For the second quarter, the company expects revenues in the range of $3.74 billion to $3.96 billion, representing a 3% decrease to 2% increase year-over-year. Looking ahead, the company is quite excited about the opportunities to significantly improve content and service discovery through in-app search and lift customer return on investment with its entrance into CRM.

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