Baidu Announces Third Quarter 2017 Results

BEIJING, Oct. 26, 2017 /PRNewswire/ -- Baidu, Inc. (NASDAQ: BIDU) ("Baidu" or the "Company"), the leading Chinese language Internet search provider, today announced its unaudited financial results for the third quarter ended September 30, 2017[1].

"In the third quarter, we made good progress in our strategic pillars to strengthen our mobile foundation and lead in AI," said Robin Li, Baidu's Co-Founder and Chief Executive Officer. "On strengthening our mobile foundation, our strategy to leverage Baidu's leading AI technologies to increase the user scale and user stickiness of Mobile Baidu is showing measurable results. On our AI initiatives, we continue to focus on developing platforms for smart device and autonomous driving markets, as well as leveraging AI into vertical sectors, such as financial services."

"We drove product innovation in our core business to strengthen our user and customer value proposition and made progress in our AI-enabled businesses," said Qi Lu, Baidu's Chief Operating Officer. "We continue to solidify the foundation of our AI platforms and grow our partner and developer ecosystems. iQIYI also continued to lead the online video industry, off the back of highly successful self-produced content."

"We delivered solid financial results in the third quarter with top line increasing 29% year over year and operating profit growing 69% year over year," said Herman Yu, Chief Financial Officer of Baidu. "In the third quarter, we also spun off Baidu Deliveries, as part of a year-long strategy to free up the company's resources and management attention to focus on AI and projects with strong synergy that will optimize Baidu's long term value."

Third Quarter 2017 Financial Highlights

• Total revenues in the third quarter of 2017 were RMB 23.5 billion ($3.53 billion), a 29% increase from the corresponding period in 2016. Mobile revenue represented 73% of total revenues for the third quarter of 2017, compared to 64% for the corresponding period in 2016.
• Operating profit in the third quarter of 2017 was RMB 4.7 billion ($706 million), a 69% increase from the corresponding period in 2016. iQIYI reduced non-GAAP operating margins by 11 percentage points for the third quarter of 2017. Non-GAAP operating profit was RMB 5.5 billion ($833 million), representing a 73% increase from the corresponding period in 2016.
• Net income attributable to Baidu in the third quarter of 2017 was RMB 7.9 billion ($1.20 billion), a 156% increase from the corresponding period in 2016. Diluted earnings attributable to Baidu per ADS for the third quarter of 2017 were RMB 24 ($3.62); non-GAAP net income attributable to Baidu[2] in the third quarter of 2017 was RMB 9.1 billion ($1.36 billion), a 163% increase from the corresponding period in 2016; non-GAAP diluted earnings per ADS[3]  for the third quarter of 2017 were RMB 26 ($3.89).

In the following section, comparison and analysis are provided based on reported consolidated financial results.

Third Quarter 2017 Results

Baidu reported total revenues of RMB 23.5 billion ($3.53 billion) for the third quarter of 2017, representing a 29% increase from the corresponding period in 2016.

Online marketing revenues for the third quarter of 2017 were RMB 20.1 billion ($3.02 billion), representing a 22% increase from the corresponding period in 2016. Baidu had about 486,000 active online marketing customers[4] in the third quarter of 2017, representing a 7% decrease from the corresponding period in 2016. Revenue per online marketing customer for the third quarter of 2017 was approximately RMB 40,900 ($6,147), a 31% increase from the corresponding period in 2016. 

Traffic acquisition costs as a component of cost of revenues was RMB 2.5 billion ($372 million), representing 10.5% of total revenues, compared to 14.2% in the corresponding period in 2016 and 11.9% in the second quarter of 2017.

Bandwidth costs as a component of cost of revenues were RMB 1.4 billion ($216 million), representing 6.1% of total revenues, compared to 6.8% in the corresponding period in 2016.

Depreciation costs as a component of cost of revenues were RMB 0.9 billion ($128 million), representing 3.6% of total revenues, compared to 4.4% in the corresponding period in 2016.

Operational costs as a component of cost of revenues were RMB 1.4 billion ($208 million), representing 5.9% of total revenues, compared to 6.3% in the corresponding period in 2016.

Content costs as a component of cost of revenues were RMB 3.9 billion ($586 million), representing 16.6% of total revenues, compared to 12.1% in the corresponding period in 2016. The year-over-year increase was mainly due to iQIYI's increased content costs.

Selling, general and administrative expenses were RMB 3.7 billion ($563 million), representing an increase of 4% from the corresponding period in 2016.

Research and development expenses were RMB 3.2 billion ($487 million), representing a 24% increase from the corresponding period in 2016. The increase was primarily due to the growth of research and development personnel-related costs.

Share-based compensation expenses, which were allocated to related operating costs and expense line items, were RMB 0.8 billion ($126 million) in the third quarter of 2017, compared to RMB 0.4 billion in the corresponding period in 2016.

Operating profit was RMB 4.7 billion ($706 million), representing a 69% increase from the corresponding period in 2016. Non-GAAP operating profit was RMB 5.5 billion ($833 million), representing a 73% increase from the corresponding period in 2016.

Other income, net was RMB 4.2 billion ($636 million), which mainly consisted of the investment gain recognized as a result of the disposal of Baidu Deliveries.

Income tax expense was RMB 1.1 billion ($165 million), compared to RMB 1.0 billion in the corresponding period in 2016. The effective tax rate for the third quarter of 2017 was 12% as compared to 25% for the corresponding period in 2016. The decrease in the effective tax rate was primarily due to the nontaxable investment gain.

Net income attributable to Baidu was RMB 7.9 billion ($1.20 billion), representing a 156% increase from the corresponding period in 2016. Basic and diluted earnings per ADS for the third quarter of 2017 amounted to RMB 24 ($3.65) and RMB 24 ($3.62), respectively.

Non-GAAP net income attributable to Baidu was RMB 9.1 billion ($1.36 billion), a 163% increase from the corresponding period in 2016. Non-GAAP diluted earnings per ADS for the third quarter of 2017 amounted to RMB 26 ($3.89).

As of September 30, 2017, the Company had cash, cash equivalents and short-term investments of RMB 108.1 billion ($16.25 billion). Net operating cash inflow for the third quarter of 2017 was RMB 9.7 billion ($1.45 billion). Capital expenditures for the third quarter of 2017 were RMB 1.3 billion ($0.20 billion).

Adjusted EBITDA was RMB 6.8 billion ($1.03 billion) for the third quarter of 2017, representing a 62% increase from the corresponding period in 2016.

Outlook for Fourth Quarter 2017

Baidu currently expects to generate total revenues in the fourth quarter of 2017 between RMB 22.23 billion ($3.34 billion) to RMB 23.41 billion ($3.52 billion), representing a year-over-year growth of 22% to 29%. Excluding disposed businesses, such as mobile games and Baidu Deliveries, the guidance represents a year-over-year growth of 28% to 34%. This forecast reflects Baidu's current and preliminary view, which is subject to change.

Conference Call Information

Baidu's management will hold an earnings conference call at 8:00 PM on October 26, 2017, U.S. Eastern Time (8:00 AM on October 27, 2017, Beijing/Hong Kong Time). Dial-in details for the earnings conference call are as follows:

A replay of the conference call may be accessed by phone at the following number until November 3, 2017:

Additionally, a live and archived webcast of this conference call will be available at http://ir.baidu.com.

About Baidu

Baidu, Inc. is the leading Chinese language Internet search provider. Baidu aims to make a complex world simpler through technology. Baidu's ADSs trade on the NASDAQ Global Select Market under the symbol "BIDU". Currently, ten ADSs represent one Class A ordinary share.

Safe Harbor Statement

This announcement contains forward-looking statements. These statements are made under the "safe harbor" provisions of the U.S. Private Securities Litigation Reform Act of 1995. These forward-looking statements can be identified by terminology such as "will," "expects," "anticipates," "future," "intends," "plans," "believes," "estimates," "confident" and similar statements. Among other things, the outlook for the fourth quarter 2017 and quotations from management in this announcement, as well as Baidu's strategic and operational plans, contain forward-looking statements. Baidu may also make written or oral forward-looking statements in its periodic reports to the U.S. Securities and Exchange Commission, in its annual report to shareholders, in press releases and other written materials and in oral statements made by its officers, directors or employees to third parties.  Statements that are not historical facts, including statements about Baidu's beliefs and expectations, are forward-looking statements. Forward-looking statements involve inherent risks and uncertainties. A number of factors could cause actual results to differ materially from those contained in any forward-looking statement, including but not limited to the following: Baidu's growth strategies; its future business development, including development of new products and services; its ability to attract and retain users and customers; competition in the Chinese Internet search market; competition for online marketing customers; changes in the Company's revenues and certain cost or expense items as a percentage of its revenues; the outcome of ongoing, or any future, litigation or arbitration, including those relating to intellectual property rights; the expected growth of the Chinese language Internet search market and the number of Internet and broadband users in China; Chinese governmental policies relating to the Internet and Internet search providers and general economic conditions in China, Japan and elsewhere. Further information regarding these and other risks is included in the Company's annual report on Form 20-F and other documents filed with the Securities and Exchange Commission. Baidu does not undertake any obligation to update any forward-looking statement, except as required under applicable law. All information provided in this press release and in the attachments is as of the date of the press release, and Baidu undertakes no duty to update such information, except as required under applicable law.

About Non-GAAP Financial Measures

To supplement Baidu's consolidated financial results presented in accordance with GAAP, Baidu uses the following non-GAAP financial measures: non-GAAP operating profit, non-GAAP net income attributable to Baidu, non-GAAP diluted earnings per ADS, adjusted EBITDA and free cash flow. The presentation of these non-GAAP financial measures is not intended to be considered in isolation or as a substitute for the financial information prepared and presented in accordance with GAAP.

Baidu believes that these non-GAAP financial measures provide meaningful supplemental information regarding its performance and liquidity by excluding certain items that may not be indicative of its recurring core business operating results, such as operating performance excluding not only non-cash charges, but also other items that are infrequent or unusual in nature. The Company believes that both management and investors benefit from referring to these non-GAAP financial measures in assessing its performance and when planning and forecasting future periods. These non-GAAP financial measures also facilitate management's internal comparisons to Baidu's historical performance and liquidity. The Company believes these non-GAAP financial measures are useful to investors in allowing for greater transparency with respect to supplemental information used by management in its financial and operational decision making. A limitation of using these non-GAAP financial measures is that these non-GAAP measures exclude certain items that have been and will continue to be for the foreseeable future a significant component in the Company's results of operations.  These non-GAAP financial measures presented here may not be comparable to similarly titled measures presented by other companies. Other companies may calculate similarly titled measures differently, limiting their usefulness as comparative measures to the Company's data.

Non-GAAP operating profit represents operating profit excluding share-based compensation expenses.

Non-GAAP net income attributable to Baidu represents net income attributable to Baidu excluding share-based compensation expenses and the gain or loss associated with the issuance of shares by Baidu's equity method investees at a price higher or lower than the carrying value per share.

Non-GAAP diluted earnings per ADS represents diluted earnings per ADS calculated based on non-GAAP net income attributable to Baidu.

Adjusted EBITDA represents operating profit excluding depreciation, amortization and share-based compensation expenses.

Free cash flow represents net cash provided by operating activities less capital expenditures.

For more information on non-GAAP financial measures, please see the tables captioned "Reconciliations of non-GAAP financial measures to the nearest comparable GAAP measures".

For investor inquiries, please contact:

Sharon Ng
Baidu, Inc.
Tel: +86-10-5992-4958
Email: ir@baidu.com

[1] This announcement contains translations of certain RMB amounts into U.S. dollars at specified rates solely for the convenience of the reader. Unless otherwise noted, all translations from RMB to U.S. dollars are made at a rate of RMB6.6533 to US$1.00, the effective noon buying rate as of September 29, 2017, in The City of New York for cable transfers of RMB as certified for customs purposes by the Federal Reserve Bank of New York.

[2] Non-GAAP net income attributable to Baidu represents net income attributable to Baidu excluding share-based compensation expenses and the gain or loss associated with the issuance of the shares by our equity method investees at a price higher or lower than our carrying value per share.

[3] Non-GAAP diluted earnings per ADS represents diluted earnings per ADS calculated based on non-GAAP net income attributable to Baidu.

[4] The number of active online marketing customers and revenue per online active customer exclude our group-buying and delivery related businesses for consistency with previous reporting.

 

 

 

 

 

 

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SOURCE Baidu, Inc.