Baidu (NASDAQ:BIDU) stock jumped after its Q1 revenue and net income topped analyst estimates. Although YoY revenue in the quarter declined 7%, the $3.2 billion reported topped estimates by $90 million.
Baidu tops Q1 earnings estimates
The company reported a 219% growth in net income to $435 million or $1.25 per share which topped estimates to $0.69. Adjusted EBITDA increased by 61% to $403 million. The company is now expecting its annual revenue growth of between 4% gain and a 5% loss in Q2. The profit growth indicates that its reliance on iQiyi (NASDAQ:IQ) is not affecting its margins.
In the quarter the company generated around 63% of its revenue from digital ads which was a 10% drop from last year. The other revenue was from Baidu cloud, iQiyi, and the smart speaker segment. The company faces competition from the likes Alibaba (NYSE:BABA), Tencent (OTCMKTS:TCEHY), and ByteDance’s popular apps.
Besides competition in ad space the company’s reliance on the streaming platform, iQiyi is one of the challenges the company is facing. The platform is growing faster than its ad business but it is still unprofitable and faces competition from Alibaba’s Youku Tudou and Tencent Video. Another headwind could be the expansion efforts of its ecosystem could not be generating adequate revenue. The company is incurring losses on the Mini program, AI, cloud and driverless segments
Baidu grew its earnings despite stiff competition
Throughout last year the company’s dependence on iQiyi which is still unprofitable and investment in various next-generation technologies affected earnings growth. But the company posted positive earnings growth due to share repurchases, reduction of traffic acquisition costs at its ad business, and easier YoY comparisons. The company doesn’t spend much in TAC compared to smaller rivals but the low speeding could also leave the company vulnerable.
Although the company’s profit growth is inspiring it nevertheless needs to generate considerable revenue growth with consistent margins for it to be a viable investment.