Baidu Beats Estimates After Paring Spending on New Services

(Bloomberg) -- Baidu Inc.’s efforts to cut costs and counter restrictions on online advertisers helped the Chinese search giant beat quarterly profit expectations.

Profit excluding some costs was $1.49 per American depository share in the third quarter, compared with the average analyst estimate for $1.08. Revenue was 18.3 billion yuan ($2.7 billion), in line with analysts’ projections.

Baidu has pared on spending on subsidies for on-demand services such as food delivery, areas that depend on discounts to grow users but have steadily eroded its bottom line. Those cutbacks helped offset the impact of a decelerating advertising business hit by government curbs and competition from Alibaba Group Holding Ltd.’s ele.me and Tencent Holdings Ltd.’s Meituan.

“All three of China’s dominant food delivery platforms – Meituan, Alibaba affiliate ele.me and Baidu Waimai – have steadily brought down subsidy intensity,” Alan Hellawell, an analyst at Deutsche Bank AG, wrote in a note to clients before the results.

The company had warned shareholders in July to prepare for up to three quarters of suppressed revenue growth after the government restricted certain classes of ads and imposed requirements on client-vetting. That was prompted by the death of a student who had sought an unconventional cancer treatment advertised on Baidu.

Despite pressure on Baidu’s core business, its shares gained more than 10 percent in the third quarter. That gain was fueled in part by expectations that it will cut back on costly subsidies, but also by reports it was close to selling off or securing partners for loss-making businesses.

Baidu’s now delving into the realms of artificial intelligence and self-driving cars, but those projects are unlikely to contribute to the business in the short run. On Thursday, the company said it expects fourth-quarter sales of $2.68 billion to $2.76 billion, below analysts’ expectations of $2.89 billion.

To contact Bloomberg News staff for this story: David Ramli in Hong Kong at dramli1@bloomberg.net. To contact the editors responsible for this story: Robert Fenner at rfenner@bloomberg.net, Edwin Chan, Molly Schuetz

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