Baidu to report dips in profitability over 12-18 months, Fitch says

Chinese search engine giant Baidu is expected to report depressed profitability over the next 12 to 18 months, as losses from its AI businesses and online video unit iQiyi weigh on the company’s process of reducing debt, said a report by Fitch.

Photo credit: Baidu

Baidu’s core marketing business, including its search and newsfeed offering, is key to the company’s overall profitability and cash generation. Fitch expects the tech firm to reduce its debt by maintaining a large net cash position and restricting further growth in debt.

Meanwhile, Baidu’s video streaming unit, iQiyi, is repurchasing its 3.75% convertible bonds worth US$750 million, and Baidu will repay 2.875% notes worth US$900 million in July 2022. The search engine firm, which owns 52% of iQiyi, will also repay its 3.5% notes worth US$750 million in November 2022.

“We do not expect Baidu to see a quick recovery in its profitability, as macro weakness, tightening Covid-19 restrictions, and regulatory headwinds may continue to linger in the next few quarters and limit the recovery in core marketing profitability,” said Fitch.

While Fitch said Baidu’s operating EBIT (earnings before interest and taxes) growth is likely to be muted in 2022, it expects a fuller recovery in core marketing profitability in 2023, which will bolster the search engine giant’s overall profitability.

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The brokerage firm anticipates Baidu to remain committed to a conservative capital structure on the back of a tech crackdown, which has triggered a selloff that erased nearly US$1.5 trillion from Chinese stocks at its peak.

Baidu’s operating losses widened by 63% to US$358 million during the quarter ended September 30. The total loss for the period stood at US$2.5 billion. For the fourth quarter of 2021, the company expects revenues to be between US$4.8 billion and US$5.3 billion, representing a growth rate of 2% to 12% from the same period in the previous year.