Baidu's Profit More Than Doubles, but Guidance Falls Short -- Update

By Alyssa Abkowitz in Beijing and Maria Armental in New York Features Dow Jones Newswires

Baidu Inc.'s big jump in profit didn't please investors, who reacted sourly to missed revenue estimates and sent shares of its American depositary receipts tumbling 10% to $234 after hours.

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The company's revenue rose 29% to 23.49 billion yuan, or $3.53 billion--within the company's own guidance, but below Wall Street's expectations of 23.64 billion yuan, according to analysts surveyed by Thomson Reuters.

Baidu's net income surged to 7.95 billion yuan from 3.10 billion yuan a year earlier, thanks to the sale of Baidu Waimai--the company's food-delivery business--to Alibaba Group Holding Ltd.-backed Ele.me this summer.

The search-engine firm is continuing to try to boost its ad business, which still generates most of its revenue. This is despite government scrutiny following a scandal over medical listings last year and more recent restrictions on online ads ahead of the Communist Party congress that ended this week.

Baidu is China's dominant search engine, but in recent years it has expanded into self-driving cars, video-streamed entertainment and voice-assisted products, as it strives to keep pace with its faster-growing internet rivals, Alibaba and Tencent Holdings Ltd.

Its tepid results came amid Baidu's efforts to reposition itself as an artificial-intelligence leader. But it is under pressure from competition from Tencent and Alibaba--which are also pushing AI-products, as well as search and newsfeed endeavors. Baidu's also feeling the heat from newer outlets, such as news aggregator Jinri Toutiao.

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On a conference call with analysts, Baidu executives stressed the importance of the firm's voice-assisted products and its open-source autonomous driving platform as future growth drivers, but cautioned that the returns from these AI products will take years to come.

Research and development costs reached 3.24 billion yuan in the latest period, up 24% from a year ago. Baidu has pledged to deliver a self-driving bus by the end of next year and fully autonomous cars by 2021, and has been investing heavily.

Baidu's video-streaming platform, iQiyi, earned strong viewership from original content, such as reality-show "The Rap of China" producing 2.7 billion views during the first season. But rising content costs, which jumped 76% from a year earlier, weighed down Baidu's results.

The company also said it didn't stream some of its most popular series in the past week out of respect for the 19th Party Congress, China's twice-a-decade political meeting that determines leadership for the next five years. The move could have an effect on the company's current quarter, for which Baidu projected revenue of 22.23 billion yuan to 23.41 billion yuan--below analysts' estimates of 24.78 billion yuan.

Write to Alyssa Abkowitz at alyssa.abkowitz@wsj.com and Maria Armental at maria.armental@wsj.com

(END) Dow Jones Newswires

October 27, 2017 00:57 ET (04:57 GMT)