Baidu Profit Rises in Rebound From Beijing Crackdown -- Update

Chinese search giant Baidu Inc. has bounced back from a medical scandal that dragged down earnings, posting its first profit increase in three quarters.

The Beijing-based company, which has shifted its strategy to focus on its mobile app and artificial-intelligence growth drivers, reported an 83% profit increase to 4.42 billion yuan ($655 million) for the second quarter over the year-earlier period.

Chief Operating Officer Qi Lu said the company's latest version of its mobile app, which improved page loading speeds and made navigation smoother, helped boost advertising revenues. The company also got a lift from a doubling in newsfeed advertising revenue. The newsfeed uses algorithms to provide news items tailored to user interests.

Mr. Lu said richer content and consumers using more features, such as the ability to use a phone camera to search, helped increase time spent on the mobile app, making it only second to China's most popular app, Tencent Holdings Ltd.'s WeChat, citing data from QuestMobile.

"Our two-pillar strategy in mobile and AI will help us to better achieve our new mission of making a complex world simpler," Mr. Lu said on a conference call with analysts.

Revenue rose to 20.87 billion yuan--in line with Baidu's guidance--from 18.26 billion yuan a year earlier. Baidu's American depositary receipts, which set a 52-week high in New York trading on Thursday, rose 7% to $214.19 after hours.

In recent quarters, Baidu has struggled to find focus as its core search business slowed down. The unit posted a 67% decline in profit in the last fiscal year after Chinese authorities ordered the company to revamp advertising practices following the death of a a college student who took a therapy found through an online advertisement.

The company had been throwing a lot of money into online-to-offline services and new verticals. By consolidating business units and developing a path for commercialization through two AI products--its voice interaction system DuerOS and its autonomous-driving open source platform Apollo--the company is beginning to show a clearer path, analysts say.

"In the past, sometimes Baidu would focus on something not very relevant to search, creating weak synergies," said Raymond Feng, an analyst at Pacific Epoch. "Now they're sticking to what they're more familiar with."

The strong second-quarter results may have won Baidu patience from investors, as the company moves forward on driverless cars and other business such as financial services in wealth management and education loans. Analysts say it will still be years before driverless cars and other AI products make the company money. Mr. Lu said the firm was still figuring out the best way to monetize such products.

But there is concern that Baidu still isn't a leader in some of its endeavors, such as newsfeed and mobile payments. Analysts at Deutsche Bank said that some key Baidu customers are shifting part of their budgets away to other advertising formats, such as newsfeed Toutiao and Twitter-like Weibo.

A day before releasing its earnings, Baidu announced a strategic partnership with U.S. payment processor PayPal, which will enable Baidu Wallet users to buy goods online outside of China via PayPal's 17 million merchants. The tie-up comes as Baidu Wallet tries to catch up to dominant payment systems Alipay, run by Alibaba Group Holding Ltd. affiliate Ant Financial, and Tencent's WeChat Pay.

For the current quarter, Baidu projected revenue of 23.13 billion yuan to 23.75 billion yuan, compared with analysts' estimates of 23.17 billion yuan.

Write to Maria Armental at

(END) Dow Jones Newswires

July 28, 2017 01:04 ET (05:04 GMT)