Baidu Announces Third Quarter 2016 Results

BEIJING, Oct 27, 2016 /PRNewswire/ -- Baidu, Inc. (NASDAQ: BIDU) ("Baidu" or the "Company"), the leading Chinese language Internet search provider, today announced its unaudited financial results for the third quarter ended September 30, 2016[1].

"We saw further improvements in customer quality in the third quarter as we continued to implement stricter standards for online marketers," said Robin Li, Chairman and CEO of Baidu. "During the quarter the growing popularity of our news feed product helped drive user stickiness in search and across the Baidu content ecosystem. We look forward to further innovating through initiatives such as our digital assistant Duer and autonomous cars, and to bringing new AI-based applications to market."

"We continue to enhance user experience by taking proactive measures to raise customer quality and foster a healthier industry environment," said Jennifer Li, CFO of Baidu. "Looking ahead, we will maintain this focus on delivering the best user experience, while investing in technology and infrastructure to drive long term growth."

Third Quarter 2016 Operational Highlights

• Mobile search monthly active users (MAUs) were 660 million for the month of September 2016, an increase of 3% year-over-year
• Mobile maps MAUs were 348 million for the month of September 2016, an increase of 7% year-over-year
• Gross merchandise value[2] (GMV) for Transaction Services totaled RMB19.4 billion ($2.9 billion) for the third quarter of 2016, an increase of 49% year-over-year
• Baidu Wallet activated accounts reached 90 million at the end of September 2016, an increase of 99% year-over-year

Third Quarter 2016 Financial Highlights

• Total revenues in the third quarter of 2016 were RMB18.253 billion ($2.737 billion), a 0.7% decrease from the corresponding period in 2015, and 6.7% year-over-year increase, excluding Qunar[3] in the third quarter of 2015. Mobile revenue represented 64% of total revenues for the third quarter of 2016, compared to 54% for the corresponding period in 2015.
• Operating profit in the third quarter of 2016 was RMB2.787 billion ($417.9 million), an 11.0% increase from the corresponding period in 2015. Transaction Services reduced non-GAAP operating margins by 21.4 percentage points and iQiyi further reduced non-GAAP operating margins by 7.7 percentage points for the third quarter of 2016.
• Net income attributable to Baidu in the third quarter of 2016 was RMB3.102 billion ($465.2 million), a 9.2% increase from the corresponding period in 2015. Diluted earnings attributable to Baidu per ADS for the third quarter of 2016 were RMB8.51 ($1.28); non-GAAP net income attributable to Baidu[4] in the third quarter of 2016 was RMB3.447 billion ($516.9 million), a 6.3% increase from the corresponding period in 2015; non-GAAP diluted earnings per ADS[5] for the third quarter of 2016 were RMB9.92 ($1.49).

In the following section, comparison and analysis are provided based on reported consolidated financial results. For ease of comparison, a table with apples-to-apples adjusted financials and metrics excluding Qunar can be found at the end of the following section.

Third Quarter 2016 Results

Baidu reported total revenues of RMB18.253 billion ($2.737 billion) for the third quarter of 2016, representing a 0.7% decrease from the corresponding period in 2015.

Online marketing revenues for the third quarter of 2016 were RMB16.490 billion ($2.473 billion), representing a 6.7% decrease from the corresponding period in 2015. Baidu had about 524,000 active online marketing customers[6] in the third quarter of 2016, representing a 15.9% decrease from the corresponding period in 2015.

Revenue per online marketing customer for the third quarter of 2016 was approximately RMB31, 300 ($4,694), a 10.6% increase from the corresponding period in 2015.

Traffic acquisition cost as a component of cost of revenues was RMB2.594 billion ($389.1 million), representing 14.2% of total revenues, as compared to 13.1% in the corresponding period in 2015 and 15.9% in the second quarter of 2016.

Bandwidth costs as a component of cost of revenues were RMB1.241 billion ($186.1 million), representing 6.8% of total revenues, compared to 5.3% in the corresponding period in 2015.

Depreciation costs as a component of cost of revenues were RMB802.3 million ($120.3 million), representing 4.4% of total revenues, compared to 3.6% in the corresponding period in 2015.

Operational costs as a component of cost of revenues were RMB1.159 billion ($173.7 million), representing 6.3% of total revenues, compared to 6.8% in the corresponding period in 2015.

Content costs as a component of cost of revenues were RMB2.211 billion ($331.6 million), representing 12.1% of total revenues, compared to 5.0% in the corresponding period in 2015. The increase was mainly due to iQiyi's increased content costs.

Selling, general and administrative expenses were RMB3.596 billion ($539.2 million), representing a decrease of 36.9% from the corresponding period in 2015. The year-over-year decrease was primarily due to a decrease in promotional spending for transaction services.

Research and development expenses were RMB2.614 billion ($391.9 million), a 2.8% decrease from the corresponding period in 2015.

Share-based compensation expenses, which were allocated to related operating costs and expense line items, were RMB418.1 million ($62.7 million) in the third quarter of 2016, compared to RMB400.3 million in the corresponding period in 2015.

Operating profit was RMB2.787 billion ($417.9 million), representing an 11.0% increase from the corresponding period in 2015. Non-GAAP operating profit was RMB3.205 billion ($480.6 million), a 10.1% increase from the corresponding period in 2015.

Income tax expense was RMB1.045 billion ($156.7 million), compared to RMB590.5 million in the corresponding period in 2015. The effective tax rate for the third quarter of 2016 was 25.3% as compared to 19.4% for the corresponding period in 2015. The increase of effective tax rate for the third quarter of 2016 reflects that some loss-generating entities in the group cannot be consolidated for tax purposes under PRC tax law.

Net income attributable to Baidu was RMB3.102 billion ($465.2 million), representing a 9.2% increase from the corresponding period in 2015. Basic and diluted earnings per ADS for the third quarter of 2016 amounted to RMB8.53 ($1.28) and RMB8.51 ($1.28), respectively.

Non-GAAP net income attributable to Baidu was RMB3.447 billion ($516.9 million), a 6.3% increase from the corresponding period in 2015. Non-GAAP diluted earnings per ADS for the third quarter of 2016 amounted to RMB9.92 ($1.49).

As of September 30, 2016, the Company had cash, cash equivalents and short-term investments of RMB78.362 billion ($11.751 billion). Net operating cash inflow for the third quarter of 2016 was RMB2.953 billion ($442.9 million). Capital expenditures for the third quarter of 2016 were RMB1.183 billion ($177.3 million).

Adjusted EBITDA was RMB4.230 billion ($634.3 million) for the third quarter of 2016, representing a 10.1% increase from the corresponding period in 2015. On an apples-to-apples basis, excluding Qunar from Baidu's financials, the adjusted EBITDA represents a 3.1% year-over-year decrease.

Summary of adjusted financial information (excluding Qunar) [7]

(RMB in millions, unless otherwise noted)

Outlook for Fourth Quarter 2016

Baidu currently expects to generate total revenues in an amount ranging from RMB17.840 billion ($2.675 billion) to RMB18.380 billion ($2.756 billion) for the fourth quarter of 2016, representing a 4.6% to 1.7% year-over-year decrease. On an apples-to-apples basis, excluding Qunar from Baidu's financials, the guidance represents a decrease of 2.0% to an increase of 0.9%, year-over-year. This forecast reflects Baidu's current and preliminary view, which is subject to change.

Conference Call Information

Baidu's management will hold an earnings conference call at 8:00 PM on October 27, 2016, U.S. Eastern Time (8:00 AM on October 28, 2016, Beijing/Hong Kong Time).

Dial-in details for the earnings conference call are as follows:

A replay of the conference call may be accessed by phone at the following number until November 4, 2016:

Additionally, a live and archived webcast of this conference call will be available at http://ir.baidu.com.

About Baidu

Baidu, Inc. is the leading Chinese language Internet search provider. As a technology-based media company, Baidu aims to provide the best and most equitable way for people to find what they're looking for. In addition to serving individual Internet search users, Baidu provides an effective platform for businesses to reach potential customers. Baidu's ADSs trade on the NASDAQ Global Select Market under the symbol "BIDU". Currently, ten ADSs represent one Class A ordinary share.

Safe Harbor Statement

This announcement contains forward-looking statements. These statements are made under the "safe harbor" provisions of the U.S. Private Securities Litigation Reform Act of 1995. These forward-looking statements can be identified by terminology such as "will," "expects," "anticipates," "future," "intends," "plans," "believes," "estimates," "confident" and similar statements. Among other things, the outlook for the fourth quarter 2016 and quotations from management in this announcement, as well as Baidu's strategic and operational plans, contain forward-looking statements. Baidu may also make written or oral forward-looking statements in its periodic reports to the U.S. Securities and Exchange Commission, in its annual report to shareholders, in press releases and other written materials and in oral statements made by its officers, directors or employees to third parties.  Statements that are not historical facts, including statements about Baidu's beliefs and expectations, are forward-looking statements. Forward-looking statements involve inherent risks and uncertainties. A number of factors could cause actual results to differ materially from those contained in any forward-looking statement, including but not limited to the following: Baidu's growth strategies; its future business development, including development of new products and services; its ability to attract and retain users and customers; competition in the Chinese and Japanese language Internet search markets; competition for online marketing customers; changes in the Company's revenues and certain cost or expense items as a percentage of its revenues; the outcome of ongoing, or any future, litigation or arbitration, including those relating to intellectual property rights; the expected growth of the Chinese language Internet search market and the number of Internet and broadband users in China; Chinese governmental policies relating to the Internet and Internet search providers and general economic conditions in China, Japan and elsewhere. Further information regarding these and other risks is included in the Company's annual report on Form 20-F and other documents filed with the Securities and Exchange Commission. Baidu does not undertake any obligation to update any forward-looking statement, except as required under applicable law.  All information provided in this press release and in the attachments is as of the date of the press release, and Baidu undertakes no duty to update such information, except as required under applicable law.

About Non-GAAP Financial Measures

To supplement Baidu's consolidated financial results presented in accordance with GAAP, Baidu uses the following non-GAAP financial measures: non-GAAP operating profit, non-GAAP net income attributable to Baidu, non-GAAP diluted earnings per ADS, adjusted EBITDA and free cash flow. The presentation of these non-GAAP financial measures is not intended to be considered in isolation or as a substitute for the financial information prepared and presented in accordance with GAAP.

Baidu believes that these non-GAAP financial measures provide meaningful supplemental information regarding its performance and liquidity by excluding certain items that may not be indicative of its recurring core business operating results, such as operating performance excluding not only non-cash charges, but also other items that are infrequent or unusual in nature. The Company believes that both management and investors benefit from referring to these non-GAAP financial measures in assessing its performance and when planning and forecasting future periods. These non-GAAP financial measures also facilitate management's internal comparisons to Baidu's historical performance and liquidity. The Company believes these non-GAAP financial measures are useful to investors in allowing for greater transparency with respect to supplemental information used by management in its financial and operational decision making. A limitation of using these non-GAAP financial measures is that these non-GAAP measures exclude certain items that have been and will continue to be for the foreseeable future a significant component in the Company's results of operations.  These non-GAAP financial measures presented here may not be comparable to similarly titled measures presented by other companies. Other companies may calculate similarly titled measures differently, limiting their usefulness as comparative measures to the Company's data.

Non-GAAP operating profit represents operating profit excluding share-based compensation expenses.

Non-GAAP net income attributable to Baidu represents net income attributable to Baidu excluding share-based compensation expenses and the gain or loss associated with the issuance of shares by Baidu's equity method investees at a price higher or lower than the carrying value per share.

Non-GAAP diluted earnings per ADS represents diluted earnings per ADS calculated based on non-GAAP net income attributable to Baidu.

Adjusted EBITDA represents operating profit excluding depreciation, amortization and share-based compensation expenses.

Free cash flow represents net cash provided by operating activities less capital expenditures.

For more information on non-GAAP financial measures, please see the tables captioned "Reconciliations of non-GAAP financial measures to the nearest comparable GAAP measures".

For investor and media inquiries, please contact:

Sharon Ng
Baidu, Inc.
Tel: +86-10-5992-4958
Investor inquiries email: [email protected] 
Media inquiries email: [email protected]

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SOURCE Baidu, Inc.