Tech giant Baidu (NASDAQ:BIDU) owns China’s largest search engine and mapping platform, the popular video site iQiyi, and links it all together with a vast ecosystem of internet and cloud-based services.
However, investors who are interested in Baidu should take a closer look at its revenue streams to understand the unique challenges that it faces. Today, we’ll discuss how Baidu makes most of its money, the headwinds that it faces, and whether or not the stock is a good buy at current prices.
Baidu Image Search. Image source: Author’s screenshot.
How does Baidu make money?
91% of Baidu’s revenue came fromonline marketing in fiscal 2016. However, revenue at the unit rose just 0.8% to $9.3 billion during the year, due to two main factors.
First, Chinese regulators forced Baidu to remove ads(particularly for healthcare products and services) which were deemed misleading.That crackdown was sparked by the death of a college student who pursued a questionable cancer treatment advertised on Baidu. Several years ago, rival search engine Qihoo 360 notably accused Baidu of generating 30% of its ad revenues fromfake healthcare ads. The resulting purge caused Baidu’s number of active online marketing customers to drop 18.6% annually to 452,000 during the fourth quarter, resulting in an 8.2% year-over-year decline in marketing revenues.
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