Baidu and iQIYI Reported Q2-2018 Financial Results

Dear PGM Blog reader,

In this weekend blog article, we want to take the opportunity to discuss with you, the Q2-2018 financial results of Baidu and iQiyi, reported on Tuesday July 31 2018.


Baidu, (NASDAQ: BIDU) the Chinese equivalent of Google is the top internet search engine in China and ranks third globally for usage. In addition to search engine utilization services, the company offers various marketing services and display advertisements.

Second Quarter 2018 Financial Highlights:

  • Total revenues were RMB 26.0 billion (US$3.93 billion), increasing 32% year over year. Mobile revenue represented 77% of total net revenues, compared to 72% for the second quarter of 2017. Total revenues of Baidu Core were RMB 20.0 billion (US$3.03 billion), increasing 28% year over year.
  • Operating income was RMB 5.4 billion ($819 million), increasing 29% year over year. Operating margin was 21%, similar to the second quarter of 2017.
  • Non-GAAP operating income was RMB 6.5 billion (US$988 million), increasing 31% year over year. Non-GAAP operating margin reached 25%, similar to the second quarter of 2017.
  • Net income attributable to Baidu was RMB 6.4 billion (US$967 million), and diluted earnings attributable to Baidu per ADS was RMB 18 (US$2.74). Non-GAAP net income attributable to Baidu was RMB 7.4 billion (US$1.12 billion) and non-GAAP diluted earnings per ADR was RMB 21 (US$3.18).
  • Adjusted EBITDA was RMB 7.4 billion (US$1.12 billion), or 29% of total revenues.


iQIYI, Inc. (NASDAQ: IQ), an innovative market-leading online entertainment service in China, on July 31, announced its unaudited financial results for the second quarter ended June 30, 2018.

Second Quarter 2018 Highlights

  • Total revenues were RMB6.2 billion (US$932.5 million), representing a 51% increase from the same period in 2017.
  • Operating loss was RMB1.3 billion (US$200.7 million) and operating loss margin was 22%, compared to operating loss of RMB990.7 million and operating loss margin of 24% in the same period in 2017.
  • Net loss attributable to iQIYI was RMB2.1 billion (US$316.9 million), compared to RMB953.2 million in the same period in 2017. Diluted net loss attributable to iQIYI per ADS was RMB3.01 (US$0.45).
  • The number of total subscribing members were 67.1 million as of June 30, 2018, representing a 75% increase from 38.3 million as of June 30, 2017. The number of paying subscribing members were 66.2 million as of June 30, 2018.


Although both companies performed well from a fundamental perspective in the second quarter of 2018, their share prices got shaven for which the ones of BIADU and iQIYI, respectively pulled back with approx. 8% and 9%, in the week of July 30, as can be seen from below charts.

What Happened:


The company has performed really well from a fundamental perspective. Earnings have grown by 17% per year over the last three years and grew by 108% in the most recent quarter. Sales have grown by an average of 12% over the last three years and grew by 36% in the previous earnings report. The return on equity is a solid 21.9% and the profit margin is at 29.5%.

Looking at the past earnings announcements, Baidu has blown out expectations every time over the last four reports. Three times the stock jumped after earnings, but last fall the stock fell by 8.0%.

We believe that the main reason for the fall of the shares of the company after its blockbuster earnings report, was mainly due to the abundance of optimism ahead of its earnings report.

The looming trade war between USA and China, might also have contributed for investors to see the glass (Baidu shares) half empty instead of half full.  Based on this we maintain our BUY rating on the shares of the Company.


The company’s second quarter results were solid. Revenues grew 51% in local currency to $933 million. Membership services sales exploded 66% to $374 million. And advertising revenues grew 45% to $396 million.

One of the more noteworthy items in the quarter was the net additions for subscribers. The company added 5.8 million members for a total of 67.1 million. To put this in context, Netflix added just 5.15 million in its last reported quarter.

We believe that the haircut of shares of the company is mainly due to herd mentality of traders after a Goldman Sachs analyst, downgraded to shares on Thursday August 2nd, from BUY to Neutral, stated that;

“The rallied market price has factored in positive upsides and we see greater upside potential elsewhere in our coverage universe.”

We believe that the main risk at IQ is competition, based on this we are looking forward to Tencent (HKE: 00700) earnings report on August 15th, for which it will be important to look for the subscriber growth in Tencent Video.

Based on the above we believe iQIYI Q2-2018 earning report deserved more attention than it was given. Huge net-additions for subscribers, a transition to in-feed advertising and an acceleration in the ‘other’ operating segment are important pieces of the puzzle, which are under-appreciated portions of what, in what was in our opinion, a solid quarterly report for the company. Based on this we maintain our STRONG BUY rating on the shares of the company and believe that below quotes of Warren Buffett and John Maynard Keynes are applicable.


We are long iQIYI and Baidu and have add more shares of both to our personal portfolio last week.

Last but not least, before taking any investment decision, always take your investment horizon and risk tolerance into consideration and keep in mind that; share prices don’t move in a straight line, that Past Performance Is Not Indicative Of Future Results and that technology stocks and stocks of emerging markets, experience a higher volatility than the ones of develop market big-caps.

Yours sincerely,

Eric Panneflek

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