Baidu Considers IPO of Streaming Video Unit iQiyi--Update
By Maria Armental
Baidu Inc. is considering listing online-video unit iQiyi in the U.S. as a separate public company while increasing investment in its mobile and artificial intelligence.
The investments, coupled with exiting parts of the business no longer deemed key to its operations, "will sow the seed for Baidu's future growth in autonomous driving and conversational AI, particularly in the home environment," Chief Financial Officer Herman Yu said in a statement.
IQiyi, which in 2016 broke the $1 billion revenue mark, is China's leading streaming service and competes with the likes of Alibaba Group Holding Ltd.'s Youku Tudou and Tencent Holdings Ltd.'s Tencent Video. Last year, it became the only Chinese service to license shows from U.S. streaming giant Netflix Inc.
In New York trading, Baidu's American depositary receipts have outperformed the market, rising 22% over the past 12 months through Tuesday's closing. Baidu's ADRs rose 5% to $237.03 in after-hours New York trading.
As it released fourth-quarter and annual results on Tuesday, Baidu confirmed it had filed preliminary documents for an initial public offering in the U.S. If it ultimately goes through with the IPO, Baidu said it expects to remain iQiyi's controlling shareholder.
The long-awaited move follows iQiyi's $1.53 billion fundraising last year, which included a $300 million investment from Baidu.
The investment came months after investors balked at a $2.3 billion buyout bid from a group led by Chief Executive Robin Li, saying the proposal undervalued the unit.
Founded in 2000, Baidu built its business around online search. But as the core search business reaches maturity, Baidu has moved to make AI the centerpiece of its business plan.
Baidu has pledged to deliver a self-driving bus by the end of the year and fully autonomous cars by 2021.
The heavy investment comes with a price tag, however, and research-and-development costs reached 3.7 billion yuan ($569 million) in the most recent period, up 25% from the year earlier.
Meanwhile, content costs reached 3.75 billion yuan, up 46% from the year-ago period, with most of that increase coming from iQiyi as Baidu pushed to stay ahead in China's fiercely competitive video-streaming sector.
Overall, fourth-quarter profit edged up to 4.16 billion yuan, or 12.38 yuan an ADR. Excluding stock-based compensation and other items, profit rose to 14.90 yuan an ADR from 13.23 yuan a year earlier.
Revenue rose 29% to 23.56 billion yuan, beating internal projections.
Analysts surveyed by Thomson Reuters expected 13.38 yuan an ADR in adjusted profit and 23.05 billion yuan in revenue.
Revenue from online marketing, which contributes the bulk of Baidu's top line, rose 26% in the latest period as Baidu reported a 2% increase in the number of active online marketing customers and continued to squeeze more money from each advertiser.
Meanwhile, Baidu's other service revenue, which is typically driven by iQiyi subscription services, surged 53% to 3.14 billion yuan.
For the current quarter, Baidu expects 19.86 billion yuan to 20.97 billion yuan in revenue ($3.05 billion to $3.22 billion), compared with analysts' estimates of 21.18 billion yuan.
Write to Maria Armental at email@example.com
(END) Dow Jones Newswires
February 13, 2018 19:12 ET (00:12 GMT)Copyright (c) 2018 Dow Jones & Company, Inc.