Firm urged to reform its business model
An official investigation into online search engine giant Baidu Inc will bring short-term pain for the company, but it will also be an opportunity for the firm to pursue a healthier business model, analysts said Wednesday.
The comments came after some market reports suggested the probe would impact Baidu's revenue and share price, while others said it would not have a big long-term effect on the company.
"Without a doubt, this will bring some short-term pain for Baidu," Liu Dingding, an industry analyst with Beijing-based market research firm Sootoo, told the Global Times on Wednesday.
Liu said that as a result of the investigation, Baidu is very likely to lose revenue generated from paid listings for healthcare products and services.
The probe will force Baidu to clear fake advertisements for healthcare products and services from its platforms, which will cut its revenue in 2016, Hong Kong-based business news portal etnet.com reported Wednesday, citing a report from BOCOM International Securities Ltd.
Baidu's revenue growth this year will likely fall from 24 percent to between 18 and 21 percent, according to etnet.com, which also said that the BOCOM report maintained a buy rating for Baidu's shares.
Baidu saw strong results in the first quarter of 2016, with revenue reaching 15.82 billion yuan ($2.45 billion), up 31.2 percent from the same period last year, the company reported on April 28.
And online marketing revenue in the quarter reached 14.93 billion yuan, increasing 19.3 percent year-on-year, it said.
"A big portion of the online marketing revenue [for Baidu] is from paid listings for healthcare products and services," Li Chengdong, a Beijing-based Internet industry analyst, told the Global Times on Wednesday.
Reputation at stake
Li said the company will not only suffer from a hit to its revenue but also from damage to its reputation, which will hurt investors' confidence and thus dampen the company's share price.
Shares in NASDAQ-listed Baidu have tumbled following news of the investigation into the company and its paid listing business after the death of a university student who used the search engine to look for treatment.
On Tuesday, Baidu's share prices dropped 2.54 percent to close at $174.36 per share. That followed a 7.92 percent drop in its shares on Monday, when news broke about the official investigation into the company.
The Cyberspace Administration of China, the State Administration for Industry and Commerce and the National Health and Family Planning Commission announced Monday that a team has been formed to investigate Baidu following the death on April 12 of Wei Zexi, a 21-year-old student from Northwest China's Shaanxi Province.
Wei had been suffering from a rare form of cancer and had sought medical treatment at a hospital in Beijing that was one of the top Baidu search results he found. He chronicled his substandard treatment online, which prompted a public outcry after his death.
"This is not the first time that Baidu has been involved in this kind of incident," said Li. "And sooner or later it has to change, because generating revenue through listing fake ads is just not sustainable."
And that is not necessarily a bad thing for Baidu's long-term growth, according to Liu Dingding.
"This is a great opportunity for Baidu to overcome internal obstacles to reform its business model and become more healthy and transparent," he said.
Despite the short-term difficulties, Baidu's dominant position in the Chinese search engine market will not change, Liu noted, even though major competitors such as 360 Search and Bing will benefit from the investigation and regulations for paid online listings will get tougher.
"The likely change in the search engine market, as a result of this incident, will be more regulations and transparency, which is great for the industry and the users," Liu said.
On Tuesday, 360 Search issued a statement saying it will no longer promote healthcare products, according to domestic IT news website donew.com.
"360 Search is willing to create a clean, safe Internet search environment, along with other search engine companies and relevant agencies, through actions," the statement said.
