By Yingzhi Yang and Ayanti Bera
(Reuters) – Chinese search engine giant Baidu Inc. posted quarterly earnings ahead of estimates, but its shares slipped in extended trading after its streaming service iQIYI said it was rated by the U.S. Securities and Exchange Commission.
Baidu’s second-quarter revenue fell 1% to 26.0 billion yuan ($ 3.8 billion) from the same period a year earlier, but was better than an average analyst estimate of 25.7 billion yuan.
It forecast third-quarter revenue of 26.3 billion yuan to 28.7 billion yuan, in line with estimates compared to 28.0 billion yuan for the same quarter a year ago.
But the results were overwhelmed by the iQIYI revelation of the survey. Shares in iQIYI, a Netflix-like video streaming service, dropped as much as 19%, while Baidu shares fell 5.5% in trading after hours. Both are listed on the Nasdaq.
iQIYI said in a statement that it partnered with the SEC seeking financial and operating records dated Jan. 1, 2018, as well as documents related to acquisitions and investments identified in a report released by short-selling firm Wolfpack Research in April.
It said it could not predict the timing, outcome or consequences of the probe and had hired professional advisers to conduct an internal review.
Wolfpack accused iQIYI of inflating user numbers, revenue and the prices it paid for content.
The SEC investigation comes at a time when Washington is threatening to remove Chinese companies that do not meet U.S. accounting standards amid escalating tensions between the world’s two largest economies.
Baidu Chief Financial Officer Herman Yu told a conference call that the company could not immediately comment on iQiyi’s probe, but added that the case is taking longer than usual to resolve due to the COVID-19 pandemic.
“Having an independent set of eyes that monitor the situation is meant to bring accusations to rest,” Yu said. Baidu owns 56% of iQIYI and controls more than 90% of the voting power on its board.
Baidu CEO Robin Li said he expected geopolitical tensions would bring “hiccups” to her company, but that the prospects for her artificial intelligence division meant the company was “cautiously optimistic” about the second half.
Baidu’s revenue from advertising remains under pressure as large companies in industry such as travel and financial services continue to draw on advertising spending.
Revenue from its online marketing services, which include search, news feeds and video apps, fell 8% to 17.7 billion yuan in the second quarter.
($ 1 = 6.9440 Chinese yuan)
(Report by Ayanti Bera in Bengaluru, Yingzhi Yang in Beijing and Brenda Goh in Shanghai; Edited by Edwina Gibbs)
