Chinese search engine Baidu and subsidiary online video streaming company iQIYI have reported lackluster revenue growth in the company’s 2019 full year results. Baidu also warned of a dampening online advertising growth in Q1 2020 amid the COVID-19 epidemic.
In 2019, Baidu’s total revenues were up 5% to RMB107 billion ($15 billion), Online Marketing Services revenue, of which majority are advertising, were down 5% to RMB78 billion ($11 billion); Others, which includes iQIYI subscriptions, smart devices and cloud services, were up 44% to RMB 29 billion ($4 billion).
Separately, iQIYI’s total revenues were up 16%. Online advertising services revenues dropped 11% to RMB8 billion whereas membership services were up 36% to RMB14 billion ($2 billion).
Baidu forecast a 5% to 13% decline in revenues in the Q1 to come due to soft advertising demand.
Baidu and iQIYI attributed advertising revenue falls to the challenging macroeconomic environment in 2019 where the US-China trade tensions have dampened advertising spending by small and medium-sized enterprises. The maturity of the online advertising market and increased competition from emerging players also placed online companies in a tough environment. Short-video platforms, such as TikTok and Kuaishou, have become popular destinations for young people as video content boomed and user’s attention span shortened. These platforms, typically allowing user-generated content of 15 to 60 seconds, have become ideal platforms for advertisers who are targeting young demographic.
Moving into 2020, Omdia forecasts the COVID-19 outbreak to moderately impact China online advertising revenues in first half of 2020, before recovering slightly in the second half. Overall, we project full year online advertising revenues to drop 8% from RMB390 billion ($55 billion) in 2019 to RMB360 billion ($51 billion). Even though online platforms such as social media Weibo and search engine Baidu had reported robust traffic surge during the epidemic, the wider business disruptions have forced advertisers to cut back on advertising budgets.
However, we believe membership services revenue will benefit from the outbreak as millions of Chinese quarantined at home to fight the spread of COVID-19 will increase their use of these services. Revenue from membership services contributed to 50% of iQIYI’s revenues in 2019, an increase from 43% in the year before.