Baidu Inc. (ADR) (NASDAQ:BIDU) Moves Into Service Industry Despite Investor Concerns

Baidu Inc.’s (ADR) (NASDAQ:BIDU) Robin Li wants to diversify the services offered by the top search engine in China; these include helping people to book a doctor’s appointment or get their laundry delivered. Li believes that the future lies in services connecting people to entrepreneurs and businesses in the real world. He is investing billions of dollars in his vision potentially risking a revolt among investors for sacrificing today’s profits for future growth.

The vision of Li was made clear in the last week’s annual Baidu conference where he barely mentioned the search aspect of his business that makes up the bulk of revenue generation. Rather Li devoted his time to pushing online-to-offline (O2O) services. According to Li the advertising business is big however the services and retail business is much more lucrative and he expects it to eclipse the search revenue over time. The business model is already in action in places like Beijing where people can use apps to get their laundry done or hire a chef.

The vision of Robin Li is however seen with scepticism by the investors who are concerned with the stocks which have already lost 38% in value this year. Li has also driven the operating margins down to 21% in the second quarter from 52% three years earlier. The weak outlook of Baidu also comes at a time when the Chinese economy is not doing well. Li however blames the American investors for not appreciating the changes in China and the boom of O2O services due to smartphones. He feels that the loss in Baidu’s shares at Nasdaq is due to the shareholders not seeing the opportunity.

Baidu faces intense competition in China from dozens of start-ups and big companies like Alibaba Group Holding Ltd. (NYSE:BABA) and Tencent Holdings Ltd. Still Li is determined to grab the lead in service industry despite low to nil profitability as he believes it will train the consumers for profitable ventures in future.

To achieve its goals Baidu Inc.’s (ADR) (NASDAQ:BIDU) is tapping its $12 billion in reserves and capitalizing on its leading share of search users in China. The company also employs 20,000 strong sales force and a team of scientists in Silicon Valley and Beijing to develop computing tech.

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