April 27, 2017 / 8:43 PM / in 3 months

Baidu sees weak second quarter as ad business curbs hurt; shares fall

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Baidu's company logo is seen at its headquarters in Beijing December 17, 2014.Kim Kyung-Hoon

BEIJING (Reuters) - Baidu Inc on Friday forecast second-quarter revenue largely below estimates as the Chinese internet company continues to grapple with Beijing's restrictions on its lucrative medical advertisements segment, sending its shares down six percent in extended trading.

Baidu forecast second-quarter revenue between 20.47 billion and 20.98 billion yuan ($2.97 billion-$3.04 billion), largely below analysts' estimate of 20.84 billion yuan.

Baidu started restructuring its business last year after Beijing rolled out new requirements for medical advertisers, denting the firm's lucrative healthcare advertising business which accounted for about 20-30 percent of its total search revenue.

Net income attributable to Baidu fell to 1.78 billion yuan in the quarter ended March 31, a 10.4 percent drop from 1.99 billion yuan a year earlier, the company said.

Detailing the company's ongoing plans to strip or consolidate loss-making ventures and refocus resources, the management said in an earnings call on Friday that it will focus on artificial intelligence.

"Our focus is two-fold: to enhance and expand our existing core platform and to lead the commercialization of AI technology," Baidu COO Lu Qi said on the call.

The company will fold its transaction services, including maps, delivery and financial services, into core search business, and will no longer report those metrics separately.

Baidu's chief financial officer Jennifer Li will step aside and take over as the chief executive of Baidu Capital, the company's 20 billion yuan ($2.90 billion) investment fund established last year.

The fund, which will focus on mid-to-late stage deals, is a core vehicle in the firm's effort to kick-start its new technology initiatives.

Baidu will continue to scale back spending on group-buying platform Nuomi, moving from a transaction-based model to an advertising model, Li said.

Baidu pledged to invest 3.2 billion in Nuomi in 2015, but the embattled business has been buffeted by competitors. Last month, the head of the loss-making unit was fired over kickbacks.

All incremental research and development costs this year will go towards artificial intelligence with a focus on personnel, Li added.

Baidu's first-quarter revenue rose to 16.9 billion yuan ($2.45 billion) from 15.82 billion yuan a year earlier, marginally above the 6.4 percent growth that 13 analysts surveyed by Thomson Reuters had expected.

Baidu in February forecast first-quarter revenue of 16.48 billion-17.03 billion yuan.

Reporting by Aishwarya Venugopal in Bengaluru and Cate Cadell in Beijing; Editing by Martina D'Couto and Vyas Mohan

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