Baidu, iQiyi shares tumble amid SEC investigation

Yahoo Finance's Emily McCormick and Kristin Myers discuss Baidu's latest earnings results, along with news that iQiyi is co-operating with an investigation from the Securities and Exchange Commission.

Video Transcript

KRISTIN MYERS: Welcome back to Yahoo Finance. Looking right now at Baidu, the tech company right now is down over 6 and 1/2% after they faced pressure from ByteDance, which forced their revenue to shrink. So for more on this, we're joined now by Yahoo Finance's Emily McCormick. Hey, Emily.

EMILY MCCORMICK: Hi, Kristin. So as you mentioned, taking a look at Baidu's results for the fiscal second quarter, China's top search engine did see revenue shrink about 1% to 26 billion yuan, or about $3.7 billion. Really driven here by an increase in competition. You mentioned ByteDance being a big component of that.

If we also think about Tencent and some of those other companies within that, that are also competing just within the online advertising space and in China specifically. So if we take a look at Baidu's business overall, with any ad-driven business that we've seen, whether in the US, internationally, or in China, they have been facing pressure as well just because of the pandemic.

The fact that other companies that serve as customers have been pulling back on their marketing spend in the face of the outbreak. So something to watch here as we look ahead for Baidu. If we think about some of the longer term investments as well, though, Baidu did mention in its earnings results that it's been investing more in artificial intelligence technology, its smart devices.

It noted that revenue for these endeavors specifically grew by double digit percentages in the second quarter. Although, it didn't break out those actual raw figures. So finally, last thing I want to point out from Baidu's results, did note the geopolitical aspect might not be as big of an overhang as it might be for some of these other companies listed in the US, but based in China, if we think about US senators trying to delist Chinese companies because of accounting concerns.

One of the things that CFO Herman Yu said during yesterday's earnings call was that geopolitical tensions with the US, quote, "Doesn't have a meaningful impact due to Baidu's limited exposure outside China." So again, we do see shares of Baidu falling in intraday trading because of this miss on results, some light guidance, and, as I know we're going to be talking about, some concerns over its investment with iQiyi.

KRISTIN MYERS: So speaking of iQiyi, they are facing an SEC probe. Give us more details about that.

EMILY MCCORMICK: Well, iQiyi said yesterday in its earnings results that it was being investigated by the US Securities and Exchange Commission. What the SEC is looking into is the production of certain financial and operating records dating from January 1, 2018, as well as documents related to certain acquisitions and investments that were identified in a report issued by short-seller firm Wolfpack Research in April 2020.

Now, that research report had alleged that iQiyi inflated its 2019 revenue by as much as 13 billion yuan, or nearly $2 billion, for in as much as a 44% overstatement versus actual results. Now, we do see shares of iQiyi actually falling about 15% in intraday trading. Also dragging down Baidu as well since that is the majority shareholder here of that company based in China. Kristin.

KRISTIN MYERS: Thanks so much, Emily.