You read that correctly. Despite an increase in profits of 42%, which is a pretty strong showing by anyone’s standards, the stock price fell over 13% on the NASDAQ. How does this kind of thing happen you ask? It appears that Baidu.com is going to suffer from the same issue that has plagued Google for most of its existence which is that no matter how well the engine performs the naysayers will win the day. Remember some of the outrageous numbers that Google used to put up and the following outcry that it wasn’t enough?
Yahoo Finance explains why the stock tumbled despite otherwise chipper news.
The company cautioned that it expects a “temporary negative impact” on fourth-quarter revenue as it completes the transition to its new Phoenix Nest online advertising system and phases out an older system. That sent Baidu shares plunging 13 percent in after-hours trading on the U.S.-based Nasdaq market.
The markets are acting as if they never heard of this new-fangled advertising system and that they perceive it as a threat to the health of the leading Chinese search engine. That’s simply not the case since about 70% of the advertising currently run is already on the new platform.
Baidu’s CEO gives a pretty low-key presentation of this switchover that runs counter to the market’s harried reaction that sent the stock tumbling
“With 70 percent of customers already using Phoenix Nest, we believe this is the right time to complete the switch to the new system,” said chairman and CEO Robin Li in a statement. “We are confident that Phoenix Nest will deliver tremendous benefits to our users, customers and Baidu.”
Maybe people are just too tough on search engines because they think they are a license to print money but despite the admitted possible slowdown it seems to be an irrational non-exuberance regarding the company and its stock.
Of course this kind of short-term reaction to what is eventually a good move long-term for the search engine is evidence of the ‘everything happens right now’ world that we live in. What company hasn’t experienced some short-term pain that has resulted in long-term benefit? It’s normal in business.
Well, maybe it was normal when businesses were run on principles and common sense rather than the day traders and short-term thinkers of today. It’s no wonder that Google offers no guidance on its performance because it will be hung out to dry no matter how good or bad their numbers are. Can’t we start thinking about business again with some common sense rather than uncommon expectations?