Internet titan Baidu Inc said on Thursday that it will use up to $1 billion of its cash to buy back its shares on the open market in the next 12 months.
The move came after the Chinese company's shares tumbled to a 13-month low on the NASDAQ on Tuesday.
Baidu will use its cash balance for the share buyback program, and the size of the program may be adjusted by the board, according to a filing on Thursday.
Analysts said there were two reasons for Baidu's move: the fall in its share price after it announced worse-than-expected second-quarter results and U.S. investors' concerns about its huge investment in the fiercely competitive online-to-offline (O2O) industry.
"Baidu's share repurchase aims to demonstrate that the board has great faith in the company's prospects. It is also aimed at regaining investors' confidence," Liu Xuwei, an industry analyst with market research firm Analysys International, told the Global Times on Thursday.
Baidu's shares were down as much as 18 percent in New York on Tuesday before closing 15 percent lower at $168.03. Several analysts downgraded Baidu's stock after its announcement on Monday U.S. time that second-quarter revenue reached $2.67 billion. That was in line with analysts' estimates, but profits per share stood at $1.81, below the $1.88 consensus.
In its guidance for the third quarter, Baidu gave a range of $2.93 billion to $3 billion, which was short of a consensus reported by the Wall Street Journal of $3.03 billion.
In light of the low earnings growth Baidu was likely to report due to its continued heavy spending on its nascent O2O business, U.S.-based Pacific Crest Securities downgraded the shares from "sector overweight" to "weight", US-based newspaper Investor's Business Daily reported on Tuesday.
Baidu in June said it would invest 20 billion yuan ($3.22 billion) in the next three years to develop its group-buying platform Baidu Nuomi, Baidu's PR representative noted in speaking to the Global Times on Thursday.
Baidu's O2O subsidiary mainly includes Baidu Nuomi and food delivery service Baidu Takeout Delivery. The subsidiary saw its second-quarter gross merchandise volume reach $6.5 billion, up 109 percent year-on-year.
In the second quarter, the company spent $627.4 million, up 81 percent year-on-year, mainly due to a rise in promotional expenses on O2O, according to Baidu's second-quarter report.
Analysts from Deutsche Bank AG and Brean Capital LLC downgraded Baidu to "hold" from "buy" on Tuesday, according to media reports.
Liu said it isn't surprising that overseas investors take a dim view of Baidu's drive into the O2O sector, which they don't think is very promising.
He pointed out that conventional catering and retailing services in the U.S. are mature, leaving little scope for improvement by Internet companies. For that reason, US investors do not see big money in group-buying and e-commerce.
"China's O2O industry is fiercely competitive, with other powerful players such as Alibaba Group Holding and Tencent Holdings also pouring cash into promotions to seize market share. That makes it difficult for Baidu, a latecomer in the sector, to stand out in the short term. This also dampens US investors' appetite for Baidu stock," said Liu.
