By Cate Cadell
BEIJING (Reuters) - Baidu Inc's <BIDU.O> revenue fell for a second straight quarter, hurt by a government crackdown on healthcare advertising, but the internet search giant expects a rebound this year as it retools to find growth outside its core ad business.
The company has stumbled over the past few years - firstly from a cash-burning subsidy war with rivals such as Alibaba <BABA.N> in businesses like food delivery, movie tickets and taxi hailing, and more recently from a regulatory backlash following the death of a student who underwent an experimental cancer treatment that he found using Baidu's search engine.
Baidu has been forced to slash healthcare ads under a new government compliance code. Analysts estimate healthcare accounts for about 20-30 percent of the company's search revenue, which represents more than 80 percent of its total sales.
Baidu is now retreating from loss-making ventures outside of search and shifting resources into artificial intelligence (AI). It hired Qi Lu, a top Microsoft <MSFT.O> executive, last quarter to oversee the shift to AI in a shake up it hopes will steer revenue growth back into positive territory.
"We believe that the impact of these initiatives (slashing healthcare ads) is mostly behind us and we look forward to 2017 as a time of recovery and growth," Chief Financial Officer Jennifer Li said in a statement on Friday.
The firm expects its revenue to rise by about 4.2-7.6 percent over the three months to March 2017, the first such increase in three quarters. Analysts on an average expect a 7.6 percent rise, according to Thomson Reuters data.
In the quarter ended December 2016, Baidu's revenue fell 2.6 percent to 18.21 billion yuan ($2.65 billion), from 18.70 billion yuan a year earlier, coming in at the higher end of a range forecast by the company..
Net income slumped over 80 percent to 4.13 billion yuan, partly due to the closure of a deal in the same period a year earlier when Baidu received a 25 percent stake in Chinese travel company Ctrip.com International Ltd in return for a 45 percent stake of Baidu's travel affiliate Qunar Cayman Islands Ltd.
Baidu's U.S.-listed shares rose more than 1 percent after the bell on Thursday as net income outstripped analysts' estimates of about 2.3 billion yuan.
The internet search giant did not make any further comments on media reports from earlier this week that said its CEO, Robin Li, had been issued a travel ban by authorities. On Wednesday, Baidu denied the news.
A crackdown on corruption in China, spearheaded by President Xi Jinping, has ensnared a number of high profile executives and sparked media speculation about others.
(Addtional reporting by Laharee Chatterjee in Bengaluru; Editing by Himani Sarkar)