(Reuters) – Chinese search engine giant Baidu Inc posted quarterly revenue a notch ahead of estimates, but its shares slid in extended trade after its streaming service iQIYI said it was being probed by the U.S. Securities and Exchange Commission.
Baidu’s second-quarter revenue fell 1% to 26.0 billion yuan ($3.8 billion) from the same period a year earlier but was better than an average analyst estimate of 25.7 billion yuan.
It forecast third-quarter revenue of 26.3 billion yuan to 28.7 billion yuan, in line with estimates and which compares with 28.0 billion yuan for the same quarter a year ago.
But the results were overshadowed by iQIYI’s disclosure of the investigation. Shares in iQIYI, a Netflix-like video-streaming service, plunged as much as 19% while Baidu shares dropped 5.5% in after-hours trade. Both are listed on the Nasdaq.
iQIYI said in a statement it was cooperating with the SEC which was seeking financial and operating records dating from Jan. 1, 2018, as well as documents related to acquisitions and investments identified in a report issued by short-seller firm Wolfpack Research in April.
It said it could not predict the timing, outcome or consequences of the probe and had hired professional advisers to conduct an internal review.
Wolfpack accused iQIYI of inflating user numbers, revenue and the prices it pays for content.
The SEC investigation comes at a time when Washington has threatened to delist Chinese companies that do not meet U.S. accounting standards amid escalating tensions between the world’s two largest economies.
Baidu Chief Financial Officer Herman Yu told a conference call the company was unable to comment directly on iQiyi’s probe but added the matter might take longer than normal to resolve due to the COVID-19 pandemic.
“Having an independent set of eyes reviewing the situation is meant to put allegations to rest,” Yu said. Baidu owns 56% of iQIYI and commands more than 90% of voting power on its board.
Baidu CEO Robin Li said he expects geopolitical tensions to bring about “hiccups” for its business but that prospects for its artificial intelligence division meant the company was “cautiously optimistic” about the second half.
Baidu’s revenue from advertising remains under pressure as big businesses in industries such as travel and financial services continue to pull back on ad spending.
Revenue from its online marketing services, which includes search, news feeds and video apps, fell 8% to 17.7 billion yuan in the second quarter.
(Reporting by Ayanti Bera in Bengaluru, Yingzhi Yang in Beijing and Brenda Goh in Shanghai; Editing by Edwina Gibbs)