INTERNET: Baidu Tackles Profit-Challenged Nuomi, Takeout Dining

Bottom line: Baidu could soon make big cuts at Nuomi and sell or spin off the unit by year end, while it will also put its takeout dining unit on a strict diet that forces it to show a clear path to profitability by year end.

After years of hemorrhaging money from its newer online-to-offline (O2O) businesses, leading search engine Baidu (Nasdaq: BIUD) may finally be saying enough is enough. That seems to be the message coming from new reports that say the company has launched a campaign to improve performance at its massive businesses that combine real-world services like watching movies and buying restaurant food with web-based ordering systems.

The reports point to Baidu’s Nuomi group buying site as a particular center where the clean-up campaign has begun, but I also suspect a similar move may be taking place at its equally massive and money-losing takeout dining service. That pair of new businesses are massive cash-burners at Baidu, alongside the company’s iQiyi online video service and its Qunar (Nasdaq: QUNR) online travel agent.

Company watchers will know that Baidu has effectively spun off Qunar and merged the unit with the better run and highly profitable Ctrip (Nasdaq: CTRP) by now. Likewise, it’s trying to spin off iQiyi to give it more independence, and if iQiyi’s chief is to be believed that unit could achieve break-even as soon as next year.

But Nuomi and Baidu’s takeout dining unit have been more problematic, as neither seems close enough to profitability for major outside investors to take an interest. The latest reports cite Baidu saying it has embarked on an “urban beautification” campaign for Nuomi since December, without giving too much more detail. (Chinese article)

A company spokesperson is quoted saying that the drive is seeing Nuomi’s people involved in direct sales moving into more of an agent role, and adds that the types of products being offered over the group buying platform aren’t affected. Some are interpreting that as a signal of job cuts, though Baidu isn’t comment on whether or not any jobs are being lost.

The same report does cite an internal source saying since a new head of Nuomi was recently installed, everyone has been waiting for the ax to fall with job cuts. That same source also points out that Nuomi was previously planning to spin off its movie unit and do some separate fund raising, but that plan has been scrapped.

The source also notes that a top executive at Baidu’s takeout dining unit recently jumped ship and joined rival Meituan-Dianping, which is far larger and may already be profitable as it eyes an IPO as early as this year. I’ve personally noticed that the number of Baidu takeout delivery scooters on the streets of Beijing seems to have dropped noticeably since the start of the year, though it’s hard to say if that’s a seasonal thing or perhaps even just something I’m imagining.

Big Changes in Store?

But my own perception, combined with this latest report, does seem to point to big changes brewing behind the scenes at these two money-losing O2O businesses. Baidu was previously famous for its inability to diversify beyond its core online search business, but later found a recipe for relative success by buying existing companies.

That model saw Baidu buy controlling stakes of Qunar and iQiyi, and purchase Nuomi outright. All three of those units became major players in their fields, thanks in no small part to generous support from their wealthy parent. But despite big gains in market share, none of the 3 could find a formula for profits, sparking a revolt by minority shareholders tired of seeing search engine profits funneled back into these loss-making black holes.

One final piece of this puzzle occurred about a year ago, when Baidu’s core search business took a major hit due to a scandal involving misleading search results. The company’s stock is down about 15 percent from the time of the scandal, and was down by as much as 25 percent before a recent rally at the start of this year.

All that brings us back to the present, and what the Year of the Rooster might hold for Nuomi and Baidu’s takeout dining service. I suspect Nuomi is probably set for a major haircut this year, kicking off a process that could ultimately see it spun off or sold to an outside buyer. The takeout business might get a little more time, since it’s relatively newer than Nuomi. But I also suspect that unit is probably living on a tight timeline, which could see it make some major adjustments that allow it to show by the end of this year that it’s moving in the direction of profitability.