Shares of Chinese search engine giant Baidu slid on Aug. 14 after its streaming service iQiyi said it’s being probed by the U.S. Securities and Exchange Commission (SEC).
Meanwhile, Baidu said second-quarter revenue fell 1 percent 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.
The better-than-expected results were overshadowed by iQiyi‘s disclosure of the investigation. Shares of iQiyi, a Netflix-like video-streaming service, tumbled as much as 19 percent, while Baidu shares fell 5.5 percent in after-hours trading. Both iQiyi and its parent company are listed on the Nasdaq.
IQiyi said in a statement that it’s cooperating with the SEC, which is 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. Short-sellers make money by investing in such a way that the investor will profit if the value of the asset falls.
The company said it couldn’t 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 don’t 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 that the company is unable to comment directly on iQiyi‘s probe, but said the matter might take longer than normal to resolve, due to the COVID-19 pandemic.
Baidu owns 56 percent of iQiyi and holds more than 90 percent of voting power on its board.
Baidu CEO Robin Li said that while he expects geopolitical tensions to bring about “hiccups” for its business, prospects for its artificial intelligence division position the company as “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 percent to 17.7 billion yuan in the second quarter.
By Yingzhi Yang and Ayanti Bera