by

By Yingzhi Yang and Ayanti Bera

(Reuters) – Chinese search engine big Baidu Inc posted quarterly profits a notch in advance of estimates, but its shares slid in prolonged trade immediately after its streaming provider iQIYI said it was remaining probed by the U.S. Securities and Exchange Fee.

Baidu’s 2nd-quarter revenue fell 1% to 26. billion yuan ($3.8 billion) from the exact same period of time a calendar year before but was greater than an normal analyst estimate of 25.7 billion yuan.

It forecast 3rd-quarter income of 26.3 billion yuan to 28.7 billion yuan, in line with estimates and which compares with 28. billion yuan for the identical quarter a calendar year back.

But the benefits have been overshadowed by iQIYI’s disclosure of the investigation. Shares in iQIYI, a Netflix-like online video-streaming assistance, plunged as substantially as 19% though Baidu shares dropped 5.5% in right after-hours trade. Each are mentioned on the Nasdaq.

iQIYI mentioned in a statement it was cooperating with the SEC which was trying to get monetary and functioning records courting from Jan. 1, 2018, as very well as documents similar to acquisitions and investments identified in a report issued by quick-vendor business Wolfpack Research in April.

It explained it could not forecast the timing, consequence or penalties of the probe and had hired qualified advisers to conduct an inner review.

Wolfpack accused iQIYI of inflating user figures, profits and the prices it pays for content material.

The SEC investigation will come at a time when Washington has threatened to delist Chinese businesses that do not meet U.S. accounting benchmarks amid escalating tensions in between the world’s two most significant economies.

Baidu Main Financial Officer Herman Yu told a convention call the firm was not able to comment directly on iQiyi’s probe but extra the make any difference could just take for a longer time than ordinary to resolve due to the COVID-19 pandemic.

“Having an impartial set of eyes reviewing the circumstance is intended to set allegations to relaxation,” Yu mentioned. Baidu owns 56% of iQIYI and instructions extra than 90% of voting electricity on its board.

Baidu CEO Robin Li explained he expects geopolitical tensions to provide about “hiccups” for its business enterprise but that prospective clients for its artificial intelligence division meant the corporation was “cautiously optimistic” about the next 50 %.

Baidu’s revenue from marketing continues to be less than force as major businesses in industries these kinds of as journey and economical expert services carry on to pull again on advert investing.

Earnings from its on line promoting companies, which includes search, news feeds and video clip apps, fell 8% to 17.7 billion yuan in the next quarter.

(Reporting by Ayanti Bera in Bengaluru, Yingzhi Yang in Beijing and Brenda Goh in Shanghai Enhancing by Edwina Gibbs)