(Bloomberg) -- Baidu Inc. agreed to buy Joyy Inc.’s livestreaming business for China, a deal that will mark the search engine giant’s biggest foray into the fastest-growing arena of digital video.
The company will pay about $3.6 billion in cash for Joyy’s YY Live, according to a statement. Baidu unveiled the deal after it posted revenue for the September quarter that beat analysts’ estimates.
Once the runaway leader in desktop search, Baidu is trying to adapt its business to the mobile era but losing ground piecemeal to rivals such as TikTok-owner ByteDance Ltd. By taking over Joyy’s YY streaming network, Baidu gets ahold of a $1.8 billion business with 4 million paying users who splurge on virtual gifts to tip their favorite performers. Joyy will keep the operations of its other video and streaming platforms for users outside China.
The YY deal could help Baidu catch up in the heated arena of online entertainment after a late start in the relatively newer sphere of livestreaming video, which in past years has taken China by storm. To compete for users and advertisers, Baidu’s core search app is morphing into a platform hosting a wide array of content from articles to videos, not unlike Tencent Holdings Ltd.’s WeChat. Its Netflix-style iQiyi Inc. is also going head-to-head with services run by Tencent and Alibaba Group Holding Ltd.
“This is an offensive move after we made progress in building our mobile ecosystem,” Chief Executive Officer Robin Li said in a staff memo viewed by Bloomberg News. “Baidu will become one of China’s leading live-streaming platforms, taking another leap in our strategy of revenue diversification.”
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Baidu has in the past made bets on online services from music to smartphone games and food delivery, only to abandon these attempts amid fierce competition. It remains largely an advertising platform whose business is vulnerable to cycles in the economy, so YY’s major earnings driver of virtual gifting could help it get comfortable with tapping consumer spending. YY itself is losing appeal to hotter formats like video-streaming platform Bilibili Inc., the TikTok-like Kuaishou and TikTok’s Chinese twin Douyin -- a problem also faced by Baidu’s own iQiyi. YY’s paying users actually declined 4.7% in the September quarter, while iQiyi’s membership service growth has plateaued.
“Baidu is always very late. Like three to five years after the market is already there, it will start to make its entrance,” said Raymond Feng, a Shanghai-based analyst with Pacific Epoch. “Looks like that hasn’t changed much, and that’s not great for a Chinese internet company.”
Competition aside, China’s attempt to rein in its most powerful private-sector companies remains a source of concern to investors. The country’s antitrust watchdog last week unveiled a raft of regulations to root out monopolistic practices in internet sectors including search and e-commerce. Baidu -- which operates in a country where Google search doesn’t exist -- has repeatedly run afoul of regulators for promoting content deemed problematic.
Baidu forecast sales of 28.6 billion yuan ($4.2 billion) to 31.3 billion yuan for the December quarter, compared with estimates for 29 billion yuan. Revenue was little changed at 28.2 billion yuan in the three months ended September, versus an average forecast for 27.5 billion yuan.
Started in 2005 as a chat tool for gamers, YY was among the pioneers of a way to monetize livestreaming by taking a cut of virtual gifts bestowed by fans. In 2014, its parent launched Twitch-style Huya Inc. using the same model. That unit was later spun off and is now in the middle of merging with DouYu International Holdings Ltd. to create a $10 billion game-streaming giant controlled by Tencent.
Baidu has over the past years expanded its investment into content needed to attract and keep users, backing social media platforms including Q&A site Zhihu. Longer term, the 20-year-old company is investing in artificial intelligence technology and betting on commercializing AI through smart speakers and self-driving cars. In September, its smart speaker unit received its first independent financing round at a valuation of $2.9 billion.
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(Updates with executive’s comments from the fifth paragraph)
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