New Regulation Implemented to Target Search Advertising on Internet Companies

New Regulation Implemented to Target Search Advertising on Internet CompaniesChina’s biggest internet companies will see a hit in their earnings after a new regulation will be implemented as the country does a firmer grip on search advertising. The State Administration for Industry and Commerce released the new regulation which classifies paid searches are internet advertising. Revenues from the new regulation can be subjected to an additional 3 percent culture cultivation tax.

These moves forces Internet giants such as Baidu Inc,who runs the biggest online search engine to slash its fiscal 2017 net income to 16.3 billion an estimate that is 4 percent below the average estimates that is compiled. Alibaba Group Holdings will also be affected as 50 percent of its revenue for the first quarter is affected, showing a 2.4 percent hit to their earnings. Furthermore the market will expect cuts in their 2017 – 2019 earnings forecasts for Alibaba and Baidu after adding the surcharge burden. The new regulation takes effect on September 1, as the government increased their efforts in overseeing the $23 billion internet advertising market.

Baidu said that it will fully implement the new regulation, as Alibaba decision on a pay for performance ads will charge a 3 percent fee might impact on the margin in the low single digit range as the company’s revenue channel is becoming more diversified. Analysts say that there will still be a positive impact on the Chinese online advertising industry since its clear that the advertising publishers have the obligation to review ad contents and advertisers from certain industries need to obtain relevant licenses before they can do online advertising.

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