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Baidu cuts paid ads after user dies, shares fall

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Aly Song | Reuters

Shares of Baidu closed down more than 2 percent Monday after Chinese regulators announced limits on the company's lucrative health care advertisements.

The restrictions came in response to public outcry over the death of a student who underwent experimental cancer treatment he found through the search engine's ads.

Twenty-one-year-old Wei Zexi was treated at the Second Hospital of Beijing Armed Police Corps but the treatment failed, Reuters reported. Before he died in mid-April, Wei used social media to accuse the hospital of making misleading claims about the effectiveness of its treatments and Baidu of promoting false medical claims.

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Health care provides 20 to 30 percent of the company's ad-search revenue, analysts at Nomura and Daiwa told Reuters. Search revenue, they said, represented more than 80 percent of the firm's total 2015 sales. The company brought in $2.5 billion in total revenue for the first quarter of 2016.

Regulators told the country's largest internet search engine that it must ensure that the search position of paid ads was no longer based on the highest bidder, according to a statement on the Cyberspace Administration of China's website. Health care ads should no longer make up more than 30 percent of ads on a page, according to the statement.

The company said in a statement cited by Reuters that it would implement the changes by the end of May.

Baidu's stock dipped nearly 8 percent last Monday after the administration announced a task force to investigate the incident. Shares are down more than 10 percent since the year began, trading around $168 a share this Monday.