Bottom line: Baidu's massive ad cleanup in May and shuttering of a site for travelers reflects ongoing pressure on its core ad-dependent search business while spotlighting its inability to branch into non-search areas.

Search giant Baidu (Nasdaq: BIDU) is in a couple of headlines as we head into the latter part of the week, reflecting two major challenges the company is facing. The larger headline says the company has just removed millions of ads, a whopping 237 million to be precise, for reasons including being misleading and promoting unhealthy topics like porn. The second has the company shuttering a relatively minor travel site, which made me laugh just slightly, since I wasn't even aware the company had such a site.

The first story is certainly the most important, since Baidu still derives the vast majority of its money from ad sales related to its core search business. By comparison, the second story demonstrates once again Baidu's inability to diversify into areas besides search. This particular travel investment, while probably quite small, follows a long stream of similar, and often much larger, investments into other areas like takeout dining, and e-commerce, just to name a few.

The bigger picture is that Baidu has recently become a company in search of a future, as its core ad business comes under fire from an industry slowdown and also from external pressures on the company to clean up the kinds of ads it's now taking down. I've written about these dual pressures recently, including last month when the company reported its first-ever loss. (previous post) Just last week the company was also back in related headlines when it was rebuked by the Shanghai internet regulator for posting misleading and "vulgar" ads. (English article)

All the negative developments have taken a toll on Baidu's stock, which has lost more than a quarter of its value this year. That's officially taken Baidu out of the top three Internet stocks for China, as its current market value of about $40 billion has been below that of online-to-offline services giant Meituan Dianping (HKEx: 3690) for at least a few weeks now.

All that said, let's delve into the latest headlines beginning with the one about Baidu's ongoing cleanup of misleading and otherwise problematic ads. The reports say Baidu took down the 237 million ads in the month of May alone, and also refused a large number of requests for certain misleading keywords on medical topics. (Chinese article) Removed ads fell into a wide range of categories, including ones involving porn, gambling and ones with "harmful" effects on society.

Limited Impact

Baidu hasn't given us any color on how the removal of so many ads might affect its business. Even if we assume each ad just represented a penny of income, the effects would still be relative large, totaling $2.37 million in lost income. But then again, Baidu reported nearly $15 billion in revenue last year, so clearly this won't have a devastating effect. It does underscore the huge number of ads that churn through the Baidu system, as 237 million is a relatively mind-boggling number.

Next there's the travel services news, which is relatively minor and says the company will officially shutter its travel site at the end of this month. (Chinese article) This particular site doesn't really offer travel services, but rather was designed as a place for people to post things like trip photos and other travel memorabilia to show friends and families. The move was apparently a long time coming, as Baidu hasn't updated the service, first launched in 2011, for quite a while.

This particular service was obviously never meant to be a money-spinner for Baidu, and undoubtedly the actual investment was probably quite small. But it does underscore the difficulty the company has had in gaining traction for anything outside its core search business. Baidu's record of major past failures include forays into the travel services business with its now largely-irrelevant Qunar unit, as well as its more recent foray into takeout dining services that it sold two years ago to rival Ele.me.

At the end of the day, these two stories really just continue the theme that's been playing for years: Namely that Baidu is a one-trick pony that for years did quite nicely pumping the booming China ad market with a near-monopoly position to fuel its own growth. But now that those heady days appear to be dwindling with China's sputtering economy and Baidu cleans up its act, it's far from certain what lies ahead for the company.