China Internet Giant Baidu's Mobile Services Pays Off

Eileen Meng Lu  |

Baidu, Inc. (BIDU) shares were up 10% on July 25, hitting itsone-year high of $224.85 per share after Baidu reported higher than expected 2014 Q2 results the day before.  

Baidu’s Upbeat Earnings

On Thursday after market close, Baidu reported earnings per share of $1.73, 35% higher than the consensus estimated EPS of $1.28 a share. The company generated $1.932 billion revenue in the second quarter, beating the estimate of $1.92 billion.  Its sales soared 59% than the year-ago period, and its major online marketing sales was up 57%.  

Baidu CEO Robin Li said, "Baidu's scope now embraces 'connecting people with services', and we will continue leveraging our vast traffic resources, deep product portfolio and world class technology to fulfill this broader mission."

The major truncation of higher profit is Baidu's strong mobile momentum, according to Li. 

Eye on China’s Mobile Service Market

As the dominant force in the Chinese internet search market, Baidu – known colloquially as the “Google (GOOG) of China” –has paid special attention to China's increasing demand of mobile services. Baidu makes most of its profit from advertisement in its search engine, but in recent years the company has spent heavily to strengthen services in mobile devices including smartphones and tablets. 

In 2013, Baidu bought a 59% stake of Chinese "Groupon (GRPN) " site Nuomi for $169 million, and also acquired the country's leading mobile-app store 91 Wireless Websoft Ltd. for $1.9 billion. In May the company also invested $300 million in a new research center in California led by a former head of   Stanford University's artificial-intelligence lab. 

The company's bet on mobile services has now started to pay off. In the earnings report, Baidu's mobile services revenue reached 30% of total revenue for the first time.. Correspondingly, selling and administrative expenses doubled to $346.4 million for promotional cost. 

Following the report, Baidu’s stock was up 7.6% in after-hours trading, and continued to increase on Friday. Following the strong Q2 results, Baidu booked a $2.1 - 2.2 billion revenue for 2014 third quarter, 50.9% to 55% higher than last year's same period. 

Over the past decade, the company's stock performance has been quiet solid with high P/E all the way. Over the years, its earnings beat investors' expectations with higher intrinsic values. Headquartered in Beijing, the Chinese web service giant established in 2000, and went IPO in 2005 at $27 per share. Considered as the hottest IPO of the year, Baidu announced 10:1 split in 2010 and ended up $112.5 per share on the day. It steadily climes up and today ends up to more than $220 a share, at roughly $80 billion market cap.


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