Baidu to Boost Mobile Investment After Profit Rises 34%

By Lulu Yilun Chen Baidu Inc. (BIDU) will focus on investing and marketing its mobile applications in the second half to compete with services backed by Tencent Holdings Ltd. (700) after posting earnings that beat analyst estimates.

China’s largest Internet search service will focus on apps used on smartphones and tablet computers for search and mapping, Chief Financial Officer Jennifer Li told an investor call today. Net income rose to 3.55 billion yuan ($572.5 million) in the second quarter, beating the 2.85 billion-yuan average of nine analysts’ estimates compiled by Bloomberg.
Baidu’s mobile revenue contributed more than 30 percent of total revenue for the first time during the quarter, as mobile traffic sometimes surpassed that of desktop users during holidays, Chief Executive Officer Robin Li said on the call. Monthly active users of the company’s mobile search service reached 500 million in June and posted growth in customers for map apps and personal storage services, said Li.
“Baidu’s mobile traffic and revenue contribution were better than expected, as even with heavy investment in the second quarter, it didn’t eat too much into profit growth,” said Yao Yue, a Shenzhen-based analyst with Morningstar Inc. “The company should be able to sustain this level of profit growth in the second half.”

Photographer: Brent Lewin/Bloomberg

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Baidu shares gained in extended trading after the report. They rose 2.1 percent to $204.27 at the close in New York. The stock has climbed 15 percent so far this year.

App Ecosystem

China had 632 million Internet users as of June, with 83 percent of them using mobile phones to access the Web, according to the China Internet Network Information Center.
Baidu is trying to build an ecosystem of apps around its Mobile Baidu search app to keep customers, with daily active users rising to 70 million after it added more personalized features and new content, CEO Li said.
“A Baidu movie ticketing purchase can originate and be fulfilled all within the Mobile Baidu app,” said Robin Li. “Here, user snaps the photo of a movie poster, opens a lite app, choses a nearby theater, the movie, seats and purchases with Baidu Wallet, all without leaving the Baidu Mobile app.”
The company’s revenue surged 59 percent to 12 billion yuan, it said in a statement yesterday. That matched the 12 billion-yuan average of 11 analysts’ estimates compiled by Bloomberg.
Research and development expenses rose 85 percent to 1.74 billion yuan, mostly due to personnel costs, said CFO Jennifer Li said.

Photographer: Brent Lewin/Bloomberg

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R&D Spending

Baidu forecast third-quarter revenue of 13.4 billion yuan to 13.8 billion yuan. That compares with the 13.3 billion-yuan average of 10 analysts’ estimates.
In China, the company accounted for 75.7 percent of search engine queries in the first quarter, according to Bloomberg Intelligence. Qihoo 360 Technology Co. (QIHU) accounted for 16.4 percent, and Sogou Inc., 36.5 percent owned by Tencent, held 5.1 percent.
Baidu’s cloud storage service users rose 33 percent to 200 million in the second quarter from the previous three months. Its mobile map app had 200 million monthly active users, the CEO said.
The company is also interested in developing artificial intelligence and opened a new research and development center in California. It hired Andrew Ng, who was known for his work on artificial intelligence at Google Inc., to be the company’s Chief Scientist in May.