What lies ahead for Baidu?
Keki is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
The Chinese internet search company Baidu (NASDAQ: BIDU) is still powering ahead as demand for online advertising remains strong regardless of concerns surrounding a slowdown in the Chinese economy.
This is evident from the fact that the company’s second quarter revenue rose almost 60% to $858.8 million from the prior year period. Not to mention the leap in net income by almost 70% to $436 million.
While big advertisers may have kept their ad spends down, Baidu has still been able to attract lots of small business advertisers. But the future seems uncertain as the company faces a rather particular challenge: a growing number of users are accessing its services through mobile devices.
The Mobile Conundrum
We all love accessing the internet on the go. But this trend is turning into quite a sticky situation for Baidu, which hasn’t been able to properly monetize the mobile platform till now. For social networking giant Facebook (NASDAQ: FB) it’s the same dilemma, with a growing number of users accessing their Facebook accounts through mobile devices.
According to research firm Analysys, Baidu’s share of revenue in the search arena stood at about 78.6%. But its share of unique mobile searches averages at 50%, though some analysts believe that this figure could be much lower than that.
So in order to build market share in the mobile space, Baidu needs to chalk out revenue-sharing agreements with handset makers to get its search facilities accessible on smartphones. For example, in June Baidu entered into an agreement with Apple (NASDAQ: AAPL) to add its search facility as a software upgrade for iPhones in China.
Even though the revenue sharing details were not disclosed, such deals are often very generous, which inadvertently eat through Baidu’s profits.
So what lies ahead for Baidu?
Well, on the mobile search front, the company will face some challenges as it develops and fine tunes advertising services for mobile devices. But for the long run the mobile platform should be a great source of revenue.
According to a study by AdParlor, the company that manages Facebook’s client advertising campaigns, the odds of a mobile user clicking on an advertisement is 15 times greater compared to desktop users. However, given that this is an analysis of Facebook’s platform, I wouldn’t be too sure of its applicability to Baidu.
But whatever be the case, being the largest search engine in China with a 78.6% market share, should definitely facilitate Baidu in gaining an edge in the mobile space. Especially as it doesn’t have to worry too much about search giant Google (NASDAQ: GOOG), whose Chinese market share stands at a distant 15.7%.
From the way I see it, Baidu looks great for the long run as Internet usage continues to grow in China. The country now even finds itself ahead of Europe, with 538 million internet users. The only worrying factor would be the effects of a slowdown in the Chinese economy, which could impact ad spends.
So what do you guys think about Baidu? Feel free to express yourself in the comments section below.
kekidf has no positions in the stocks mentioned above. The Motley Fool owns shares of Apple, Baidu, Facebook, and Google. Motley Fool newsletter services recommend Apple, Baidu, Facebook, and Google. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. If you have questions about this post or the Fool’s blog network, click here for information.