Baidu Inc. (BIDU:US), the owner of China’s largest Internet search engine, forecast first-quarter sales that beat analysts’ estimates as advertisers boost spending to reach an increasing number of mobile users.
Revenue will be 9.24 billion yuan ($1.5 billion) to 9.52 billion yuan in the three months ended March, the Beijing-based company said yesterday. That is as much as 60 percent above the year earlier and compares with the 8.6 billion-yuan average of eight analyst estimates (BIDU:US) compiled by Bloomberg. Baidu surged 7.7 percent in after-hours trade.
Baidu is investing in development of applications for mapping and search services as it competes against Alibaba Group Holding Ltd. and Tencent Holdings Ltd. (700) for China’s 618 million Internet customers. While the spending is curbing earnings growth, the strategy drove a 50 percent surge in fourth-quarter revenue by attracting advertisers keen to reach users.
“We view the solid top line growth and first-quarter guidance as encouraging and think it suggests some of the heavy investment is starting to yield some returns,” Alicia Yap, an analyst at Barclays Plc in Hong Kong, said in a note to clients.
Baidu’s American depositary receipts rose (BIDU:US) 1.6 percent to $172.90 in New York trading before the earnings announcement, extending its gain in the past year to 94 percent.
Fourth-quarter net income fell to 2.78 billion yuan from 2.8 billion yuan a year earlier, Baidu said in the statement. That matched the 2.8 billion-yuan average of 11 analyst estimates compiled by Bloomberg.
Baidu will focus on investment in 2014, crimping profit growth this year, as the company targets sales and marketing for its mobile applications in search, security and location-based services, Chief Financial Officer Jennifer Li told a conference call today.
“We are prepared to deploy cash aggressively where necessary,” Jennifer Li said. “For 2014, while we expect revenue to accelerate, we do not expect increase in absolute profit.”
The number of people who accessed the Internet via mobile devices reached 500 million in China by the end of December, according to the China Internet Network Information Center.
Mobile services contributed 20 percent of Baidu’s revenue in the fourth quarter, billionaire Chief Executive Officer Robin Li said on the conference call.
In China, the company accounted for 76.9 percent of search engine queries in the fourth quarter, according to Bloomberg Industries. Qihoo 360 Technology Co. accounted for 15.1 percent, and Sogou Inc., in which Tencent owns a 36.5 percent stake, held 5.1 percent.
“Baidu has been aggressively promoting its search and mapping services,” Echo He, an analyst at Maxim Group LLC in New York, said before the earnings. “Revenue rose with the help of increased traffic volume and good seasonality as advertisers typically spend more in the fourth quarter.”
Baidu agreed (BIDU:US) in August to pay $1.85 billion for 91 Wireless Websoft Ltd., China’s most popular third-party store for smartphone applications. It also acquired video business PPStream Inc. last year for $370 million.
The company’s other deals in the past year include an agreement for a majority stake in e-commerce website operator Nuomi Holdings Inc. for about $160 million. Last month, Baidu agreed to buy the remaining shares, without disclosing a price.
While Baidu is open to further acquisitions, the company’s main growth strategy will be organic, Robin Li said.
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