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According to recent data released by the China Internet Network Information Center, 591 million people in the country were using the Internet as of June 2013. That translates to a 44% internet penetration rate. Mobile Internet users are growing fast and account for 420 million Internet users in the country. Most Chinese Internet players are thus focusing on growth through the mobile segment.

Baidu's Financials

Chinese search giant Baidu's (Nasdaq:BIDU) Q3 revenues grew an impressive 42% over the year to $1.45 billion, compared with market projections of $1.23 billion. Operating income for the quarter grew a modest 1% over the year to $545.5 million as Baidu continued to invest in mobile related development costs. EPS of $1.41 was short of the market's projections of $1.42 for the quarter.

During the quarter, selling, general and administrative expenses grew 115.4% to $226.2 million due to increased spend on mobile products. Research and development expenses grew 77.5% to $178.2 million. Its investments in mobile sales efforts helped attract more mobile revenues as the install rate for its core search app reported growth of 50% sequentially.

For the current quarter, Baidu expects revenues of RMB 9.22 billion-9.48 billion (~$1.51-$1.55 billion). The Street was looking for revenues of $1.46 billion for the quarter.

Baidu's Acquisitions

Baidu's rising expenses were also the result of its continuing acquisitions. During the quarter, Baidu announced the $1.9 billion acquisition of app store 91 Wireless. This is the company's biggest acquisition thus far as it remains focused on the mobile segment. Besides being the most popular third-party store for smartphone apps in China, 91 Wireless is also a leading operator in mobile games. Through the acquisition, Baidu will be able to increase its mobile presence in the app world.

Baidu also acquired a 59% stake in group-buying website Nuomi for $160 million. Nuomi is a subsidiary of Chinese social networking site, Renren (NYSE:RENN). It has an active paying user base of 3.8 million consumers and is among the top group-buying sites in China. Nuomi also boasts of 30% of their sales being made from mobile devices. The acquisition will help Baidu strengthen its mapping and location-based services for local merchants to increase their advertising revenues.

Baidu's stock is trading at $167.05 with a market capitalization of $58.43 billion. It was trading at year high levels of $169.75 in October this year.

Alibaba's Financials

Meanwhile, Chinese e-tailer Alibaba is causing quite a stir in the market. Its recent financials are not known, but analysts estimate that Alibaba's revenues for the September-ended quarter grew 60% to $1.73 billion, and earnings grew from $273 million a year ago to $707 million. These strong financials have helped Alibaba earn a healthy valuation, and analysts estimate that Alibaba is worth more than $120 billion.

Alibaba's Acquisitions

Like other players, Alibaba is acquiring companies actively. Earlier this month, it announced the $70 million acquisition of Umeng, a Chinese analytics provider. Umeng has collected data from more than 180,000 apps and 590 million mobile devices in China to amass a repository of consumer data. Alibaba plans to leverage this data to expand their existing services for developers, including those like push notification management.

During the quarter, Alibaba also acquired personal cloud storage service, Kanbox, for an undisclosed sum. Kanbox is known as the Dropbox of China as it allows its more than 15 million users to upload, download, and sync files across multiple mobile devices. The acquisition is expected to help strengthen Alibaba's reach into the mobile segment.

Within the e-commerce space, Alibaba bought a minority stake in online shopping company, ShopRunner. ShopRunner is a subscription based service provider that charges $79 a year to give users access to free two-day shipping service across multiple e-tailers, including names like Toys 'R Us and Newegg. Alibaba invested $79 million in the start-up.

After de-listing from the exchange earlier this year, Alibaba is now eying an IPO in the U.S. market. Analysts believe that Alibaba's IPO is "more important" than that of recently listed social media site, Twitter (NYSE:TWTR). In fact, the IPO, which is projected to raise more than $10 billion, is expected to be the largest Internet IPO since Facebook's (NASDAQ:FB). Not only are individual investors waiting on Alibaba's IPO, but Yahoo, which still owns a 24% stake, is counting more on Alibaba's success than on its own capabilities.

Disclosure: No positions

Source: Baidu And Alibaba: The Chinese Dragons Counting On Mobile For Growth