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Chinese Internet leader Baidu (NASDAQ:BIDU) continues to grow by leaps and bounds. After Wall Street closed on Wednesday, the company reported a strong Q4:

  • Total revenues in the fourth quarter of 2013 were RMB9.523 billion ($1.573 billion), a 50.3% increase from the corresponding period in 2012.
  • Total revenues in fiscal year 2013 were RMB31.944 billion ($5.277 billion), a 43.2% increase from 2012.
  • Operating profit in the fourth quarter of 2013 was RMB2.740 billion ($452.6 million), a 3.8% decrease from the corresponding period in 2012.
  • Operating profit in fiscal year 2013 was RMB11.192 billion ($1.849 billion), a 1.3% increase from 2012.
  • Net income attributable to Baidu in the fourth quarter of 2013 was RMB2.784 billion ($459.9 million), a 0.4% decrease from the corresponding period in 2012. Diluted earnings attributable to Baidu per ADS for the fourth quarter of 2013 wereRMB7.90 ($1.30); diluted earnings attributable to Baidu per ADS excluding share-based compensation expenses (non-GAAP) for the fourth quarter of 2013 were RMB8.40 ($1.39).
  • Net income attributable to Baidu in fiscal year 2013 was RMB10.519 billion ($1.738 billion), a 0.6% increase from 2012. Diluted earnings attributable to Baidu per ADS for the fiscal year 2013 were RMB29.93 ($4.94); diluted earnings attributable to Baidu per ADS excluding share-based compensation expenses (non-GAAP) in fiscal year 2013 were RMB31.40 ($5.19).

Baidu's stand out performance from other Chinese Internet companies can be attributed to the consumer orientation of the company and the swift move from traditional Internet platform to mobile platform. Robin Li, chairman and chief executive officer of Baidu, stated:

"We're pleased to have finished a milestone year for Baidu with a solid fourth quarter performance. 2013 was marked by our entry into new areas and significant progress in mobile, as we invested aggressively to build out Baidu's position in search, app distribution, and location-based services. Our efforts to drive mobile adoption among customers gained significant traction throughout the year. In the fourth quarter, mobile accounted for over 20% of total revenues."

Baidu's stock has been held back by negative sentiment for Chinese equities - as an example, iShares China ETF (NYSEARCA:FXI) is down close to 5 percent in the last 12-month period. But after gaining close to 100 percent over the same period, the question now is whether the market has already discounted the good news, and if investors should take money of the table.

The answer depends on the investment horizon of each investor. Short-term investors may want to take some money off the table. Long-term investors may want to stay with the stock, as the company continues to take strategic initiatives to strengthen its competitive position in the Chinese online market. Last year, Baidu acquired app maker, 91 Wireless, for $1.9 billion. This move allowed Baidu to expand the scale and scope of its operation, adding 3%, according to Citigroup's analyst Muzhi Li.

With 560 million Internet users spending 20 hours a week online, China is by far the largest Internet market of the world, more than twice the size of the U.S. market. The trouble, however, is that the Internet market is a highly competitive market, where operating margins erode quickly. But there is an exception to this rule: Early movers that have amassed economies of scale and scope. Baidu has done this and has managed to maintain steady profit margins - see tables below.

Financials of Chinese web companies in early February 2014:

Company

Business

Forward P/E (Dec. 2014

Operating Margins

Baidu, Inc.

Internet search engine

4.37

39.3 (%)

Sina Corp. (NASDAQ:SINA)

Media and mobile value-added services

25.19

0.12

E-Commerce China Dangdang Inc. (NYSE:DANG)

Business -to-Consumer e-Commerce

--

-9.42

Renren Inc. (NYSE:RENN)

Social Networking

--

-52.09

Youku (NYSE:YOKU)

Internet TV

--

-26.32

Sohu.com Inc. (NASDAQ:SOHU)

Brand advertising, on-line gaming

36.82

13.10

Source: Yahoo Finance

Financials of Chinese web companies in late April 2013:

Company

Business

Forward P/E (Dec. 2014

Operating Margins

Baidu, Inc.

Internet search engine

24.74

43.11 (%)

Sina Corp.

Media and mobile value-added services

40.19

-3.25

E-Commerce China Dangdang Inc.

Business -to-Consumer e-Commerce

--

-7.25

Renren Inc.

Social Networking

--

-56.88

Sohu.com Inc.

Brand advertising, on-line gaming

22.85

21.95

Source: Yahoo Finance

Another factor that has helped Baidu maintain profit margins is the bundling of different services: Internet search; video stream (iQiyi); on-line travel services (Qunar); on-line recruitment (Baijob); and on-line payment systems (BaiduPai).

Simply put, Baidu is the Google (NASDAQ:GOOG), Netflix (NASDAQ:NFLX), LinkedIn (NYSE:LNKD), Priceline.com (NASDAQ:PCLN), and eBay (NASDAQ:EBAY) of China; and is trading at favorable financials, compared to both its U.S. and Chinese peers.

Source: Why Baidu Stands Out