Seeking Alpha
Tech, social networking, media, internet
Profile| Send Message|
( followers)

Summary

  • Mobile search is now Baidu's strategic focus. Investors should pay special attention to updated metrics on mobile revenue contribution and user base of Baidu's mobile apps.
  • Baidu's 2014 guidance implies net margin will shrink by 10.6 percentage points this year. Q1 '14 profit margins should be compared with Q1 '13 numbers to evaluate whether Baidu outperforms this guidance.
  • Investors should also look for updates on location-based services, consumer products, and international operations.

Baidu (NASDAQ:BIDU) will report Q1 2014 earnings on April 24 after market close. In this article, I discuss the key things for investors to watch when reading Baidu's earnings release and listening to its conference call.

Mobile Search. Mobile search is now Baidu's strategic focus. On the Q4 '13 earnings call, CEO Robin Li listed "significant progress in mobile" as the most important milestone for Baidu in 2013. During the call, Baidu disclosed that mobile search had reached 20% of its total revenues in 2013, and its 14 mobile apps had over 100 million users at the end of 2013. Investors should specifically look for updates on these metrics from the Q1 '14 earnings release and conference call. Among all the mobile-related metrics, the most important one is mobile revenue contribution. If this ratio in Q1 '14 surpassed the 20% level achieved in 2013, then it means Baidu's mobile business is gaining momentum, which bodes well for the rest of 2014.

Profit Margins. During the Q4 '13 earnings call, Baidu management forecast accelerated growth in total revenues in 2014 but no growth in absolute profits for the year. Based on this guidance, if we assume Baidu will generate RMB10.519 billion net income in 2014, the same as in 2013, and divide it by current analyst revenue consensus of RMB47.19 billion for 2014, we can reach a net profit margin of 22.3% for 2014, which is 10.6 percentage points lower than the 32.9% net profit margin reported for 2013. This means Baidu's guidance implies net profit margin will shrink by 10.6 percentage points in 2014. When Baidu reports Q1 earnings, investors should compare Q1 '14 net profit margin with the 34.2% net profit margin reported for Q1 '13. It will be a positive sign for Baidu shares if net margin in Q1 '14 comes in higher than 23.6% (=34.2%-10.6%), which means the company has been controlling its cost structure better than expected.

Other Key Areas. On the Q4 '13 earnings call, Baidu management identified the following as the company's most strategically important areas: mobile search and cloud, location-based services, consumer products, international operations. In addition to mobile search, investors should look for updates on the other three key areas from Baidu's Q1 '14 earnings report and conference call. For example, for location-based services, updated metrics related to Baidu Maps are important. During the Q4 '13 call, Baidu management identified Baidu Maps as one of its flagship mobile products, and announced it had a 54% market share in China in terms of accumulated users. Investors should pay attention to any updates on this market share metric provided by Baidu management.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.