According to China Internet Network of Information Center, China's Internet population grew 3.7% over the year to 618 million users as of December last year. That translates to 45.8% Internet penetration in the country. Mobile Internet usage statistics are also impressive with the number of users growing 19.1% to more than 500 million. The center also reported a 6% growth in Chinese online shoppers to 302 million.
Baidu's (BIDA) first quarter revenues grew 59% over the year to RMB 9.5 billion (~$1.52 billion), marginally short of the market estimates of $1.54 billion. Earnings were ahead of the market at $1.23 compared with estimates of $1.04. The improvement in earnings was attributed to the slowdown in growth of R&D expenses from 80.1% in the previous quarter to 57.5%.
By segment, revenues from Online marketing services grew 57.5% to RMB 9.378 billion (~$1.509 billion). At the end of the quarter, Baidu's active online marketing customers grew 8.8% to 446,000. Revenue per online marketing customer during the quarter grew 44% to RMB 20,900 (~$3,362). Mobile metrics were also impressive with daily active users growing 23% to 160 million.
For the March ended quarter, Baidu controlled 61% of China's search traffic compared with Qihoo's 25%. Baidu is still the market leader but has lost significant market share from the 80% traffic it used to control back in 2012.
For the current quarter, Baidu expects revenues of RMB 11.8 billion-RMB 12.1 billion (~$1.901 billion-$1.948 billion), ahead of the market's projected revenues of $1.858 billion.
Baidu's Video Offering
According to market reports, the Chinese online video streaming market is projected to grow 30% annually to $6 billion by the year 2017. In 2012, Baidu had acquired iQiyi, an online video streaming service. To grow their video offering, they acquired PPStream last year and became the largest online video platform in China. But recent reports suggest that Baidu may now be looking to spin off iQiyi to a separate company through an IPO in the next three years. The strategy would make sense as it would let Baidu concentrate on its core strength of search based offerings. Analysts also believe that iQiyi is yet to report profitability. With content costs rising, Baidu may need to develop some in-house content to make the unit profitable.
Baidu's stock is trading at $167.25 with a market capitalization of $58.61 billion. It touched a high of $189.34 in March this year.
But the biggest news from China's Internet segment is the filing of Alibaba's IPO document F-1 with the SEC, which revealed the finer financial details of Alibaba's vast kingdom. Alibaba is the largest online and mobile commerce company in the world. Last year, they recorded $248 billion in Gross Merchandise Value (GMV) transacted on their Chinese marketplace. The company processed 11.3 billion orders last year to 231 million annual active buyers. Within mobile commerce, Alibaba recorded $37 billion in GMV of transactions by 136 million monthly active users.
Alibaba earns revenues from merchants through by charging commissions and transactive fees for online marketing services. Additionally, they also earn revenues through fees from memberships, value-added services and cloud computing services. For the nine months ended December last year, Alibaba earned RMB 40.5 billion (~$6.5 billion) in revenues and recorded a net income of RMB 17.7 billion (~$2.9 billion).
For the twelve months ended December 2013, Alibaba saw revenues grow 72% over the year to $5.55 billion. The Chinese e-commerce market accounted for $4.69 billion in revenues in 2013, the international e-commerce market brought in $0.67 billion, and cloud computing services accounted for $0.11 billion. Over the same period, net income has grown 99% to $1.35 billion or $0.57 per share.
Alibaba has still to confirm the final details on the number of shares, pricing, and funds to be raised from the IPO expected later this year. Analysts expect this to be the biggest technology IPO as it is expected to raise more than $15 billion through the listing. The company is being valued at nearly $200 billion.
Meanwhile, Alibaba is also focusing on international growth and is working to release a US e-commerce website 11Main. They have already partnered with ShopRunner, an e-tail site that offers faster shipping services to its members for goods purchased on multiple retailers' websites. They have also entered into a partnership with 1stdibs, a US-based online market place for antique and luxury products.
According to a McKinsey Global Institute report, the Chinese retail e-commerce market is projected to grow to $420 billion-$650 billion by the year 2020. Alibaba will continue to play a dominant role in this strong growth market.