Baidu (BIDU) will report its 1Q12 results on April 24th. The Street expects the company to earn $0.84 per share on $678 million in revenue, and guide $860 million in revenue.
Last quarter Baidu reported
- Total revenue: $711 million, +83% y/y, beating consensus
- Operating profit: $360 million, +83% y/y
- Net income: $326 million, +77% y/y
- Diluted EPS: $0.93, beating consensus of $0.91 per share
- For the 1Q12, Baidu guided $666.5 - $ 688 million in revenue, the midpoint of which represents a 77.5% y/y increase and above the $670 million Street estimate
Heading into the earnings, investors can expect an in-line quarter, and mobile search in focus as the company looks to the next growth frontier.
According to CNNIC, China had 356 million mobile internet users at the end of 2011, a 17% y/y growth.
Despite accounting for 80% market share in China's desktop search, Baidu only has 35% mobile market share in terms of search volume, with Easou and Tencent's (TCEHY.PK) Soso accounting for 22-23% each, according to Enfodesk.
To expand its foothold in mobile search, Baidu extended its semantic search capability from desktop to mobile with the introduction of Mobile Box Computing, and introduced its first mobile OS, Baidu Yi, with Dell last December.
Apple's (AAPL) recent addition of Baidu Search in its iOS browser bodes well for Baidu's mobile OS strategy because Apple's partnership with China Telecom will greatly expand the number of iPhones in China, which will likely multiply the number of Baidu mobile search users. Compared to the US, where smartphone penetration reached 43%, China's smartphone penetration is only 13%, according to iResearch, implying significant upside. Apple's strong brand recognition among Chinese consumers will fuel continued momentum in iPhone adoption, which could potentially capture 10% of China mobile market, or 100 million users, in the next ten years. Baidu will certainly benefit from Apple's popularity in China.
However, Baidu's mobile search is ultimately at the mercy of Apple iOS under their current partnership, therefore I view Baidu Yi, Baidu's in-house developed mobile OS that is operating on Dell Streak Pro D43, as a critical driver for the company's growth in the future. While it has a strong presence in China's PC market, Dell has very little recognition in China's mobile handset space. I note that the top five mobile handset makers in China are Apple, Nokia, Samsung, Motorola and HTC. Unless Baidu partners with a widely recognized handset maker, Baidu Yi will unlikely gain any meaningful traction in the mobile OS space despite is superior semantic search capability and user interface that combined the best of Apple's iOS and Google Android features. For a closer look at Baidu Yi, please see my March 13th note titled "A Closer Look At Baidu s Mobile OS Strategy."
Mobile is also a critical growth path due to emerging threats from desktop search. I note that Sogou, which is owned by Sohu (SOHU):
- Delivers comparable search result quality to that of Baidu with its own semantic search engine
- Has the second highest search engine penetration in China with 46%, compared to Baidu's 98%
- Continues to attract steady user growth with its development of externalities such as Sogou browser and Chinese character input software
For a complete analysis of Sogou vs. Baidu, please see my April 10th note titled "Sogou: An Emerging Threat To Baidu s Dominance."
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.