Tomahawk, WI 10/30/2014 (Basicsmedia) – China search giant Baidu Inc. (ADR) (NASDAQ:BIDU) failed to spark the market after reporting earnings that fell short of Wall Street estimates despite ongoing traffic growth into the site. During an interview on CNBC, JG Capital’s Henry Guo, argued that the results were solid considering there was a decline in spending by advertisers in the quarter.
Revenue in the quarter rose by 52% to highs of $2.2 billion and in line with earlier given estimates. Baidu now expects its fourth quarter revenue to grow by between 45.4-49.6% in line with Wall Street estimates but lower than that of the third-quarter.
“The positive from these earnings is the profitability for Baidu. It is above expectation reflecting the leverage in the model for Baidu. So that is where the positive we consider in the leveraging capability is a competitive advantage for Baidu Inc. (ADR) (NASDAQ:BIDU),” said Mr. Guo.
A shift from PC to mobile search has seen Baidu Inc. (ADR) (NASDAQ:BIDU)’s traffic acquisition cost increase to highs of 13% up from less than 12% in the prior quarter. The increase in traffic acquisition costs according to Guo has to do with the fact that there were additional costs incurred with the shift to mobile.
“[..] Those kind of expenses is necessary for the company to survive to gain market share to gain the users. In the longer term, we believe Baidu is the only meaningful player in the space to challenge Tencent Holdings Ltd (OTCMKTS:TCTZF)’s leadership position in China mobile internet space.
Baidu is at the moment diversifying its operations away from search business just like any other dot-com company. Guo believes that despite the ongoing diversification of the company’s business operations, its core business will always remain to be search both on the PC and Mobile front. The company has already developed its own map to be used in china as a navigation tool.
Baidu Inc. (ADR) (NASDAQ:BIDU) is also investing in the content business having invested in an online video platform. Baidu entrance into the video content space according to Guo is expected to affect profit margins for other players already offering content.