Weak Earnings from Baidu Look Subdued So Far

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Baidu Inc. (NASDAQ: BIDU) reported its earnings on Monday night. The leader of Chinese Internet search is showing that competition is now gaining from Qihoo 360 Technology Co. Ltd. (NYSE: QIHU), and it telegraphed its own long-term outlook for mobile as well. Shares are down, but holding up better than we might have guessed considering the guidance.

Baidu’s third-quarter results came in with a 49% revenue gain to RMB6.251 billion (about $994.6 million), and operating profit in the third quarter rose by about 48% to RMB3.297 billion (about $524.6 million). Its net income in the third quarter attributable to Baidu rose almost 60% to RMB3.008 billion, or about $478.6 million. That translated to earnings of $1.37 per share on a comparable ADS basis. Thomson Reuters was calling for the equivalent of $1.28 per share and $1.00 billion in sales for the third quarter.

The progress in mobile search and monetization is one that Baidu said was making good progress, but that progress is from a rather low base. Baidu also telegraphed that mobile monetization will involve an inevitable transition period. Guidance was just unimpressive for this company.

Baidu put its fourth-quarter sales growth at an implied rate of 37.6% to 41.8%, or to $979.3 million to $1.01 billion. Thomson Reuters had estimates of $1.03 billion. Investors expect that Baidu can still keep its growth up due to a massive market share and with such a large Chinese Internet population.

Baidu’s shares are indicated down more than 4% at $108.47 so far in early indications on Wednesday, after closing at $113.84 on Friday. Its 52-week range is $99.71 to $154.15. The company has a market cap of close to $40 billion even after it has lost about one-quarter of its value from the peak.

JON C. OGG

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