Baidu, Alibaba Dominate Search and E-Commerce in China

iResearch’s statistics show that during the first quarter of 2012, China’s search engine advertising sales fell 5.2% over the quarter but grew 68.2% over the year to 5.49 billion yuan (~$0.87 billion) in Q1 2012. Baidu’s market share remained the highest last quarter, when it grew to 77.6%  from 77.3% a quarter ago. Google continued to struggle in the quarter and saw its search market share fall from 18.3% a quarter ago to 17.8% this quarter. Smaller player Sogou saw marginal gains, from 2.5% to 2.7%

Baidu’s Financials
Baidu’s (Nasdaq:BIDU) Q1 revenues grew 82% over the year to $677.1 million, marginally short of the Street’s targeted $679.7 million. EPS of $0.85 was 81% higher than previous year’s EPS and managed to beat the market’s expected EPS of $0.84. For the last quarter, Baidu commanded more than 78% of online search engine traffic in China. Nearly 35% of the country’s mobile users use Baidu for Internet searches.

Baidu’s Mobile Efforts
Baidu is stepping up efforts within the mobile space to attract more search revenues. After launching its Baidu Yi OS and search apps for iOS and Android, it recently launched Cloud ROM, a feature for Android-based phones that lets users stream free music and store data on the cloud.

Baidu also struck gold when it tied up with Apple to share advertising revenues on iPhone searches in China. Apple recently announced that it will give users in China the option to use Baidu’s search engine for searches on iPads and iPhones. Terms of the deal were not disclosed. Baidu is already sharing advertising revenues with hardware partners in a bid to get them to install Baidu’s search engine on these products before shipping. As of now, in China, nearly 80% of Android-based branded phones come with Baidu preloaded.

Baidu also recently announced plans for its own smartphone. The Baidu phone, expected to be priced at nearly $160, will be the first low-cost smartphone in the market. Apart from having access to Baidu’s applications, phone users will be able to store 100 GB worth of data free on the company’s Cloud system. Baidu is working with Foxconn and China Unicom to develop the phone.

The stock was trading at $117.38 with a market capitalization of $49.98 billion. It touched a 52-week high of $165.96 in July 2011.

It’s not just search that is doing well. The Chinese e-commerce market is also showing strong growth potential. Recent reports suggest that the value of China’s online shopping market will surpass Japan’s online economy this year. The Chinese market is expected to surge past U.S. e-commerce transactions by 2013, making China the world’s largest online commerce market. Consulting group BCG expects the Chinese e-commerce market to triple to $364 billion by 2015.

Alibaba’s Financials
For the quarter ended March 2012, the Alibaba group saw revenues increase 3.7% over the year to $251.71 million. Net income for the quarter fell to 21.3% of revenues compared with 26.7% reported for the previous year. Alibaba has been spending aggressively on marketing efforts. To attract more customers on its consumer electronic store, Tmall, it recently announced summer promotion spending of over $47 million.

Alibaba De-lists
Last quarter, Alibaba had announced plans to make Alibaba.com a private player. Early in June, it finally de-listed from the Hong Kong Stock Exchange. Over the past quarter, Alibaba spent $7 billion to buy back 20% of its stake from Yahoo. The deal pegged Alibaba’s valuation at more than $35 billion.  In addition, it bought back its stock from the exchange for HK$19.6 billion (~$2.53 billion) at a 46% premium.

Alibaba’s management believes that by turning into a private player, they will be able to concentrate more on the company’s growth. They eventually plan to come out with their IPO, which many believe could be the “largest stock market debut in Chinese Internet history.”