Alibaba and Baidu Driving China’s Internet Boom

The China Internet Network Information Center estimates that the number of people online in China grew 11% over the year to 538 million in July. Mobile Internet users are also on the rise. iResearch estimates that smartphone sales in China will grow 56% this year to 113 million units. Also in July, the number of mobile Internet users grew twice as fast at a pace of 22% to 388 million.

Baidu’s Financials
Baidu’s (Nasdaq:BIDU) Q2 revenues grew 63% over the year to $858.8 million, ahead of the Street’s target of $853.4 million. EPS of $1.24 grew 72% over the year and was higher than the market’s expected EPS of $1.11.

The number of active advertising customers during the quarter rose 18% over the year to more than 352,000. Net customer additions in the quarter were 31,000 compared with 10,000 a quarter ago. Average revenue per user also grew 16.5% sequentially to $2,438.

For the current quarter, Baidu projects revenues of $983 million-$1.009 billion.

Baidu’s Mobile Efforts
As part of its mobile efforts, Baidu recently launched a new browser for Android-based devices. The new browser can be downloaded in both English and Chinese. The company claims its new browser is 20% faster than any rival browsers and will be particularly useful for watching videos and playing games. Baidu aims to cover 80% of China’s Android handsets with the Baidu Mobile Browser by the end of this year.

To address the Apple market segment, earlier this year, Baidu tied up with Apple to become the default search engine on the iPhones sold in China. It is also said to be working on releasing a low-cost smartphone for the local market. Baidu believes that with more affordable smartphones, it will be able to get more consumers to use mobile Internet technology, thus fueling its search engine revenue growth.

Baidu’s Cloud Focus
Baidu is also expanding its presence in cloud computing. It launched a personal cloud storage service and is integrating more of its applications and services to promote this to users. Baidu users can now use the service to access documents and media files from anywhere. The company is also investing $1.6 billion to establish a cloud computing center as part of an effort to support its mobile and cloud initiatives.

Baidu and Qihoo Baidu accounted for 78.6% of China’s search market share, while Google remained a distant second with a 15.7% market share during the second quarter this year. But competition is growing, as local player Qihoo recently unveiled its own search engine in China. Qihoo’s search engine lets users search from 13 different categories and results from 15 search engines.

Meanwhile, Baidu’s stock is trading at $111.94, with a market capitalization of $31.11 billion. It touched a 52-week high of $154.15 in March 2o11.

Alibaba’s Financials
Another Chinese online player, Alibaba, also turned in a strong performance the year. Since Alibaba turned private this June, most of its performance statistics are no longer made publicly available. However, some financial details can be gathered from Yahoo’s filing. For the first quarter of this year, Alibaba saw revenue grow from $490 million a year ago to $806 million. Net profit for the quarter grew from $29.6 million to $220.5 million.

Alibaba’s Expanding Offerings
Alibaba recently tied up with Ping An Insurance China and Tencent Group to establish a new insurance joint venture for Chinese consumers. The new venture will focus on the Internet insurance businesses and support insurance for virtual items. Alibaba plans to create a new insurance channel using the Internet.

In addition, Alibaba tied up with the home appliances provider Haier Group to release a new mobile device that will be powered by Alibaba’s Aliyun OS. This is the beginning of tie-ups with Haier for Alibaba, and the company hopes to integrate cloud computing into other appliances such as television sets in the future.

According to a recent IDC report, China will overtake the U.S. in smartphone shipments this year. China is expected to account for 26.5% of all smartphone sales this year, compared with the U.S.’s 17.8% share. Increased sales of smartphones will also lead to expanding Internet use on these devices. Surely both Baidu and Alibaba will benefit greatly from this trend.