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Baidu and Alibaba Delivering on China’s Mobile Explosion

Posted on Tuesday, Mar 11th 2014

According to a Pew Research Center report, nearly 79% of China’s 590.6 million Internet users accessed the Internet through a mobile device. A year ago, China had 564 million Internet users of which 74% were using a mobile to access the Web. During the same period, the research firm estimates that desktop usage slipped from 70.5% to 69.5%. Chinese online players are ensuring they tap early into this growing mobile trend.

Baidu’s Financials
Baidu’s (Nasdaq: BIDA) Q4 revenues grew 50% over the year and 7% over the quarter to RMB 9.52 billion (~$1.57 billion), surging past market estimates of $1.4 billion. However, earnings remain a concern as EPS of $1.29 fell short of the Street’s targeted $1.38.

By segment, revenues from Online marketing services grew 51% to RMB 9.46 billion (~$1.56 billion). Revenues from other services of RMB 60.7 million (~$0.01 billion) grew 27% over the year.

Among other operating metrics, active online marketing customers grew 11% to 451,000 and revenue per online marketing customer grew 35% over the year to RMB 20,900 (~$3,450). Research firms estimate that Baidu’s search engine accounted for 58.3% market share in China compared with 24.9% held by Qihoo and 1.7% by Google.

For the current quarter, Baidu expects revenues of RMB 9.24 billion-RMB 9.52 billion (~$1.53 billion-$1.57 billion), significantly ahead of the market’s projected revenues of $1.31 billion.

Baidu’s Strategy
Besides search, Baidu is focused on four key areas to drive growth:

one, mobile and cloud; two, location-based services; three, consumer products including gaming, music, online literature, and social; four, international operations.

Their mobile initiatives are already delivering strong results. During the quarter, 20% of their revenues came from mobile devices. Six months ago, that number stood at 10%. Baidu ended the year with 14 mobile apps. For the current year, Baidu expects the contribution of mobile revenues to increase to 30% and are looking to invest in the development of mobile gaming and music products.

Within location-based services, they have begun to incorporate some of their recent acquisitions in both desktop and mobile offerings. Their Map app now integrates the services of the group buying site Nuomi they had bought earlier last year. The Map app is now able to facilitate restaurant, hotel, and taxi reservations along with movie ticketing and traffic checking. Analysys International’s report reveals that Baidu Map was being used by 26.6% of the map app using population during the third quarter last year and was catching up to the market leader AutoNavi’s 31.3% market share. A year ago, Baidu Map accounted for a comparatively small 19.1% market share.  Analysts believe that Baidu will be able to leverage the Map app to generate additional advertising revenues in the near future.

Within consumer products, their video service with iQiyi is also growing strong. iResearch estimates that iQiyi plus PPS is the leading online video service in mobile by unique users. Within travel, Baidu has entered into a partnership with Qunar to extend their travel offerings in the country.

As part of their international expansion, they are looking at the markets of Thailand, Egypt, and Brazil, and for now, are planning to stay away from the US market.

Baidu’s stock is trading at $182.04 with a market capitalization of $63.77 billion. It touched a high of $189.34 last week.

Alibaba’s Financials
Meanwhile market speculation on Chinese e-tailer Alibaba’s upcoming IPO keeps growing. Analysts believe that the company is headed for an IPO this year. While Alibaba has not given further details on their IPO, they are continuing to build on their already strong e-tail performance.

Alibaba ended the previous quarter with revenues of $1.8 billion, recording a 51% growth over the year. They also reported a strong earnings improvement and ended the quarter at $801 million profit compared with a loss of $246 million a year ago.

Alibaba’s Mobile Initiatives
To help drive sales on their mobile platform, Alibaba recently planned the Mobile Taobao 3.8 Life Festival. The sale, held this weekend, was one of the largest “mobile sales of all time”. The sale was available only on Taobao’s mobile app and included the participation of more than 37 stores, 1,500 brand outlets, and numerous local restaurants, theaters, and karaoke parlors.

It is not just mobile commerce that Alibaba is pushing hard. Like Facebook, Alibaba also realizes the importance of a mobile messaging app. Unfortunately though, WeChat has already taken a big lead in China with more than 272 million users as of September last year, compared with Alibaba’s app Laiwang which has a mere 10 million users. But Alibaba is is investing heavily in sales and marketing of their mobile messaging app to help drive adoption.

Market reports suggest that Alibaba is still deciding on whether to list on the Hong Kong Stock Exchange or in the US. But, wherever they list, their valuations are expected to be phenomenal. Analysts estimate that with their latest performance, Alibaba’s IPO could be worth $100 billion. There are a few who also peg valuation at close to $200 billion.

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