According to IResearch, China’s on-demand economy is projected to grow to 7.2 trillion yuan (~ $1.1 trillion) by 2017. Users of Online-to-Offline services are estimated to rise 29% next year to 400 million. The size of the economy has prompted China’s biggest Internet players including Alibaba, Tencent, and Baidu to invest in the segment.
Baidu’s (NASDAQ: BIDU) fourth quarter revenues grew 33% over the year to RMB 18.7 billion (~$2.89 billion), ahead of the market’s forecast of $2.73 billion. During the quarter, mobile revenues brought in 56% of Baidu’s revenues as against 42% a year ago. Non-GAAP operating income at RMB 3.87 billion (~0.6 billion) was also significantly higher than the Street’s forecast of RMB 2.2 billion (~$0.34 billion).
By segment, revenues from Online Marketing services grew 27% over the year to RMB 17.6 billion (~$2.72 billion). The increase was attributed to 6% growth in active online marketing customers to 555,000. Revenue per online marketing customer grew 17% over the year to RMB 31,000 (~$4,786). Revenues from Other services grew 429% to RMB 1.1 billion (~$0.17 billion).
Among operating metrics, Baidu had 657 million mobile search monthly active users (MAU) in December 2015 out of an estimated 675 million Internet users in China. Mobile maps MAUs grew 43% over the year to 302 million. Within e-commerce, Gross Merchandise Value grew 397% to RMB 14.7 billion (~$2.3 billion) and Baidu Wallet activated accounts grew 189% to 53 million.
Baidu ended the year with total revenues growing 35% to RMB 66.382 billion (~$10.248 billion). Mobile revenues accounted for 53% of total revenues in the year compared with 37% a year ago. Diluted earnings attributable to Baidu per ADS for the year were RMB 95.15 (~$14.69).
For the first quarter, Baidu expects revenues of RMB 15.41-15.97 billion (~$2.379-$2.465 billion). The Street had forecast revenues of $2.429 billion.
Baidu’s International Expansion
While Baidu is the biggest search engine in China, its presence outside of the country is very limited. It is gradually working on changing that. Market reports suggest that Baidu is now looking to invest in India’s e-commerce properties – especially the Online-to-Offline (O2O) ones. It is particularly interested in investing in the restaurant review and food delivery site Zomato, ticket booking site Book My Show, and online grocery store BigBasket. Earlier last month, even Alibaba was looking to buy stake in India’s e-commerce player Flipkart.
Baidu Moving Beyond Search
Baidu is expanding its leadership position beyond traditional search. Like Google, even Baidu is working on developing autonomous cars. The company will begin testing of the cars in the US and is targeting to introduce a commercially viable model in the market by 2018. It is working with the US Government for regulatory approvals and is investing in patents in the field. Within China, Baidu has already tested its autonomous vehicle in a 30 km loop in Beijing in December last year. It plans to migrate to operating self-driving shuttles in the country to operate in a loop in a designated area by 2018. The targets taken by Baidu appear aggressive considering that other automakers including Google and Tesla believe that autonomous cars can only be manufactured by 2018 and it would take another two to three years for regulatory approvals to come through.
According to ITG Investment Research, Baidu’s video platform iQiyi is now the market leader in the mobile video market in mobile app penetration and mobile usage. It overtook Youku/Tudou as the leader in the segment. During the quarter, Youku/Tudou’s market share fell by 6.3% points while IQiyi and Baidu video service together gained 8.1% points in installation penetration. In monthly active users, Baidu’s iQiyi and PPS gained 3.6% points during the year. According to iQiyi, its paying subscribers nearly doubled to 10 million in six months.
Despite the improvement in market shares, iQiyi’s standing in the Baidu portfolio remains uncertain. Earlier last quarter, Baidu’s Chairman Li and another executive offered to buy Baidu’s 80.5% stake in iQiyi. Currently iQiyi is a drain on Baidu’s margin. Selling off iQiyi’s share would expand its operating margins to 26% from 20%.
The market is pleased with Baidu’s moves. After its results announcement, the stock went up 10%. It is currently trading at $188.97 with a market capitalization of $65.4 billion. It reached a 52-week high of $223.95 in April last year. It has recovered from the 52-week low of $100 it had fallen to in August last year.