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Baidu income soars but mobile success will take years

Analysts point to lack of coherent mobile strategy

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Chinese search giant Baidu said Q3 net income jumped 60 per cent year-on-year, but also gave Facebook-watchers something to ponder by saying it will take two years before its mobile business is firing on all cylinders.

Baidu is the dominant player in China's domestic market, where it accounts for about three quarters of all search activity. Google is a distant second with around 15 per cent and is largely irrelevant in the People's Republic thanks to its 2010 decision to move its search servers to Hong Kong and disinclination to obey government censorship requests.

On the surface, Baidu’s latest financials look impressive, with total revenues of 6.25bn yuan (£622m), up by around 50 per cent year-on-year, and net income up 60 per cent to 3.29bn yuan (£326m).

However, quarterly revenue growth was at its slowest in over two years – down from 70 per cent in Q2 – and its share price stood at around $113 this week, down from a 2012 high of around $US150 in April.

Commentators have pointed out that although it remains way out in the fixed search space, new entrant Qihoo has dampened shareholder enthusiasm and already taken significant market share since the launch of so.360.cn in August.

It is now the default search option on the hugely popular hao.360.cn directory, and as a result is already bearing down on Google.

Given this background, one of Baidu’s main challenges in growing the company lies in being able to monetise its mobile search business better. On an earnings call, CEO Robin Li pointed to triple digit growth in mobile search but despite recently launching a $1.6bn cloud investment including a Baidu Mobile Browser, its share of mobile search in China is less than that of PC search.

“The transition in search to a more mobile-centric model is well underway in China. And while we are naturally very excited by this new opportunity, we also understand well the challenges that any evolution of this scale inevitably brings,” said Li.

“I want to emphasise that there will be a transition period lasting a couple of years before the mobile monetisation gap will close.”

This gap indicates the proportion of mobile ad spend relative to proportion of total search which is mobile, Baidu said.

Gartner analyst Sandy Shen told The Reg that Baidu still “lacks a comprehensive and coherent mobile strategy”.

“The mobile advertising business is tough to crack due to the fragmentation of device OS and models, and different user behaviour from the PC,” she added.

“Unless they have a platform approach that allows them to see the big picture of what users are doing on the mobile device, they won’t be able to pull it off with those point solutions - e.g. apps for search, maps, music, browser. Other players like Tencent and Taobao are doing better with mobile, though not in mobile ads.”

Baidu's two-year forecast for mobile success may raise eyebrows, given that Facebook recently said it sees mobility as a "long term" prospect. ®

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