Baidu Explodes Again, in a Good Way

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Chinese Internet search provider Baidu.com (NAS: BIDU) came out with a stellar set of third-quarter numbers that exceeded Wall Street expectations. This is despite growing concerns of a deteriorating Chinese economy. Let's take a closer, Foolish look at how Baidu pulled this off.

Up, up, and away
Baidu's third-quarter net income skyrocketed by 85%, to $295 million. Total revenues for the company jumped by an equally astounding 85%, to $654.7 million, beyond even its own projected range of $611.1 million to $626.6 million.

Baidu's large customers significantly increased ad spending. Higher revenues also poured in from traditional industries such as the auto industry, which shifted from offline to online marketing. So much so that the company came out with an 8.6% sequential revenue growth forecast for the fourth quarter, far from the 4.8% analysts have been talking about.

But this should not be too surprising, as the fourth quarter usually sees heavy spending by online retailers. So it looks like the party is likely to continue through Q4.

What's Baidu been up to?
In September, Baidu renewed the look and feel of its home page to give users better access to external websites and applications.

Baidu has also been expanding its operations, investing in Qunar.com for travel-based content. The company also launched websites in languages including Thai and Arabic, and has also released smartphone software for Chinese users.

Baidu has been busy partnering with mobile-phone makers to make it the default search engine. So far this year, the company has managed to feature in 80% of branded mobile handsets using the Android operating system in China. Baidu had announced its new E-Mobile platform in the previous quarter. This platform aims at providing Baidu services to mobile users with a suite of products; it would enable users to access Baidu's search box, stream music via Baidu stream, use the location services of Baidu Maps, and use a host of other applications.

Going beyond Google
Baidu has certainly held onto its position as the dominant search engine in China from the time when Google (NAS: GOOG) decided to move its search engine to Hong Kong in 2010 due to a disagreement with the Chinese government over censorship issues. According to a research firm in Beijing, Baidu earned a 75.9% share of the revenue pie in the second quarter. Google was its closest competitor, with just 18.9% of revenues.

China's dot-com

China is the world's largest Internet market, with more than 450 million users. But the potential for growth is still there, with Internet penetration at approximately 30%.

Companies vying to cash in on this include Sohu.com  (NAS: SOHU) , an online media, search, and gaming site; Youku.com  (NYS: YOKU) , an online video content provider; and Renren  (NAS: RENN) , China's own social-networking site.

Baidu faces competition from Chinese Internet players such as Tencent Holdings and Alibaba Group. Tencent recently announced that it is seeking more social games and e-commerce applications from third-party developers.

The Foolish bottom line
In spite of the so-called Chinese slowdown, Baidu has certainly made investors one big happy bunch, given the fact that it has whizzed passed Wall Street expectations for the past 10 quarters! With its stellar Q4 target, I feel that Baidu might pull yet another rabbit out of the hat. Stay abreast of all the Baidu action by clicking here to add it to your free, customized stock watchlist.

At the time this article was published Keki Fatakia does not hold shares in any of the companies mentioned in this article. The Motley Fool owns shares of Google.Motley Fool newsletter serviceshave recommended buying shares of Sohu.com and Google. Try any of our Foolish newsletter servicesfree for 30 days. We Fools may not all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. The Motley Fool has adisclosure policy.

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