Baidu's Q3 Solid, but Guidance Will Weigh on Stock

There has been no shortage of storylines around Chinese search giant Baidu (NAS: BIDU) recently. Investors have been fretting that the emergence of Qihoo 360 (NYS: QIHU) would make a dent in its results. Not only that, but the company's ability to monetize mobile is sharply in focus as the Chinese smartphone industry takes off.

With its third-quarter report, Baidu had a lot of questions to answer, so how'd it do? In the just-finished quarter, Baidu seemed to perform up to expectations. Revenues came in at $994.6 million, just a hair shy of S&P Capital IQ's average estimate of $1.0 billion. On the earnings side, adjusted earnings of $1.39 easily beat expectations of $1.28 in earnings per share. So far, so good.

However, in the upcoming quarter, Baidu projected earnings between $979.3 million and $1.01 billion. That's troubling, because even hitting the own end of its guidance would leave Baidu below analyst expectations of $1.04 billion next quarter. That's a pretty glaring negative investors will be keying in on.

The natural reaction to that guidance would be that Qihoo is a real threat adversely affecting search revenues and Baidu continues struggling with mobile. Baidu's CEO seemed to acknowledge as much in his prepared remarks in the company's earnings press release, stating, "We stand ready to meet the challenges and capture the opportunities the PC-to-mobile transition presents."

Translation: Yes, we realize we're not monetizing mobile well right now and that's weighing on our results, but we'll get there in time.

Baidu's conference call isn't until 8 p.m. ET tonight, so investors looking for a little more clarity on why next quarter is coming in light will have a few more hours to wait.

Yet I'll note that China's smartphone boom is really just taking off. In July, Flurry estimated iOS and Android sales were up 400% over the previous year. Google is finally figuring out mobile and closing out the monetization gap with desktop, yet it has a long head-start in luring advertisers to mobile. In China, the mobile explosion is newer. Feeling a need to rush Baidu's mobile results could be a long-term mistake for investors.

The Fool will have plenty of Baidu earnings coverage tomorrow after the company's conference call.

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Eric Bleeker owns shares of Baidu. The Motley Fool owns shares of Baidu and Google. Motley Fool newsletter services recommend Baidu and Google. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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