reported earnings on July 24, it was clear that the pressure was
on. The stock had enjoyed an 80% run-up in the 12 months leading
up to the release, and a 25% run-up in the three preceding
months. But, despite the pressure, Baidu delivered. Shares shot
up about 10% on Baidu's excellent second quarter, and have held
their ground since.
Sure, the market optimism for the stock following earnings may
have something to do with the fact that the company matched
revenue estimates and beat earnings expectations. But there are
deeper storylines investors should be watching. And they were all
discussed in the company's second-quarter conference call.
Here are the five most important quotes from the call that
everyone following Baidu should see.
Image source: Baidu.
Mobile revenue is soaring
Chairman and CEO Robin Li:
This quarter, mobile monetization again progressed very
well, with mobile revenue -- which is largely comprised of
mobile search revenue -- accounting for 30% of our total
revenue. The healthy mobile search monetization ramp is a
testament to search as a proven business model with vast
As mobile browsing becomes increasingly more important in
China, Baidu investors want to see signs the company is
transitioning to this key environment successfully. Fortunately,
this statement from Li continues to shed light on a positive
mobile story for the company. Mobile revenue at 30% of total
revenue was surprisingly high, up from 20% just two quarters
Baidu should continue to see a rapid and successful transition
to mobile. Not only are increasingly more Chinese citizens
accessing the Internet from smartphones, but Baidu is still the
leader in the three most important mobile markets: search, maps,
and app distribution.
Search is firing on all cylinders
In our core search business, we remain the clear, dominant,
cross-channel search leader. Mobile search traffic, again,
drove overall traffic growth. In the second quarter, for the
first time in history, during some holidays and weekends --
when people were out and about -- mobile traffic exceeded the
traffic of desktop search.
Baidu's dominance of online search in China is the crux for
the long-term thesis for owning the stock. With an estimated
75.7% share of search engine queries in the first quarter of
2014, according to Bloomberg Intelligence, it won't be easy for
competitors to take away from the company's mindshare among
But can the company dominate mobile the same way? This
reference by Li to mobile traffic driving growth in total search
traffic offers early signs that Baidu has the potential to be a
major player in mobile too.
Marketers are happy
Baidu continues to be an online marketer's preferred
platform to capture leads on a large scale and generate the
best ROI. It's been a little over a year since we implemented
our integrated PC and mobile bidding system, and the feedback
continues to be overwhelmingly positive.
While it's no surprise that marketers are flocking to Baidu
given its size, it's reassuring to hear that large-scale
marketers still view the platform as the best place to get the
highest return on investment on their digital marketing spending.
ROI is ultimately the key driver for
digital marketer platform's value proposition.
Marketers are spending more
If growth in the number of marketers were the only driver for
Baidu's revenue growth, the company's second quarter would have
been incredibly disappointing. Its 488,000 base of active online
marketing customers only grew single digits from both the
year-ago quarter and the quarter before.
But, fortunately, there is another source of revenue growth:
increasing marketing revenue
marketer. On this front, Baidu is performing exceptionally
Baidu CFO Jennifer Li: "Revenue per online marketing customer
for the second quarter was RMB24,200, a 50% increase from the
corresponding period in 2013, and an increase of 16% from the
There are challenges in mobile
While Baidu may benefit from more engagement in mobile as it
makes the important shift, traffic also comes at a higher cost,
evidenced by the company's rising traffic acquisition costs as a
portion of total revenue.
Jennifer Li: "Traffic acquisition cost as a component of cost
of revenues in Q2 were RMB1.5 billion, or 12.7% of total
revenues, compared to 11.6% in the corresponding period in 2013
and 12.4% in the first quarter."
Baidu cites mobile specifically as one of the reasons for the
rising costs to attracting traffic. But the challenges in mobile
extend beyond higher traffic acquisition costs. The amount
advertisers are paying Baidu per click on mobile is lower than
desktop. Fortunately, however, the trend for mobile CPC continues
to be upwards, Li said during the call.
Mobile may present a unique growth opportunity for Baidu, but
it also comes with its own challenges.
Leaked: Apple's next smart device (warning, it may
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could trump the iPod, iPhone,
the iPad. In fact, ABI Research predicts 485
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one small company makes Apple's gadget possible.
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5 Things Baidu Inc.'s Management Wants You to
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