Baidu (NASDAQ:BIDU) reported its earnings for Q2 2012 on July 23. It had a pretty good quarter with revenue increasing to around $860 million, up 60% year-over-year and operating profit increasing to $443 million, up more than 50% year-over-year. Baidu is the leader in the Chinese online search space where it competes with Google (NASDAQ:GOOG) and a few small local competitors. It generates most of its revenues from search and display advertising. Baidu is likely to continue to dominate the Chinese search space. 
Robin Li, CEO of Baidu, said:
We are pleased to announce strong results for the second quarter despite macro headwinds and challenging comparisons with the same period last year. Our efforts to expand our customer base continue to make solid progress. In the coming quarters, we will maintain momentum by rolling out optimized sales processes and more advanced tools to help current and potential customers increase returns on their online marketing spend. We will also continue to actively explore the vast opportunities in China’s fast-emerging mobile Internet and cloud sectors.
Baidu working hard to grow ad business
Baidu has been focusing on multiple new services and offerings to increase usage, engagement and advertising revenue from its search offering. It launched a new personalized home page feature to drive clicks and boost usage metrics. It also continues to work on its own smartphone and mobile platform to strengthen its already dominant position in the Chinese mobile search space. Additionally, its recent partnership with Apple to make Baidu the default search engine on Chinese iPhones could help its mobile search volumes significantly.
Rumors suggest that Baidu may also be looking to acquire UCWeb, one of the most popular mobile web browsers in China with more than 160 million users. If Baidu’s services are integrated with UCWeb, it has a great shot at completely dominating the mobile Internet space in China and generate a significant amount of revenue from mobile advertising, going forward.
The growth of the mobile search market could also help Baidu increase advertising revenue, going forward. Mobile search already accounts for around 20% of Baidu’s total web search traffic. With initiatives like its own Baidu Yi OS, as well as search apps for iOS and Android, Baidu is aiming to leverage the rapid increase in smartphone penetration rates to drive search volumes as well as CPM for mobile ads.
Also looking to diversify revenue streams
Besides search, Baidu also continues to work on several new initiatives like Baidu PostBar, Baidu Knows, Baidu Encyclopedia and various search verticals like video, image, news, maps, etc. It also aims to make the search experience more engaging with the Box Computing service. With offerings like the Baidu Application Engine and some cloud storage initiatives, Baidu is trying to create a complete cloud platform for developers, which could generate money through revenue sharing with developers monetizing their users by in-app ads, subscriptions or virtual item sales.
We currently have a $125 Trefis price estimate for Baidu. Search ads, display ads and ad partnerships account for its entire value.Notes: