Baidu Q1 2015 Earnings: Shift To Mobile Boosts Revenues As Well As Costs
Baidu (NASDAQ:BIDU) recently released its Q1 2015 earnings, reporting on a quarter in which its mobile revenues exceeded 50% of total revenues. On account of its investments in the mobile ecosystem, Baidu stands poised to reap the benefits of the shift to mobile. Additionally, it is also making its presence felt in the O2O (Online to Offline) business. These positive trends led to revenue growth of 34% on a year on year basis. However, these continued investments did put pressure on the company’s operating margins. [1]
We have a price estimate of $212 for Baidu, which is about in line with the market price.
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Revenue Growth Continues
The nearly 34% increase in revenue was helped by an 18% increase in the number of active online marketing customers and a 14% increase in revenue per online marketing customer. [1] The company continued to assert its dominance in desktop-based search as well. It made improvements to its instant search, which now returns more relevant results in less time. This has likely helped to improve the search queries on Baidu, the click through rate and the revenue per search.
Mobile And O2O Escalate Costs
Development of the mobile and O2O ecosystems caused a considerable rise in expenses in Q1. The associated research and development (R&D) activities led to a higher headcount in Baidu’s R&D department. This increased the R&D expenses by around 79%. The O2O business also increased the bandwidth costs due to the increased traffic to these services. [2] Another area of significant expense growth was the promotional activity associated with the O2O efforts such as food delivery and group buying. [2] These expenses led the company’s selling, general and administrative (SG&A) expenses to increase by 47% year on year. [1]
New Initiatives
Many of Baidu’s new initiatives also show promise; the company’s online payments solution, Baidu Wallet, has been used for payments on around 26 million websites. Its e-commerce arm now has over 700,000 merchants, while its online education initiative tripled its monthly revenues over the past two quarters and now has an average spend per transaction of 1000 Yuan. Lastly, its food delivery service, launched less than nine months ago, has spread to more than 70 cities and has attained market leadership in more than half of these cities. [2]
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