Three Things Which Will Drive Baidu’s Growth In Future

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Baidu‘s (NASDAQ:BIDU) management is taking several initiatives towards building a “New Baidu” which would drive its growth in future. These include: 1) establishing a seamless user experience with search, location, service and payment in one platform; 2) generating more focus on localized search; and, 3) enabling merchants and fostering innovation for a better mobile search experience. We believe with mobile searches becoming the norm in future, Baidu’s efforts to compete effectively in this space with players such as Google will be instrumental for its growth. Furthermore, emphasis on tapping the large SME (small medium enterprises) market in China to provide local search could be another driver of growth in future.

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Integrated Product Offering

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Baidu is building an online marketing and transaction services platform which aims to create a unified seamless user experience of discovery, service and payment using Baidu’s many features.  These include the search engine, maps, Nuomi (Baidu’s group buying platform), Take Out Delivery and Baidu Wallet. Baidu believes that the entirety of its platform will help merchants grow their business and improve operational efficiency. The company would help merchants attract new customers through search, maps and Nuomi and retain them through programs such as Membership Plus and stored-value cards on Nuomi.  We believe this strategy will bring out synergies within various offerings of Baidu and integration will help attract more merchants and customers, thus driving revenues.

 

Localised Search Engine – Local Express

There are more than 40 million SMEs in China without websites and Baidu plans to capitalize on this by launch of “Local Express” in September 2015.  This platform will help Nuomi merchants to get discovered by pushing content of their business such as image, location, distance and promotions in a performance based ad. With one click, the user will be able to land on the merchant’s page and complete the transaction.  Baidu expects that this will provide local merchants a very simple way to build their online presence without a domain name or renting servers, since Baidu will provide the hosting services. Given consumer preferences towards local stores and the tremendous opportunity in terms of number of merchants, we believe this could drive revenue growth for Baidu in future.

Mobile Momentum In China

In its earnings release for Q3 2015, Baidu stated that mobile revenues comprised 54% of its total revenues, up from 37% a year ago. Mobile search accounted for nearly two thirds of total search traffic on Baidu. The number of monthly active smartphone users in China is expected to increase to around 705 million by 2018 from 520 million in 2014. [1]  Mobile Internet penetration crossed 85% in the country in 2014. Given the trend of consumers using mobile devices for e-commerce, Baidu has invested heavily in transforming itself from a desktop based business to a mobile leader. Some of its key initiatives to capture the mobile momentum in China include: acquisition of the 91 Wireless a mobile-apps market place, an improved mobile search user interface, and personalized ad links and search results. The company unveiled “Duer”, its intelligent, voice-based assistant, at the Baidu World conference in September 2015. “Duer” is a sneak peek into Baidu’s vision of the future of search where voice activation, artificial intelligence and services come together. We believe that innovation in the mobile search space is key for Baidu’s growth in future.

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