Baidu, Inc. (ADR) Earnings: Can China's Internet Keep Soaring?

On Thursday, Baidu (NASDAQ: BIDU  ) will release its quarterly report, and investors are a bit uncertain whether to expect the Chinese Internet stock to hang onto its gains in late 2013. Although competition from Qihoo 360 (NYSE: QIHU  ) and other Internet stocks in China hasn't proven to be a lasting problem for Baidu shareholders, the question Baidu faces in the long run is whether it can keep growing fast enough to satisfy its investors.

Baidu dominates the search engine space in China, having successfully repelled its biggest U.S. counterpart and having held Qihoo 360, Sohu, and other would-be players in the space largely at bay. Now, Baidu is looking to broaden its horizons, with new expansion plans that could lead to an even more powerful Internet player in China's lucrative market. What does the future hold for Baidu? Let's take an early look at what's been happening with Baidu over the past quarter and what we're likely to see in its report.

Stats on Baidu

Analyst EPS Estimate

$0.95

Change From Year-Ago EPS

0.2%

Revenue Estimate

$1.53 billion

Change From Year-Ago Revenue

61%

Earnings Beats in Past 4 Quarters

1

Source: Yahoo! Finance.

Can Baidu earnings keep climbing higher?
Analysts have slashed their views on Baidu earnings in recent months, cutting between 15% and 20% from their estimates for the first quarter and for the full 2014 year. The stock has also pulled back from its recent highs, falling 6% since mid-January.

Baidu's fourth-quarter earnings report showed just how strongly the Internet giant has managed to grow its sales lately. Revenue jumped by 51%, accelerating from its previous quarter's pace and demonstrating its ability to capture ever-increasing amounts of the potential from China's Internet space. Yet profits fell slightly year over year, leading some investors to worry about whether Baidu will successfully boost its bottom line in the near future.

The most encouraging thing about Baidu's growth is that the company recognizes the importance of the mobile niche to its overall success. Part of the reason why Qihoo 360 gained so much notoriety is that investors saw Baidu as stuck to a PC-centered world, but Baidu has answered those concerns with forays into online video, e-commerce, and mobile-app marketplace sites. Baidu's takeover of group-buying site Nuomi in January is just one example of how the search giant has sought to broaden its business and make itself more appealing to a wider variety of users in China.

Even more exciting is the potential for Baidu to become a bigger player in the online travel portal space. Recently, reports surfaced that Baidu is in talks with Ctrip.com International (NASDAQ: CTRP  ) to make a deal that could result in Ctrip merging with Baidu's majority-owned online travel information provider. Together, the combination could give Baidu even more power in the Chinese travel market and allow it to gain data and information that search companies in other countries have found incredibly valuable for advertising purposes.

In the Baidu earnings report, watch to see how profitable Baidu's forays into other non-core areas besides search prove to be. Inevitably, Baidu will see margins drop as a result of moving beyond paid search, but the opportunity to grab up valuable opportunities before smaller competitors use them to get a fingerhold toward becoming key rivals is worth short-term profit drop.

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