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Baidu Can Still Make You Rich

By Rick Munarriz - Jul 25, 2013 at 6:00PM

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More good news from China's leading search engine.

Baidu (BIDU 1.41%) is back.

Shares of China's leading search engine moved higher after posting cynic-debunking quarterly results on Wednesday night.

Revenue climbed 39% to $1.232 billion, just ahead of expectations. Rising expenses held earnings growth back, but the market was braced for contracting margins as Baidu invests in growth initiatives that may not pay off right away. The $1.22 a share that Baidu did post was actually ahead of Wall Street's target, and it's the first time that we've seen that at Baidu since last year. 

The news gets even better when we start to look ahead. The concern that has turned this former market darling into a dot-com laggard was the arrival last summer of Qihoo 360's (QIHU.DL) rival search engine.

Now, it's true that Qihoo's growth has come to some extent at Baidu's expense, but the pie itself is growing too quickly to fret about Baidu's slice. 

Beyond the model-affirming pop on the top line, the average advertiser is spending more to generate leads through Baidu than ever before. 

Then we get to Baidu's encouraging outlook. The real bear crusher in the search giant's report is that it's targeting revenue to clock in between $1.422 billion and $1.46 billion for the current quarter. This would be 40% to 43% higher than what Baidu rang up a year earlier. Since the second quarter saw year-over-year growth of 39%, we're also looking at accelerating revenue growth. Wall Street certainly wasn't expecting that. The pros were eyeing just 35% top-line growth to $1.35 billion this quarter.   

There's also encouraging news in mobile. The market sent Baidu shares up 15% last week after the company announced a $1.9 billion deal for China's leading apps marketplace operator. It seems as if its mobile reach was already growing before this deal, as mobile revenue topped 10% of Baidu's total top-line showing for the first time this past quarter.

Baidu has been a popular stock to bet against this past year. There were 15.5 shares sold short as of mid-July, far more than the 5.8 million bearish bets placed against it a year earlier. 

However, this is the kind of report that sends shorts scrambling. The Qihoo threat is real, but you don't want to get in the way of a company where growth is accelerating and mobile prospects are improving. 

Longtime Fool contributor Rick Munarriz has no position in any stocks mentioned. The Motley Fool recommends Baidu. The Motley Fool owns shares of Baidu. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Baidu, Inc. Stock Quote
Baidu, Inc.
$139.68 (1.41%) $1.94
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