Baidubell

Source: Baidu. 

The market has lofty growth expectations of Baidu (NASDAQ:BIDU), and it was able to deliver on the hype in the third-quarter results that were reported after Wednesday's market close. 

Revenue climbed 52% to $2.203 billion, roughly in line with Wall Street expectations. Baidu's top-line surge was the potent combination of an 11% increase in active online marketing customers -- a figure that's now up to roughly 516,000 advertisers -- and a 36% increase in the average revenue generated by each marketer to reach Baidu's growing online audience.  

Earnings climbed 27% to $631.5 million, or $1.79 per American depositary share. Seeing revenue grow at nearly twice the rate as profitability would normally lead investors to begin fretting about margin concerns, but they know the deal with Baidu. China's leading search engine is branching out into lower-margin areas including video, travel, and mobile app marketplaces. That's going to weigh on the bottom line in the near term, and the market's cool with that. Analysts were actually targeting a mere 14% uptick in earnings per ADS, making this Baidu's third bottom-line beat in a row.

Contrary to what synthpop icon Thomas Dolby may have led you believe a generation ago, it's now that we're living in a the golden age of wireless. Smartphones and tablets are becoming more popular, and that trend is also playing out in China. Baidu reports that this is the first quarter in which mobile traffic surpassed visits to Baidu's properties on PC, and that's likely to continue to be the norm for the next few years at least. 

The bad news for Baidu is that mobile traffic is worth less to advertisers than PC usage. Mobile usage is the top dog at Baidu now, but it accounted for just 36% of Baidu's revenue during the quarter. The good news is that this also creates an opportunity. With phones getting larger and consumers growing more comfortable with entering into transactions on their mobile gadgetry, it's just a matter of time before advertisers pay up to reach the well-to-do smartphone user. 

Back to the future
Baidu expects to generate between $2.256 billion and $2.322 billion in revenue during the holiday quarter, translating to 45.4% to 49.6% in top-line growth. Wall Street's perched at the high end of that range. 

Baidu doesn't offer bottom-line guidance, but after chiming in with better-than-expected net margins in the third quarter, it wouldn't be a surprise if analysts move to push their profit targets slightly higher.

Shares of Baidu have more than doubled since the start of last year, climbing 26% year-to-date through Wednesday's close after soaring 77% in 2013. It has earned its place as a dot-com darling, and it will have to keep growing at a healthy clip to keep it that way.

 

Rick Munarriz has no position in any stocks mentioned. The Motley Fool recommends Baidu, BMW, and Nike and owns shares of Baidu and Nike. Try any of our Foolish newsletter services free for 30 days. We Fools don't 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.