It's been about a week since Chinese search giant Baidu (NASDAQ:BIDU) released earnings that generally disappointed Wall Street. Shares fell as much as 7% following the release, as the company missed by a wide mark on the bottom line, and issued first-quarter guidance below analysts' estimates.
But take a look underneath the hood and there was still a lot to be excited about from the company's release. Below are five key pieces of information from the conference call that every investor needs to know, but would've missed by just reading the headlines.
The weak guidance does not reflect a weakening Chinese economy ... just a shift in a key holiday
Many were surprised to see Baidu project revenue of $2.07 billion in the current quarter. While this represents heady growth of 35%, analysts were hoping for more. Baidu CFO Jennifer Li spelled out the reasoning behind the lower-than-expected guidance:
"What is reflected in the projection for us is ... a very strong seasonal factor. As you know, the Chinese New Year falls right in the middle of the quarter ... Mobile ... from a traffic perspective, would be particularly strong. However, on the monetization front, it does have a distance, versus the PC monetization capabilities. Reflected in our guidance, I would say macro is not really a consideration."
In other words, mobile is going to be used a lot during the holiday, but monetization is just in its infancy.
Speaking of mobile, it is now the main revenue driver
The big transition that Baidu has gone through over the past two years is from PC and desktop searches to mobile. The company has been largely successful on this front, and according to Chairman and CEO Robin Li, "In December, for the first time, search revenue from mobile surpassed that from PC." This is, without a doubt, crucial for the future of the company.
Making the service stickier
With the mobile transition having been largely successful, Baidu is aiming to make its service more useful for members no matter where they are surfing on the Internet. In much the same way that Google (NASDAQ:GOOG)(NASDAQ:GOOGL) has done in the rest of the world, Baidu wants its users to have a universal log-in.
Said Li: "We also drove a broader effort to increase the adoption of Baidu's unified log-in. In the fourth quarter, near 180 million monthly active users logged into Baidu products, including search, Postbar, Nuomi, Baidu Wallet, and personal cloud storage, up from 95 million in the fourth quarter 2013."
That's growth of about 90% in just one year's time. Not only will this improve the customer experience for users, but it will allow Baidu to collect ever-more information about the habits of its users, and improve the experience even more -- a virtuous cycle to say the least.
The log-in will make the next step even easier
But while the universal log-in is a nice step, it is not an end unto itself. Instead, the real focus for management will be on creating closed-loop transactions. As Li explained in the company's conference call: "Baidu's next new mobile opportunity is connecting people with services and enabling a closed-loop transaction. The Internet disrupted the information and media industries. The next, even larger opportunity is the disruption of service industries."
Think of it this way. If you're a Chinese consumer looking to buy tickets to a sporting event, you might have traditionally looked up a team's schedule using Baidu, then clicked over to a team's Web page to purchase tickets.
Baidu is aiming to enable you to buy tickets while still on its platform. Companies would likely benefit by reducing a barrier (the click-over to their site), while giving Baidu even more granularity on how effective its advertising platform is.
But the spending binge will continue
Some of the more somber news -- at least for short-term investors -- came when Li said that the company's massive investments would continue in 2015: "For full-year 2015, we'll continue to spend aggressively on sales and marketing to support our key gateways and build out our closed-loop offering."
It's easy to see how the closed-loop offerings could be lucrative for both Baidu and its advertising partners. Long-term investors need to be willing to ride out the build-out of such infrastructure if they want to reap the benefits of it in the future. Given Baidu's track record, this is likely going to be money well-spent.