Earlier in my career, I was fond of making international companies easy to understand. I would refer to companies like PriceSmart as the "Costco of Latin America", and Dangdang as the "Amazon of China."
While this helped readers to instantly get an idea for what a company was about, it wasn't without its pitfalls. PriceSmart, for instance, has less than 40 locations worldwide and expands at a snail's pace compared to Costco. And Dangdang is far from the top dog in e-commerce in China. So recently, I've shied away from making such comparisons.
Just the numbers
Focusing on the numbers that usually garner the headlines, Baidu missed expectations on revenue, showing 34% growth to $2.05 billion. Analysts were hoping for 36% top-line growth. And when it comes to earnings, the company reported $1.22 per share, down slightly from last year, but ahead of expectations.
The story is all too familiar: Baidu is investing heavily in its mobile platform, as well as developing an ecosystem that can support closed-loop transactions, which could prove lucrative for the company. It's unquestionably a good move. For the first time, mobile revenue accounted for half of all sales during the first quarter of 2015.
Further, Internet penetration in China still sits below 50%, and according to Internetlivestats.com, the country adds about 170,000 new Internet users per day. Because of the affordability and proliferation of mobile devices, the vast majority of these users come online via a computer in their pocket -- not their desktop.
But it also isn't a cheap decision. Selling, General & Administration costs grew 47% during the quarter, while R&D far outpaced revenue growth, clocking in 79% higher. These bumps were largely the result of mobile promotions and an increase in employees.
Comparing to Google
Having been a shareholder of Google since the nadir of the Great Recession, I can't help but notice a strong correlation in Baidu's growth arc. It was the second quarter of 2010 when the Big G realized that it needed to start investing heavily in mobile to stay relevant. Baidu followed suit two years later.
If we plot each company's revenue, income, and expenses for the three years before and three years after such moves, the trends are clear.
While revenue growth accelerated, it was outpaced by growth in expenses, and earnings ultimately suffered.
While I'm cautious not to draw too close a correlation between Google's fate and Baidu's future, it's instructive to see what's happened over the past two years for Google. Revenue has continued to increase north of 20%, but it is still being outpaced by growth in expenses.
That being said, such expenses have tapered off, and the thought is that once Google's mobile infrastructure is robust, revenue growth will once again outpace expenses. The fact that Baidu's operating profit was down just 3.8% during the first quarter is a sign that the company is doing better than many analysts expected.
Moving forward, investors need to keep their eyes on the decades-long time horizon. Baidu is likely going to see earnings grow slower than revenue for the next couple of quarters. But that should result in a dominant market position in the world's largest country and one of its faster growing economies.
Brian Stoffel owns shares of Amazon.com, Apple, Baidu, E-Commerce China Dangdang, Google (A shares), and Google (C shares). The Motley Fool recommends Amazon.com, Apple, Baidu, Costco Wholesale, Google (A shares), Google (C shares), and PriceSmart. The Motley Fool owns shares of Amazon.com, Apple, Baidu, Costco Wholesale, Google (A shares), and Google (C shares). 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.