Shares of Baidu (NASDAQ:BIDU) moved 4% higher yesterday, boosted after teaming up with a Chinese bank to roll out its own financial services platform.
A dot-com darling dabbling in online banking could be easily misconstrued as a desperate measure. What does paid search have to do with bank deposits? This was the same market that blasted a specialty apparel retailer for snapping up a pizza chain, but it obviously didn't have a problem with this deal.
Why is Wall Street cool with Baidu's push into banking? Let's go over a few of the reasons why this matters.
1. Everybody's doing it
Baidu's partnership with CITIC Bank isn't the first time that a Chinese Internet giant has made a play for online banking. Tencent owns a 30% stake in WeBank, China's first online bank. It launched back in January, taking advantage of China's push to encourage the formation of private banks. MyBank rolled out in June.
Baixin Bank -- that's the name of the joint venture between Baidu and CITIC -- will be the first online financial services platform formed by an Internet company and a traditional bank. It's what all of the cool Chinese dot-com darlings are doing. Baidu has already sacrificed margins in the near term for the pursuit of online-to-offline (or O2O) opportunities. Why not online banking?
2. Mobile matters
Baidu has been able to quickly become a leader in everything from streaming video and mobile apps marketplaces because it draws a crowd. Baidu's leading search engine has bridged the gap between PC and smartphone usage, and these days it's attracting 643 million monthly active users on mobile search.
That's not the kind of audience that you let squander. There isn't a single search engine worth its salt that won't build on top of the low-lying fruit of paid search to carve out a model with new revenue streams. Baidu has been able to easily pitch its group-buying website and online travel platform to its growing user base.
3. It's already in your wallet
Baixin Bank is more evolutionary than revolutionary. Baidu already has an online payments platform in Baidu Wallet, and it's one of the search behemoth's fastest growing businesses. There are now 45 million activated accounts. A year ago it was under 10 million. Two years ago it didn't even exist.
Baidu Wallet is a commitment to trusting Baidu in the realm of financial transactions, something that already tens of millions of people in China are doing. As impressive as 45 million accounts may seem, that's less than 7% of Baidu's total monthly active users on mobile. It's just starting to scratch the surface, and once again it's time to bank on Baidu.