Baidu 3Q revenue climbs to $2.8bn, but profits dip to $395m

Baidu has reported a 36 percent increase in its third quarter revenue of 18.38 billion yuan (US$2.89 billion) over the same quarter last year, with mobile now accounting for a bulk of its business.

For the quarter ended September 30, 2015, the Chinese search giant saw its mobile search monthly active users grow 26 percent year-on-year to 643 million, while the user base for its mobile maps grew 34 percent to 326 million.

Mobile revenue accounted for 54 percent of its total revenue in the third quarter, up from 37 percent in the same quarter last year.

Baidu Chairman and CEO Robin Li said: "With mobile accounting for nearly two-thirds of Baidu's search traffic, and China squarely in a mobile age, Baidu is pioneering and redefining the mobile experience for users in China.

"We further extended the reach of our platform by deeply integrating and connecting search and maps with transaction services. We have made great momentum in O2O (online-to-offline) [services] and seen strong progress in transaction services for Baidu," Li said.

Baidu CFO Jennifer Li added: "We delivered another solid quarter, with mobile growing its contribution. The momentum in transaction services gives us the confidence to continue investing."

The company's operating profit, however, dipped 35.9 percent to 2.51 billion yuan (US$395.2 million), with transaction services also pushing non-GAAP operating margins down by 32 percent. Its online video unit iQiyi also dragged down non-GAAP operating margins by 5.4 percent.

Baidu's overall net income fell 26.7 percent to 2.84 billion (US$447 million).

During a call with analysts, Li said the company had been investing in services that were currently unprofitable, with the belief that these would later drive more revenue in its search business through commissions from merchants.

"Transaction services [are] the biggest bet we are doing right now," he said in a report by The Wall Street Journal. "It does not give us much revenue, it's losing a lot of money right now, but we think going forward it will become more and more important and will become part of our search business."

Its third-quarter online marketing revenue grew 31.7 percent to 17.68 billion (US$2.78 billion), and active online marketing customers climbed 20.7 percent to 623,000. It generated 28,300 yuan (US$4,453) revenue per online marketing customer, representing a 9.3 percent increase from the same quarter in 2014.

Baidu also reported a gross merchandise value of 60.2 billion yuan (US$9.5 billion) from its transaction services, growing 119 percent over the third quarter last year. The number of activated Baidu Wallet accounts grew 520 percent to hit 45 million.

It also spent more acquiring more audience, with traffic acquisition cost reaching 2.41 billion yuan (US$379.4 million) and accounting for 13.1 percent of total revenue, compared to 12.9 percent in the same quarter last year. Its bandwidth costs totalled 970 million yuan (US$152.6 million), accounting for 5.3 percent of overall revenue compared to 5.6 percent last year.

Content costs rose to 914.5 million yuan (US$143.9 million), representing 5 percent of the company's revenue compared to 3.7 percent last year. Baidu attributed the increase to iQiyi's higher content costs.

For the quarter, the search vendor spent 2.69 billion (US$423.2 million) on research and development, which was up 46.9 percent from last year, with most the increase going towards new hires.

Baidu also completed a US$1 billion share buyback scheme that was approved by its board of directors in July 2015, with another planned over the next two years for up to US$2 billion of its shares.

Giving its outlook for the fourth quarter, the company said it was forecasting total revenue of between 18.2 billion yuan (US$2.86 billion) and 18.75 billion yuan (US$2.95 billion), with a 29.5 percent to 33.4 percent year-on-year increase.

In April this year, Baidu shuttered its search engine in Japan after first expanding into the market in 2007. A spokesperson then said it had closed its local language search engine, but mooted the possibility of returning to the Japanese market or resuming services with other platforms.