SHRINKING MARGINS: Baidu's revenue from mobile searches have surpassed that of PCs in December. However, the margins are thinner.
BEIJING/BENGALURU: Baidu Inc's shift to smartphones has come at a cost: the Chinese Internet firm forecast lower-than-expected revenue growth for the first quarter as its share from less profitable mobile browsing grows at the expense of PC searches.
Baidu posted a lower-than-expected 47.5% rise in fourth quarter revenues. Its revenue forecast of 12.65-13.07bil yuan (RM7.25bil - RM7.6bil) for the current quarter came below analysts' average expectations of 13.62bil yuan (RM7.9bil).
Baidu operates China's most widely used search engine. It said that revenue from mobile searches had, for the first time, surpassed that of PCs in December, but the amount advertisers paid per click on mobile devices remained steady at 60% of PC rates quarter-on-quarter.
"I wouldn't draw the conclusion that mobile monetisation becomes a problem, it's not a problem," said Baidu chief financial officer Jennifer Li, brushing off concerns about revenue growth at a post-results call with analysts.
"We're still on trajectory of healthy and steady growth and there is a lot of room for us to continue to improve."
Baidu said its first quarter forecast was weighed down because of seasonal factors such as the Chinese New Year holiday falling in late February and doing more business on mobile.
Mobile browsing makes less money for search engines because adverts on smartphones are not as effective as PC at taking a user to a site where they can make a purchase, said Ben Thompson, an analyst at tech analysis site stratechery.com.
"Google's results disappointed for the same reason," he added.
Baidu's expansion of its mobile services in the world's largest smartphone market is likely to keep squeezing margins, and pit it against bigger rivals Alibaba Group Holding Ltd and Tencent Holdings Ltd.
Operating margins were 26% in 2014 compared to 35% in 2013, Reuters calculations show. Executives flagged a potential jump in 2015 selling, general and administrative expenses of roughly US$830mil (RM3bil), mainly from promotional efforts for location-based services known as 'online-to-offline' or 'O2O'.
"I don't really worry about the top line (revenues) that much, but I do worry about the margins," said Tian Hou, an analyst with TH Capital. "As the company takes new initiatives in O2O, it's doing a lot of things like brand promotions. Those kinds of things will burn a lot of cash." — Reuters
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