China’s largest search engine, Baidu, Inc. BIDU reported adjusted first-quarter 2015 earnings of $1.09 per share, which missed the Zacks Consensus Estimate by 4 cents due to higher-than-expected research & development (R&D) expenses. The adjusted earnings per share exclude one-time items but include stock-based compensation expense.
Revenues
Baidu reported revenues of RMB12.7 billion ($2.05 billion) in the first quarter, down 9.4% sequentially but up 34% from the year-ago period. Mobile revenues accounted for 50% of Baidu’s total first-quarter revenue.
Revenue Sources
Revenues from Online marketing services were RMB12.5 billion, up 33.5% from the year-ago quarter and represented 98.4% of total revenue. The upside was attributable to active online marketing customers that increased to 524,000, up 17.5% year over year but remained flat sequentially.
Revenue per online marketing customer was approximately RMB23,800 ($3,839), up 13.9% from the year-ago quarter but down 9.8% sequentially.
Revenues from Other services were RMB205.9 million, which increased 0.12% from the year-ago quarter and represented 1.6% of total revenue.
Margins
Reported gross margin was 58.1%, down 320 basis points (bps) sequentially and 150 bps from the year-ago quarter.
Baidu reported total operating expenses of RMB5.2 billion, up 59.6% from RMB3.3 billion incurred in the year-ago quarter. Both selling, general & administrative as well as R&D expenses were up as a percentage of sales from the year-ago quarter. The net result was a GAAP operating margin of 16.9% compared with 25.0% in the year-ago quarter.
Adjusted EBITDA in the first quarter was RMB3.3 billion, up 2.4% from the year-ago quarter.
Net Income
Baidu generated first-quarter net income of RMB2.4 billion compared with RMB2.5 billion in the year-ago period. There were no one-time items in the quarter. Therefore, GAAP EPS was the same as pro-forma EPS of RMB6.76 or $1.09 per share compared with RMB7.21 or $1.16 per share in the prior quarter.
Balance Sheet & Cash Flow
Baidu exited the first quarter with cash, cash equivalents, restricted cash and short-term investments of approximately RMB58.57 billion versus RMB58.08 billion in the prior quarter. Accounts receivables were RMB3.53 billion, down from RMB3.66 billion in the prior quarter.
Cash flow from operations was RMB3.6 billion versus RMB4.9 billion in the prior quarter. Capex was RMB1.0 billion versus RMB1.4 billion in the last quarter.
Guidance
For the second quarter of 2015, Baidu expects total revenue in the range of RMB13.365 ($2.640 billion) to RMB16.750 billion ($2.702 billion), representing a year-over-year increase of 36.5–39.7%. Analysts polled by Zacks expect revenues of $2.571 billion.
Our Take
Baidu provides Internet search services in China. It also offers a Chinese language search platform for businesses to reach their customers. The company posted weak first-quarter results with the bottom line missing the Zacks Consensus Estimate.
Baidu’s increasing presence in the online video market will improve its competitive position. Some of the current buoyancy surrounding the shares is related to Baidu’s strong dominance in the mobile search market and its continuous efforts to develop new products. Moreover, Baidu continues to gain market share. We believe that the company has significant growth potential in the mobile market over the long term.
However, higher promotional expenses and increasing competition on its own search platform from the likes of Qihoo 360 Technology and Sohu’s Sogou search engine remain a matter of concern.
Currently, Baidu has a Zacks Rank #3 (Hold). Some stocks in the same space that are performing well at current levels include Autohome Inc. ATHM, Healthstream Inc. HSTM and Borderfree, Inc. BRDR. Both Autohome and Healthstream sport a Zacks Rank #1 (Strong Buy), while Borderfree carries a Zacks Rank #2 (Buy).
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Be the first to comment