Baidu Inc (ADR) (BIDU)’s Mobile Business Key to Unlocking Suppressed Margins: Henry Guo

China’s search giant Baidu Inc (ADR) (NASDAQ:BIDU) posted a 16% growth in its fourth quarter profit, but the earnings were marred by a negative reaction from Wall Street after the company provided a negative outlook for the current quarter. During an interview on CNBC, JG Capital Henry Guo, reiterated that competition could have a huge bearing on the company’s earnings this year. Having spent a lot last year in a bid to attract more users for its mobile services.

One pressure point that Baidu is poised to face in 2015 involves Alibaba Group Holding Ltd (NYSE:BABA) and Tencent investing a great deal in apps and content. Competition in the search space is also poised to be stiffer as Sohu.com affirms commitment to aggressively pursue the search space that Baidu Inc (ADR) (NASDAQ:BIDU) has been dominating for the longest time in the country.

“I think that the competition is intensifying so Baidu has to invest aggressively to really gain the market, to get the favorable position in the market. We are not surprised to see the margin pressure for Baidu that has caught her. […] We expect 2015 is another year of investment year for Baidu to guide it to a favorable position in the market,” said Mr. Guo.

Baidu fourth quarter revenues were up by 44% to $2.64 billion with the company now expecting its first quarter revenue to come in at between $2.03 billion and $2.106 billion.

Investments on mobile according to the analyst are expected to pressure Baidu Inc (ADR) (NASDAQ:BIDU)’s margins in the short term with the company expected to attain substantial gains in the long term, as a result. Baidu on the other hand remains at one of the best position in China especially on the mobile front, which should provide growth opportunities going forward. For the first time, the company’s mobile revenue surpassed PC revenue signaling the importance of mobile business for the company.

“I think the key focus now is how the company’s new initiative in terms of mobile local and all too all those initiatives, are there any tractions? What is the monetization timetable timeline for those new initiatives? I think that is the focus for this name for investors to understand,” said Mr. Guo.

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