With the transition to mobile search around the world, it probably shouldn’t be too surprising that Baidu.com, Inc. (ADR) (NASDAQ:BIDU) has struggled over the last year. In fact, the dominant player in Chinese search faces a bigger issue as the Chinese move quicker towards mobile. The China Internet Network Information Center reported that the total online population rose to 591 million with wireless users surging to 464 million. The percentage of the population on the Internet only reached 44 percent, providing hints that the next 100 million users will come via smartphones.
In order to meet this onslaught into the wireless world, Baidu.com, Inc. (ADR) (NASDAQ:BIDU) has been spending heavily to improve the mobile search experience as well as to add technologies for mobile travel reservations and purchase a mobile app store and mobile video platform. All of these moves could make the company into a mobile powerhouse in China, yet the stock market has been focused on the higher expenses, causing earnings expectations to wilt for 2013.
Mobile apps platform
Baidu.com, Inc. (ADR) (NASDAQ:BIDU) recently announced a deal to purchase mobile apps platform 91 Wireless for $1.9 billion. The deal helped push the stock to recent highs while causing NetDragon to collapse in Hong Kong trading. The deal involved paying $1.09 billion to NetDragon for a 57% stake and $800 million to the remaining 43% holders.
According to reports, 91 Wireless only holds a 15.6% market share of the mobile apps business in China with Qihoo 360 Technology Co Ltd (NYSE:QIHU)’s Mobile Assistant controlling 27.4%. Combined, the two platforms only control 43% of the market, providing the ability for a leader to consolidate it in the next couple of years. The details suggest that NetDragon’s mobile revenue rose more than 200% in Q1 to reach $23.5 million. At a run rate of nearly $100 million, Baidu.com, Inc. (ADR) (NASDAQ:BIDU) paid a significant price for the app platforms future growth.
The company recently purchased PPStream for $370 million to become a leader in the online video market, one that is quickly turning towards mobile. It will merge this business with the existing video platform iQiyi. According to the company, the combined entity will become China’s largest online video platform by number of mobile users and video viewing time.
This entity will compete against Youku Tudou Inc (ADR) (NYSE:YOKU) for dominance in the online video sector. That company claims to be the leading Internet television company in China. For Q1, Youku Tudou Inc (ADR) (NYSE:YOKU) had 100 million active monthly users on mobile with over 170 million daily video views. Total revenues were only $83 million, providing an example of how a corresponding division at Baidu.com, Inc. (ADR) (NASDAQ:BIDU) would only equate to less than 10% of the $1.2 billion expected for Q2.