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Baidu ( BIDU ) reports Q1 earnings after the close on Thursday, with analysts expecting China’s search leader to maintain its dominant position in mobile ads, retaining its share of ad budget allocations from large advertisers. “Regarding profitability, we see several potential upside catalysts that could positively impact Baidu’s shares in the near to medium term,” wrote ITG Research analyst Henry Guo in a research note Tuesday. Baidu stock was up a fraction in afternoon trading in the stock market today , near 188.50. Baidu stock has gained 88% since touching 100 last August, its lowest point since July 2013. But Baidu stock is down 11% in the past 12 months. Citing proprietary data, Guo said Baidu’s mobile ecosystem — its mobile search, mobile app marketplace, mobile video, and mobile browser — has stayed dominant, which Guo said “helps the company control several of the most-important mobile Internet user traffic gateways, boding well for future monetization.” Data from ITG Research indicates “that Baidu’s Mobile Search app dominates the mobile search market with more than 23% installation penetration among Chinese mobile users, well ahead of its key competitors Sogou Search (1.7%) and Qihoo 360 Technology ( QIHO ) Search (0.2%),” wrote Guo. Baidu’s rivals in mobile search include e-commerce giant Alibaba Group ( BABA ) and its No. 2 Shenma search unit. In overall search in China, Baidu vies with No. 2 Qihoo 360 Technology, which has struggled to shift to mobile. Sohu ( SOHU ) search engine Sogou is No. 3. Tencent Holdings ( TCEHY ), the third of the Baidu-Alibaba-Tencent (BAT) Chinese Internet giants, owns a big stake in Sohu’s Sogou. Baidu’s fast-growing video wing, Qiyi, surpassed Alibaba-owned Youku Tudou’s user base in early 2015, Guo said. In March 2016, Qiyi had about 20% penetration among Chinese mobile Internet users, compared to Youku Tudou’s 11.5% and Tencent Video’s 10.4%, said Guo. Baidu announced last month that the company has received a nonbinding proposal from two Baidu executives to acquire Qiyi for $2.8 billion. Already one of China’s largest online video streaming services, Qiyi is looking to become a bigger force in the country’s video-streaming and moviemaking fields, a nearly $6 billion market that also includes Baidu rivals Alibaba, Tencent and Sohu.com. Last year, Netflix ( NFLX ) said it wants to begin operating in China, but the streaming media company has given no timetable. Wall Street has “low expectations” for Baidu’s 2016 margin improvement, said Guo. Baidu’s profit margins will continue to face pressure from (1) higher traffic acquisition costs (TAC) due to increasing mobile search contribution, (2) iQiyi content cost, and (3) O2O (online-to-offline) investments, he said. TAC refers to what Baidu must pay to other sites to carry its ads. Analysts polled by Thomson Reuters expect Baidu to see Q1 revenue of RMB 15.83 billion ($2.4 billion), up 24% year over year. Analysts polled by Thomson Reuters are modeling EPS ex items to fall 11% year over year to 5.96 RMB (92 cents). FactSet is expecting revenue of $2.44 billion, up 24%. FactSet is expecting Baidu to report EPS ex items of 1.03, down 11.9%. Scalper1 News
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