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When Baidu ( BIDU ) reports Q4 earnings after the close on Tuesday, investors will get another look at how the aggressive online-to-offline e-commerce push of China’s largest search company is faring. In June 2015, Baidu announced that it would invest $3.2 billion over the next three years to bolster its lineup of O2O by fortifying group-buying website Nuomi, which Baidu acquired for $160 million in 2014. Baidu has said its big spending effort will pay off because its vast abilities in search will eventually translate to revenue from business commissions. The O2O business model aims to attract customers online, then direct them offline to physical stores and to services including health care and food delivery. “Ultimately, what Baidu is building and offering is much broader than a daily-deals business,” Baidu CEO Robin Li told analysts during a conference call after the company posted Q3 earnings in October. “We are creating an online-marketing and transaction-services platform, bringing to bear the power of our entire platform across search, maps, Nuomi, Takeout Delivery and Baidu Wallet. Our platform benefits from shared synergies, with traffic and data from search and maps enhancing the growth of our newer products.” Banking On O2O To Compete Baidu is banking on its O2O business to help it compete in China’s burgeoning e-commerce arena vs. China e-commerce leader Alibaba Group ( BABA ) and others. But Alibaba, too, has invested heavily to develop its online-to-offline retail capability. Other major China Web companies fortifying their O2O offerings include JD.com ( JD ) and Tencent Holdings ( TCEHY ). Analysts also want to find out how Baidu’s efforts to penetrate into the lucrative market of mobile apps are coming along. Baidu has been slow to advance into mobile apps, while China tech heavyweight Tencent has emerged as the top rival to Baidu in mobile search, according to a report on Jan. 22 from Nomura, which handed Baidu a price target cut and rating downgrade. ‘The Potential Threat’ “Who is the potential threat for Baidu on mobile? We believe it’s Tencent, rather than any of the existing search engines,” wrote Nomura analyst Jialong Shi in that industry note. “Baidu is trying to penetrate into mobile apps, but so far progress has been slow. Based on our checks with industry experts, the challenges for in-app search mainly lie in two aspects — immature technology and reluctance of app developers.” Nomura lowered its price target on Baidu stock to 180 from 200 and cut its rating on Baidu stock to neutral from buy. For Q4, Baidu has guided revenue of between $2.864 billion and $2.95 billion, up between 29.5% and 33.4% year over year in local currency, to between 18.2 billion and 18.75 billion Chinese renminbi. Analysts polled by Thomson Reuters are expecting Baidu to report Q4 revenue of RMB 18.59 billion, up 32% year over year in local currency, with Q4 EPS (GAAP) of RMB 6.60, down 26% year over year. For Q1, analysts polled by Thomson Reuters are expecting Baidu to report revenue of RMB 16.47 billion, up 29% year over year in local currency, with Q1 EPS (GAAP) of RMB 5.48, down 18% year over year. Internet Finance Initiatives Credit Suisse analyst Dick Wei boosted Baidu’s price target to 251 from 210 in mid-December, pointing to positive “traction” in both Baidu Nuomi and the company’s iQiyi video wing. Wei said iQiyi went from 5 million paid users in June to 10 million paid users on Dec. 1, while Baidu Nuomi had attained 11.2% of the online movie-ticket-booking sector. The company’s new Internet finance initiatives are also growing, Wei said. In November, Baidu announced its partnership with China Citic Bank to establish a direct sales bank, Wei said, while by the end of September, the number of registered users for Baidu Wallet reached 45 million, a 520% increase year over year. “We are positive on Baidu’s continued investment in this space,” he said. Baidu stock closed at 145.34 on Friday, down 4.8%. Instability in the Chinese stock markets and investor concern about the company’s O2O spending have helped drag down the price of Baidu stock 33% since this time last year. Scalper1 News
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