China's Baidu reports weaker profit growth in Q1

Promotion and research expenses go up as the company focuses on tapping China's mobile Internet market

China's largest search engine Baidu reported slowing profit growth in this year's first quarter on Friday, as the company's research and development costs, along with promotion expenses, soared.

Baidu's net profit for the quarter ending March 31 reached 2 billion yuan (US$328.2 million), an 8.5 percent rise over the first quarter of 2012. But that figure marked slower growth than the quarter a year prior, when net profit grew 76 percent.

Revenue in the period was at 6 billion yuan ($958.9 million), a 40 percent increase over last year's first quarter.

During the quarter, Baidu increased promotional spending, especially in mobile search, the company's chief financial officer Jennifer Li said in an earnings call. The company also boosted hiring in research and development by 82.9 percent year-over-year.

Baidu is increasing the investments as the company goes through a two-year transition to focus on China's mobile Internet market. Spending on promotion and research and development will continue throughout the year in what the company hopes will amount to long-term gains.

Baidu has long been China's largest search engine for desktops, with over a 70 percent market share, but the company has yet to become dominant in mobile search. In this year's first quarter, Baidu's market share in mobile search reached 37.5 percent, with other local sites trailing behind, according to analytics from Chinese site SooToo.com

To attract more users, Baidu is expanding its presence on handsets through mobile apps built around search, mapping and storage products. The company is already seeing notable growth. In this year's first quarter, Baidu's mobile search product had more than 100 million daily active users, a 25 percent increase from the previous quarter.

Fueling much of the growth is Baidu's mobile search app, said company CEO Robin Li in Friday's earnings call. Third-party browser products installed on phones are also directing users to Baidu's mobile search, Li added.

By focusing on mobile, Baidu hopes to eventually better monetize its search traffic on handsets to be on par with its desktop search business, Li said. Nearly all of the company's revenues come from online advertising.

For this upcoming second quarter, Baidu expects its revenue will range from 7.4 billion yuan to 7.6 billion, amounting to a year-over-year growth of between 35 percent and 38 percent.

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