On October 29, 2014, the Chinese search engine Baidu (BIDU, Financial) came out with its fiscal 2014 third-quarter earnings release.
"We had another very strong quarter as we continued to leverage our tremendous assets, especially in mobile. This quarter, mobile traffic surpassed PC traffic and mobile revenue contributed 36% of our total revenue. We are particularly pleased with the progress we have made in connecting people with services through innovative O2O initiatives like Baidu Connect –Â a better way for businesses to connect with their targeted consumers on mobile devices," said Robin Li, chairman and chief executive officer of Baidu.
Third quarter 2014 highlights:
- Baidu reported total revenues of RMB13.520 billion ($2.203 billion) for the third quarter of 2014, representing a 52.0% increase from the corresponding period in 2013.
- Online marketing revenues for the third quarter of 2014 were RMB13.427 billion ($2.188 billion), representing a 51.8% increase from the corresponding period in 2013.
- Baidu had about 516,000 active online marketing customers in the third quarter of 2014, representing an 11.2% increase from the corresponding period in 2013 and a 5.7% increase from the second quarter of 2014.
- Revenue per online marketing customer for the third quarter was approximately RMB25,900 ($4,220), a 35.6% increase from the corresponding period in 2013 and a 7.0% increase compared to the second quarter of 2014.
Some important costs
- Traffic acquisition cost (TAC): TAC as a component of cost of revenues was RMB1.742 billion ($283.8 million), representing 12.9% of total revenues, as compared to 11.7% in the corresponding period in 2013 and 12.7% in the second quarter of 2014. The increase reflects increased contribution of contextual ads, mobile and promotion of hao123.
- Bandwidth costs: Bandwidth costs as a component of cost of revenues were RMB752.6 million ($122.6 million), representing 5.6% of total revenues, compared to 5.8% in the corresponding period in 2013.
- Depreciation costs: Depreciation costs as a component of cost of revenues were RMB512.8 million ($83.5 million), representing 3.8% of total revenues, compared to 4.2% in the corresponding period in 2013.
- Content costs: Content costs as a component of cost of revenues were RMB498.1 million ($81.2 million), representing 3.7% of total revenues, compared to 2.5% in the corresponding period in 2013, and 3.0% in the previous quarter. Content costs are mainly related to iQiyi.
Tearing down the income statement
- Selling, general and administrative expenses were RMB2.700 billion ($439.9 million), representing an increase of 95% from the corresponding period in 2013, primarily due to an increase in promotional spending for mobile products.
- Research and development expenses were RMB1.832 billion ($298.4 million), a 68% increase from the corresponding period in 2013. The increase was primarily due to an increase in the number of research and development personnel.
- Share-based compensation expenses, which were allocated to related operating costs and expense line items, were RMB234.2 million ($38.2 million) in the third quarter of 2014, compared to RMB143.1 million in the corresponding period in 2013 and RMB220.6 million in the second quarter of 2014. The increase was a result of increased share grants to employees.
- Operating profit was RMB3.920 billion ($638.6 million), representing a 17.4% increase from the corresponding period in 2013. Operating profit excluding share-based compensation expenses (non-GAAP) was RMB4.154 billion ($676.8 million), a 19.3% increase from the corresponding period in 2013.
- Income tax expense was RMB656.8 million ($107.0 million), compared to an income tax expense of RMB588.1 million in the corresponding period in 2013. The effective tax rate for the third quarter of 2014 was 15.5% as compared to 16.3% for the corresponding period in 2013 and 15.4% in the second quarter of 2014.
- Net income attributable to Baidu was RMB3.876 billion ($631.5 million), representing a 27.2% increase from the corresponding period in 2013. Basic and diluted earnings per ADS for the third quarter of 2014 amounted to RMB11.05 ($1.80) and RMB11.00 ($1.79), respectively.
- Net income attributable to Baidu excluding share-based compensation expenses (non-GAAP) was RMB4.110 billion ($669.6 million), a 28.8% increase from the corresponding period in 2013. Basic and diluted earnings per ADS excluding share-based compensation expenses (non-GAAP) for the third quarter of 2014 amounted to RMB11.72 ($1.91) and RMB11.67 ($1.90), respectively.
A look at the cash position
As of September 30, 2014, the company had cash, cash equivalents and short-term investments of RMB51.348 billion ($8.366 billion). Net operating cash inflow for the third quarter of 2014 was RMB4.855 billion ($791.0 million). Capital expenditures for the third quarter of 2014 were RMB1.380 billion ($224.8 million).
What to expect in the fourth quarter of 2014
Baidu currently expects to generate total revenues in an amount ranging from RMB13.850 billion ($2.256 billion) to RMB14.250 billion ($2.322 billion) for the fourth quarter of 2014, representing a 45.4% to 49.6% year-over-year increase. This forecast reflects Baidu's current and preliminary view, which is subject to change.
