Baidu’s user transition to mobile and rising competition may continue to dampen top line growth, with margins likely to be under pressure in the near term. However, given encouraging new customer acquisition and continued development in the mobile space for future growth.
Mobile search traffic has continued to grow faster than PC search in this quarter, but management notes that the growth rate has been ‘soft’. We estimate that mobile traffic currently contributes more than 25% of Baidu’s total search traffic in 4Q12. We believe mobile search traffic is largely incremental to PC search traffic and, thus do not expect significant cannibalization to PC search traffic. Baidu’s current priority remains on enhancing users’ mobile search experience. We believe that it will take time for Baidu to create a user friendly mobile search ecosystem before monetization takes off.
Given the lower click-through-rate and cost-per-click (CPC) in mobile as compared to PC, we do not believe revenue contribution from mobile search will be material in the near term. However, given that a majority of Baidu’s current mobile customers is its existing PC customers, we believe mobile will contribute incrementally to its ARPU in the near term.
Baidu continued to make solid progress in the development of mobile ecosystem, in our view. The installation of Baidu maps app grew more than 50% q-q in 4Q12 and the app has reach 3.5mn daily active users. Baidu is expanding partnership of handset makers to have more pre-installation and usage. We believe that Baidu maps could gradually emerge into a mobile LBS platform, leveraging data and local information accumulated from the map service and its verticals.
Baidu has launched Baidu Voice Assistant based on its voice recognition technology and an updated verision of mobile browser, which is 30% faster than the previous version, according to management.