Can Steaming Hot Baidu Sustain Its Pace?

China’s search engine leader, Baidu (NASDAQ:BIDU), may have beat expectations with its second-quarter earnings, but it continues to face challenges as the country’s economy goes through a weak period and users adopt new technologies.

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Baidu’s almost 80 percent share of China’s online search market makes it an attractive option for advertisers, and it was proven again as the company’s advertising revenue rose almost 60 percent during the quarterly period to 5.5 billion yuan, or $860 million. Net profits grew 70 percent to 2.8 billion yuan, or $436 million. Closest rival Google (NASDAQ:GOOG) only holds a 15.7 percent share of the Chinese search market.

However, Baidu is considering making acquisitions in an attempt to offer new services to users at a faster pace. It acquired majority stake in Chinese travel website Qunar.com last year for $306 million.

“In most cases, I would say I prefer buy to build,” Baidu chief executive Robin Li told analysts during a conference call after earnings on Monday. While Li did not offer many details about possible targets, he added making acquisitions, rather than developing technologies internally, “will give us time, and gives us competitive advantages,” Li said.

The company is expanding efforts in display advertising and is also hoping to grow mobile advertisers as more users start accessing the web through smartphones.

Mobile is both a challenge and an opportunity. In the first half of this year, mobile topped the desktop PC as the main entry point for Chinese Internet users for the first time. Baidu’s mobile market is much lower than its PC share. In the first quarter, it said its share of unique mobile searches was above 50 percent. Li did not provide updated numbers on Monday. However, analysts estimate it at just 35 percent.

While Li accepted that mobile was expected to see “hyper growth,” he added that the platform was in its early stages. “We think this is an early stage of mobile internet, we are in no hurry to aggressively monetize our mobile traffic, we are indeed exploring a lot of different mechanisms on the mobile advertising front,” he said.

Baidu stock was up 6.62 percent at $114.19 in pre-market trading on Tuesday.

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