China’s Baidu to Focus on Acquisitions in Bid for Mobile Supremacy

Baidu CEO Robin Li P

The search giant has a $7 billion war chest to spend, and will target gaming, music and social media in the year ahead.

China’s biggest search engine, Baidu, will focus on acquisitions this year to boost its presence on smartphone screens and take on its bigger rivals, Tencent and Alibaba, in the mobile market.

The Beijing-based company announced full-year results for 2013, which saw revenues rise but profits fall on the back of an ambitious program of acquisitions. Baidu said it expected revenues of between $1.51 billion (9.24 billion yuan) and $1.55 billion (9.52 billion yuan) in the three months ending in March, as much as 60 percent higher than the year-ago figure.

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More than 80 percent of all Internet users in China access the web through mobile devices, making it a hugely appealing, and viciously competitive, market.

The race for supremacy in China’s mobile market is dominated by three players, with Baidu in third place behind market leader Tencent, owner of the hugely popular messaging app WeChat, and e-commerce giant Alibaba.

Baidu’s mobile revenues accounted for more than 20 percent of its overall revenues last year, and it hopes a $2.5 billion spending spree will help it meet this target, even at the expense of profits.

"Whenever there is the opportunity to do an acquisition to buy us either time or resources or talent, we will be open for that," said chief executive Robin Li on a conference call.

"Building out our platform to capture the huge opportunities ahead remains our focus for 2014. We are confident that Baidu's technology DNA and unparalleled data capabilities will be crucial competitive advantages as China's Internet landscape continues to shift."

The company still gets the vast majority of its mobile revenues from Baidu search, but Li hopes to increase revenue from other mobile services.

The company has a sturdy war chest of over $7 billion, and this year it wants to focus on gaming, music and social media, Li said, in addition to expanding location-based services, including combining its map software with recently acquired group-buying business Nuomi.

The number of people who accessed the Internet via mobile devices reached 500 million in China by the end of December, according to the China Internet Network Information Center.

Last year Baidu bought the video business PPStream for $370 million, further evidence of consolidation in the online TV market.

In August, Baidu agreed to pay $1.85 billion for 91 Wireless Websoft, China’s most popular third-party store for smartphone applications. Other deals in 2013 included a majority stake in e-commerce website operator Nuomi Holdings Inc. for about $160 million. Last month, Baidu agreed to buy the remaining shares.

Fourth-quarter net income fell to $450 million (2.78 billion yuan) from $460 million (2.8 billion yuan) a year earlier, Baidu said in a statement.

In China, the company accounted for 76.9 percent of search engine queries in the fourth quarter, according to Bloomberg Industries. Qihoo 360 Technology accounted for 15.1 percent, and Sogou Inc., in which Tencent owns a 36.5 percent stake, held 5.1 percent.

Baidu’s chief financial officer, Jennifer Li, told analysts that the acquisitions focus could hit profits.

“We are prepared to deploy cash aggressively where necessary,” she said. “For 2014, while we expect revenue to accelerate, we do not expect an increase in absolute profit.”