BBaidu Inc. Q3 2014 revenue rose 52% year-over-year (Y/Y) to RMB13.52 billion ($2.203 billion), slightly below consensus of RMB13.56 billion. The top-line growth was primarily driven by the company’s increased efficiency in monetizing its customer base: revenue per customer jumped 35.6% Y/Y to RMB25,900 ($4,220) in Q3, outpacing the 11.2% Y/Y growth of customer count.

All hinges on Mobile:  Revenue contribution rose to 36% in Q3 from 33% in Q2. Considering the fact that mobile only accounted for 10% of revenue in Q213, Baidu has nearly quadrupled mobile revenue contribution in only five quarters. As consumers’ Internet searches continue to migrate from desktop PCs to mobile devices, the sustained uptrend of mobile revenue contribution indicates Baidu has positioned itself on the right track.

Baidu’s Q3 EPS of RMB11.00 ($1.79) was 13% higher than the consensus of RMB9.75 ($1.59), driven by the stabilization of operating margin at 29.0%, which declined less than one percentage point from 29.7% in Q2. Since 4Q13, Baidu’s operating margin took some wild swings: it plunged nearly nine percentage points from 37.5% in 3Q13 to 28.8% in 4Q13, and then dropped almost four percentage points Q/Q to 25.0% in 1Q14, before jumping nearly five percentage points Q/Q to 29.7% in 2Q14. These fluctuations in profitability created uncertainties surrounding Baidu’s earnings growth and became a drag on the stock price. The narrower margin fluctuation in 3Q14 contributed to the earnings surprise, and should help ease investors’ concerns over profit margins.

“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—a better way for businesses to connect with their targeted consumers on mobile devices,” said Robin Li, chairman and chief executive officer of Baidu. “It’s an exciting time for Baidu. The O2O market opportunity is enormous, and our leading positions in mobile search and maps, as well as our extensive sales force, position us optimally to capture that opportunity.”

“In the third quarter, our investments in mobile continued to pay off as mobile proved once again to be a strong driver of topline growth,” said Jennifer Li, Baidu’s chief financial officer. “To fulfill our vision of connecting people with services and to realize the vast opportunities that mobile brings, we will continue to invest aggressively but judiciously.”

Source:  Seeking Alpha