Baidu's growing research, marketing costs keep Q4 profit flat

The investments are bringing more revenue from Baidu's mobile advertising business

China's leading search engine, Baidu, reported flat profit growth for the fourth quarter as the company continued its spending spree on research and product promotion.

For the period ended on Dec. 31, Baidu's net profit was 2.8 billion yuan (US$454 million), representing a 0.4 percent year-over-year decrease. Revenues, however, met the high end of the company's projections for the quarter, reaching 9.5 billion yuan, rising by 50 percent year over year.

Baidu historically reports strong earnings, but starting last year profit growth for the search giant began to drop on rising costs in marketing and research. As more Chinese users rely on smartphones to go online, the company is investing in its mobile Internet products, and focusing on app distribution and map-related location-based services.

The costs have been rising at a breakneck pace. Baidu's research expenses in the period were up 80.1 percent year over year. In addition, selling and administrative costs relating to promotional spending increased by 135 percent from the same period a year ago.

"We are pleased with how quickly this investment has gained traction," said Baidu CEO Robin Li in an earnings call on Thursday. "We showed progress in growing our mobile ecosystem and monetizing the mobile channel."

In the fourth quarter, more than 20 percent of its revenue came from its mobile advertising business, he said. Two quarters ago, the figure was at 10 percent, he added.

More users are also relying on Baidu's mobile search app. In the fourth quarter, it had 400 million active users, up from 330 million in the previous quarter.

Outside of mobile, Baidu is focusing on consumer products in the gaming and social spaces and wants to build up its international operations. The company is already testing search engines for Brazil, Egypt and Thailand.

The company expects profit growth to remain flat over the next financial quarters. For the first quarter, Baidu projects company revenue will reach between 9.2 billion yuan and 9.5 billion yuan, marking a 55 percent to 60 percent year-over-year increase.

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