China's Baidu pays price of mobile shift, fourth-quarter revenue disappoints

By Paul Carsten and Supantha Mukherjee

BEIJING/BENGALURU (Reuters) - Baidu Inc's shift to smartphones has come at a cost: the Chinese internet firm forecast lower-than-expected revenue growth for the first quarter as its share from less profitable mobile browsing grows at the expense of PC searches.

Baidu shares fell more than 9 percent in after-hours trading in New York after it also posted a lower-than-expected 47.5 percent rise in fourth quarter revenues. Its revenue forecast of 12.65-13.07 billion yuan ($2-$2.1 billion) for the current quarter came below analysts' average expectations of 13.62 billion yuan.

Baidu operates China's most widely used search engine. It said that revenue from mobile searches had, for the first time, surpassed that from PCs in December, but the amount advertisers paid per click on mobile devices remained steady at 60 percent of PC rates quarter-on-quarter.

"I wouldn't draw the conclusion that mobile monetization becomes a problem, it's not a problem," said Baidu CFO Jennifer Li, brushing off concerns about revenue growth at a post-results call with analysts.

"We're still on trajectory of healthy and steady growth and there is a lot of room for us to continue to improve."

Baidu said its first quarter forecast was weighed down because of seasonal factors such as the Chinese New Year holiday falling in late February and doing more business on mobile.

Shares of the U.S.-listed company fell to $195 in extended trading after U.S. markets closed on Wednesday. Baidu hit an intraday low of $194.31 in October.

Mobile browsing makes less money for search engines because adverts on smartphones are not as effective as PC at taking a user to a site where they can make a purchase, said Ben Thompson, an analyst at tech analysis site stratechery.com.

"Google's results disappointed for the same reason," he added.

Baidu's expansion of its mobile services in the world's largest smartphone market is likely to keep squeezing margins, and pit it against bigger rivals Alibaba Group Holding Ltd and Tencent Holdings Ltd.

Operating margins were 26 percent in 2014 compared to 35 percent in 2013, Reuters calculations show. Executives flagged a potential jump in 2015 selling, general and administrative expenses of roughly $830 million, mainly from promotional efforts for location-based services known as 'online-to-offline' or 'O2O'.

"I don't really worry about the top line (revenues) that much, but I do worry about the margins," said Tian Hou, an analyst with TH Capital. "As the company takes new initiatives in O2O, it's doing a lot of things like brand promotions. Those kinds of things will burn a lot of cash."

(Reporting by Supantha Mukherjee in Bengaluru and Paul Carsten in Beijing; Editing by Ted Kerr)