Why Baidu Stock (BIDU) Soared in 2014, and What to Watch in 2015

By Markets Fool.com

Shares of China's largest search engine, Baidu , had a great 2014. Baidu stock finished the year 32% higher, far ahead of the S&P 500's 12% gain. Instead of getting lost in all the details that surround the past and future of Baidu stock, in this article I'll break down three essential metrics investors need to watch to understand where the company is headed.

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Winning over Chinese users on mobile devices is crucial for the success of Baidu..

Why Baidu stock performed so well in 2014
On July 17, 2014, Baidu stock stood at $187; just one week later, it had jumped 22% to $227. The catalyst for that move was the company's second-quarter earnings report, most importantly, Baidu's demonstrating it was successfully morphing into a force in mobile search.

Mobile is unquestionably becoming an increasingly large source of traffic for some of the world's most-oft used advertising partners -- none moreso than Facebook and Google .

But what's even more important about mobile in China is that over half of Chinese citizens still don't have regular access to the Internet. When those users do come online, it will primarily be through mobile devices. Winning the mobile search market is crucial to Baidu's future.

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Not only do we now know that Baidu owns an astounding 80% share of the Chinese mobile search market, but it has begun to monetize that share at a rapid pace. Look at how revenue from mobile has increased since just last year.

Baidu Mobile Revenue, in millions |Create infographics

As you can see from some of the gaps in the data, Baidu's mobile revenue is not always broken out. But taking what management has given us, mobile revenue has grown by 340% per year since the second quarter of 2013.

In a nutshell, that's a big reason Baidu stock jumped so much in 2014.

Baidu stock: Three things to watch in 2015
It's impossible to predict the future, of course, and it's entirely possible that new information in 2015 will have a big effect on Baidu stock. But using what we know now, I believe investors would be well-served to focus on these three metrics moving forward.

Mobile Revenue
As you might expect, mobile revenue will remain a crucial metric for investors to follow. Just two years ago, mobile represented less than 10% of all revenue for Baidu. As of the third quarter of 2014, that number had spiked to 36%.

Though the company likely won't sustain its torrid 340% growth here, it is entirely possible for mobile revenue to eclipse the amount of cash brought in via PC advertising. If that were to happen in 2015, mobile revenue would eclipse $11.2 billion.

Average Revenue per User (ARPU)
A "user" for Baidu isn't a person who uses the company's search engine -- it is actually a company that uses Baidu as an advertising outlet. Currently, 516,000 different companies use Baidu's advertising services. The number of businesses partnering with Baidu will grow for years, but at a relatively modest pace.

One area that could supercharge revenue is the amount that each company pays Baidu for its services. In essence, that is what ARPU represents.

As Baidu can collect more data via mobile -- and better target advertisements to specific individuals -- it can charge more for its ads. And Baidu's ARPU has been increasing at a rapid pace.

Baidu's Year-over-Year ARPU Growth Rates |Create infographics

The key here is that, starting in the second half of 2013, Baidu has done a much better job using its mobile data to target those viewing ads. Growth rates exploded as a result. Though the company won't keep up such strong growth forever, growing ARPU by over 20% during 2015 would be an enormously positive development for Baidu stock. KE:

Mobile Search Market
Lest we get too caught up in how much money is coming in, nothing will matter more to long-term investors than Baidu's ability to defend its 80% market share in mobile search. Already, we've seen Qihoo 360 make significant inroads into Baidu's desktop market share. Investors are expecting that Baidu has learned from that. Keeping mobile search market share above 70% -- and ideally above 75% -- would be a great way for management to prove it knows how to be a dominant force for years to come.

The article Why Baidu Stock (BIDU) Soared in 2014, and What to Watch in 2015 originally appeared on Fool.com.

Brian Stoffel owns shares of Baidu, Facebook, Google (A shares), and Google (C shares). The Motley Fool recommends Baidu, Facebook, Google (A shares), and Google (C shares). The Motley Fool owns shares of Baidu, Facebook, Google (A shares), and Google (C shares). Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.