, Inc. Shares Slide As Third-Quarter Guidance Disappoints Wall Street

Source: Baidu

Baidu reported results for its second quarter after the market close today. The Chinese Internet search giant delivered revenue that met Wall Street's expectations, but its earnings and revenue forecast came in below consensus estimates. Investors appear to be selling first and asking questions later, with Baidu's shares down about 8% in after-hours trading as of 6:00 p.m. ET.

Revenuejumped 38.3% year over year to $2.673 billion, which was in line with analysts' estimates and near the midpoint of Baidu's own revenue guidance.

Baidu's core search business remains a powerhouse, with online marketing revenueincreasing 37.1% to $2.617 billion. Baidu benefited from solid growth in activeonline marketing customers, which rose 20.9% to 590,000, as well as a 13.2% increase in revenue per online marketing customer to $4,419.

Importantly, Baidu continues to make progress with its mobile initiatives, with mobile search monthly active users, or MAUs, for June increasing 24% year over year to 629 million, and mobile maps MAUsleaping 48% to 304 million. In total, mobile revenue represented 50% of Baidu's total revenues for the second quarter, which was equal to, on a percentage basis, the first quarter of 2015.

Baidu's online-to-offline business, or O2O, also saw strong growth, with gross merchandise value (basically, the value of confirmed orders)for O2O servicessurging 109% to $6.5 billion. The company continues to invest heavily in this key area, and management noted that increased promotional spending for O2O was the primary cause of an 81% rise in selling, general, and administrative expenses during the quarter. Second-quarter research and development expenses also grew significantly faster than revenue, rising 56%.

These heavy investments once again took a toll on Baidu's margins, with operating margin declining to 20.9%, down from 29.7% in the second quarter of 2014. That led to a 2.5% decrease in operating profit to $559.6 million.

Net income, boosted by higher interest income, increased 3.3% to$590.6 million. And adjusted earnings per ADS -- excluding share-based compensation expenses -- were $1.81, representing a 4.6% increase from the year-ago period, but below the $1.84 analysts were expecting as per S&P capital IQ.

Looking aheadManagement issued a revenue forecast in the range of $2.931 billion to $2.997 billion for the third quarter of 2015, representing a 34.4% to 37.4% year-over-year increase. That, however, was less than the $3.03 billion Wall Street was expecting.

Still, management remains optimistic. "With the solid base of our core search business, coupled with upward momentum of our O2O e-commerce initiatives, we continue to invest decisively in the 'Next Baidu,'" said CFO Jennifer Li in a press release. "We are delighted by the progress we have achieved and are confident that these investments will generate long term shareholder value."

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Joe Tenebruso has no position in any stocks mentioned. The Motley Fool recommends Baidu. The Motley Fool owns shares of Baidu. 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.

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