Baidu Has a Lot to Prove in November

Source: Baidu.

Chinese stocks have started to heat up, and you won't see too many Baidu shareholders complaining. The stock soared 19% last week after posting well-received quarterly results, capping off what turned out to be a 36% surge through the month of October.

November's off to a strong start with yesterday's 4% pop, pushing the stock's total return since the beginning of last month to a whopping 42%.

Did Baidu fix its issue with contracting margins? No. Last week's report saw net income slide 27% since the prior year against a 36% increase on the top line. Baidu has now seen its margins shrink for a dozen quarters,according toS&PCapitalIQdata.

Is Baidu back to being a market beater on the bottom line? That remains to be seen. It's beaten Wall Street profit targets in two of the past three quarters, but it's not something that investors should get used to. The reborn dot-com darling has made it clear that it's going to continue to invest in on profit-slurping online-to-offline or O2O initiatives that will squeeze margins in the near-term.

The long-term potential is obvious, and not just because streaming video, group-buying, and app marketplaces will be more lucrative in the future than they are now. The moment that the Internet -- and not just Baidu -- figures out mobile monetization it's going to be a the mother of all spigots getting turned on.

Baidu had 643 million monthly active users on its mobile search platform for the month of September -- and more than half of them also used Baidu's mobile maps. Baidu is now generating more revenue from mobile than PC usage, but it's going to get even better once the leads are worth more to advertising clients. That's when its recent share buyback efforts -- it spent $1 billion on repurchases during the third quarter with another $2 billion committed to the cause -- will really start paying off.

Baidu has always been in the right place at the right time with its flagship search engine, but it's been unfashionably early in other categories. That should change over time. Baidu's stock is on a roll these days, but it's not as if it's hitting new highs. The shares are still 23% off from their all-time high set late last year. The stock had a great October, and it's off to a great start in November, but what waits in the future should be more exciting than what has happened in the past.

The article Baidu Has a Lot to Prove in November originally appeared on Fool.com.

Rick Munarriz has no position in any stocks mentioned. The Motley Fool owns shares of and recommends 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.