China's Baidu says mobile investment a priority as Q3 revenue falls short

By Gerry Shih BEIJING (Reuters) - China's dominant search engine Baidu Inc said it would continue to invest significantly to adapt its business to the mobile era, a transition that has tripped up other Internet peers born in the desktop PC era like Google Inc. Sometimes known as the "Google of China," Baidu reported lower-than-expected 52 percent increase in third quarter revenue, and said it expected revenue growth in the fourth quarter to slow down marginally. The results pushed shares of the U.S.-listed company down 1.6 percent to $221.01 in extended trading, but executives took a longer-term view and reiterated investing in mobile - which now accounted for the majority of Baidu's traffic - was the company's top priority. "It's really not a quarters question or a 2015 question," Chief Financial Officer Jennifer Li told analysts on a post-earnings call in response to a question about when margins might expand. "Investments on the mobile front is an ongoing effort for us." For the current quarter, Baidu forecast a 45.4 to 49.6 percent rise in revenue, largely in line with Wall Street projections. Baidu has faced competition from rivals on mobile devices such as smartphones, as all race to invest in apps and content to keep users engaged. It is also grappling with intensified competition on its own search turf from the likes of Qihoo 360 Technology Co Ltd and Sohu.com Inc's Sogou search engine, which is 36.5 percent owned by Tencent Holdings. Chief Executive Robin Li said Baidu would continue to refine its mobile search product and invest in new products, including the newly launched Baidu Connect platform to deliver ads to smartphone users. "In the long run, mobile users will more actively choose to download Baidu apps," Li said, referring to competition from rivals. "Most of our investment in the future will be in the search quality front, and we think consumers will be able to tell the difference." Under a new accounting method that counted tablets as mobile devices rather than personal computers, mobile traffic surpassed PC traffic for the first time, while mobile revenues accounted for 36 percent of total sales. Under the new accounting, mobile would have made up 33 percent of revenue during the previous quarter. "It's a good overall picture for them," said Yuanta Research analyst Francis Ying. "I think they will see some growth with mobile from next year, but it cannot be seen in the short term." Net income jumped 27.2 percent to 3.876 billion yuan ($631.5 million). The company earned 11 yuan (1.7993 US dollar) per share, beating investor expectations of 9.75 yuan (1.5948 US dollar) per share, according Thomson Reuters I/B/E/S poll of analysts. Baidu also said it has been spending more on marketing and content, and on acquiring users. Traffic acquisition costs grew to 12.9 percent of overall revenue, or 1.742 billion yuan in the third quarter. That was up from 11.7 percent a year earlier. The company is also investing on content for iQiyi, its online video platform. Content costs grew to 3.7 percent of overall revenue, or 498.1 million yuan. That was up from 2.5 percent a year earlier. (1 US dollar = 6.1136 Chinese yuan) (Reporting by Gerry Shih in BEIJING and San Francisco newsroom; Editing by Chris Reese, David Gregorio and Miral Fahmy)