China's Baidu reports slowest profit growth since 2009

Baidu Inc, China's largest search engine company, reported its slowest profit growth since 2009, as competition in the sector heats up and more users switch to mobile search.

Shares of Baidu were down 6.7 percent at $100.01 in after hours trading on Monday.

Baidu had previously warned of a soft fourth quarter as China's economy slows. Industry analysts warn that rapidly changing user habits and an increasingly crowded search market could weigh on revenue in the near future.

"That's the general concern, you're going to see moderation in topline growth and you're going to see margin compression," said Oppenheimer & Co analyst Andy Yeung.

Fourth-quarter revenue of $1.017 billion was above Wall Street targets and the company's own forecast of $979.3 million to $1.010 billion.

But the 41.6 percent year-on-year revenue growth rate underscored a continuing slowdown in Baidu's revenue growth, which expanded at roughly double that pace in the year-ago period.

Baidu said its revenue per online marketing customer fell slightly compared to the third quarter, even as its traffic acquisition costs grew to represent a larger share of total revenue.

Morningstar analyst Dan Su said the higher traffic acquisition costs reflect increasing competition from Qihoo, an Internet browser and China's largest free anti-virus software maker that launched a search engine in August to compete with Baidu.

Qihoo has so far gained only a small share of the search market, with Baidu still holding around 80 percent, according to research firm Analysys International. But analysts expect Qihoo to ramp up its search monetization products early this year to better compete.

At the same time, users are increasingly accessing Baidu's search services on mobile while the bulk of the company's revenue stems from desktop-based searches.

"The key question here is, going forward, will Baidu be able to really leverage its investments in the new products and services to really cement its position on the mobile front and to handle the competition in the PC search," said Morningstar's Su.

Baidu's net income of $448.7 million increased roughly 36 percent year-on-year. The company said it earned $1.28 per American Depository Share, in line with Wall Street expectations.

For the first quarter, Baidu said it expects revenue between $945.4 million and $975.9 million. Analysts polled by Thomson Reuters I/B/E/S were looking for revenue of $964 million on average in the first quarter.

Baidu shares have fallen about 7 percent since the end of September.

© Thomson Reuters 2013