Baidu Says Buying Better Than Building for Mobile Profit

Baidu Inc., owner of China’s largest Internet search engine, said it prefers to expand by acquisitions as the company moves to revive advertising sales growth and take advantage of a consumer shift to smartphones.

“We prefer buy to build, because that will save us time,” Chief Executive Officer Robin Li said today on a conference call to discuss first-quarter earnings. He didn’t name any targets or elaborate on the scale of prospective purchases.

Baidu, after raising $1.5 billion selling bonds in November, seeks to extend its dominance of China’s search market to mobile devices as first-quarter profit growth slumped to the slowest since the company listed in 2005. Li said the Beijing-based company will buy mobile applications that supplement its search products, which had more than 100 million daily active users as of the first quarter.

“The first quarter was not a good quarter for Baidu as advertising was weak,” Ma Yuan, a Beijing-based analyst at Bocom International Holdings Co., said by phone before the results. “Second-quarter profit should rise, but probably not as fast as in past years.”

Net income gained 8.5 percent from a year earlier to 2.04 billion yuan ($331 million), New York-listed Baidu said in a statement. The result compares with the 2.19 billion-yuan average of eight analyst estimates compiled by Bloomberg, and average quarterly net income growth of 64 percent in the previous five quarters.

Sales Rise

Revenue rose 40 percent to 5.97 billion yuan, compared with analysts’ estimate of 5.99 billion yuan.

The search-engine operator, which added about 20 million daily active users in the first quarter, is seeking more mobile customers amid a decline in spending per advertiser.

Sales per online advertising customer dropped 6.5 percent in the first three months of the year from the last quarter of 2012, as China’s economic growth fell short of analysts’ estimates, Baidu said.

The American depositary receipts of Baidu declined as much as 8.9 percent in extended trading. Earlier, they rose 4.8 percent to $92.34 at the close in New York.

Baidu forecast second-quarter revenue of 7.37 billion yuan to 7.55 billion yuan, compared with the 7.44 billion-yuan average of analysts’ estimates.

Acquisition Spending

Baidu spent at least $22.5 million on acquisitions last year, compared with $356 million in 2011, including the $306 million purchase of a controlling stake in travel site, the company’s largest deal on record, according to data compiled by Bloomberg.

The company had cash and equivalents of 8.73 billion yuan as of March 31, declining from 11.9 billion yuan at the end of last year.

Baidu said its most recent acquisition, online video service, is losing money.

“We will continue to support iQiyi to grow, but right now it is still burning money,” Li said.

In China, Baidu accounted for 82.3 percent of search engine queries in the fourth quarter of last year, according to Bloomberg Industries.

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