As of June 2012, China had 538 million Internet users. Reports reveal that of that number, 194 million Internet users in the country shopped online. E-commerce has seen strong growth in China where, according to the Boston Consulting Group, online retail sales are projected to grow to $360 billion by 2015 from $121 billion in 2011. Another report shows that during the current year alone, online retail sales grew 53% in the country. Despite this growth, online sales account for a mere 2% of China’s total retail sales.
Chinese e-tailer Alibaba is witnessing strong growth in its performance as well. Alibaba’s second quarter revenues grew 71% over the year to $1.1 billion. Earnings grew 129% over the year to $273 million.
During the current year, the company reported gross merchandise value of goods sold at 1 trillion RMB (~$157 billion) worth of goods in 2012, making it bigger than Amazon and eBay put together. In fact, on the Chinese equivalent of Valentine’s Day last month, November 11, Alibaba recorded transactions worth more than $3 billion. Compare that with online Black Friday sales of $1 billion in the U.S. this year. Alibaba aims to grow its annual GMV to 3 trillion RMB (~$471 billion) by 2017.
Alibaba’s International Expansion
Alibaba is also looking to grow internationally and recently tied up with PIERS, the standard in trade intelligence. As part of the partnership, U.S. companies will be able to expand their products and services within the global marketplace. Alibaba will leverage PIERS’ intelligence and offer businesses registered with PIERS a free Verified Membership on the Alibaba.com platform.
Earlier this year, Alibaba had delisted its ADRs from the U.S. stock exchange. As part of Yahoo’s re-organization, Yahoo too sold part of its stake in the company. Meanwhile, Alibaba was looking at several private equity investors. But analysts expect Alibaba to come out with its IPO in the U.S. by next year. Alibaba has not commented on the speculation.
China’s exploding Internet growth is also driving online search engines. Baidu’s (Nasdaq:BIDU) Q3 revenues grew 50% over the year to $994.7 million, missing the Street’s target of $ 1 billion. EPS of $1.38 grew63% over the year and was higher than the market’s expected EPS of $1.28.
During the quarter, revenues from online marketing services grew 49.6% to $993.8 million. Active online marketing customers grew 28% over the year and 11% over the quarter to 390,000. Revenue per online marketing customer grew 17% over the year and 3% over the quarter to $2,546.
Baidu had 78.6% of the search engine market share in China. Google remained in a distant second with 15.4% market share.
For the current quarter, Baidu projects revenues of $0.99 billion-$1.1 billion. The market expects revenues of $1.03 billion.
Baidu’s Qiyi Offering
Recently Baidu bought out Providence Equity Partner’s stake in Qiyi, China’s first online video platform. Qiyi is Baidu’s equivalent of YouTube and focuses on providing Chinese viewers with fully licensed, high-definition, and professionally-produced content. Earlier this fall, Qiyi was ranked as the leading online video platform in the country. Baidu plans to integrate Qiyi’s video content with its search and mobile services. Last quarter, Qiyi saw monthly unique visitors grow 62% quarter-over-quarter to 407 million.
Baidu’s Mobile Efforts
Baidu remains focused on expanding its mobile reach. China is the world’s largest smartphone market, and 40% of the Chinese population access Internet over their phones, underscoring the market opportunity. As part of its mobile focus, Baidu is looking at acquisitions within the space. Recently it raised $1.5 billion in a bond sale to fund this growth.
Baidu aims to be installed as the default browser on 80% of Android-based smartphones in China. But getting there will be a tough task. According to market research, earlier this year, Baidu had a 70% share of the PC search market, while its mobile share was only 35%. In addition, competition is heating up within the segment. Recently, local competitor, Qihoo, launched its mobile search engine as well.
Baidu’s mobile monetization also remains a concern. The company did not divulge details on mobile advertising, but it did say that revenues from the segment will take time to grow.
Driven by the fears of expansion within the mobile segment, Baidu’s stock has taken a beating since the beginning of this year. It is trading at $100.58 with a market capitalization of $35.16 billion. It touched a 52-week high of $154.15 in March 2012.