Baidu Can Do Better

The sky isn't falling at Baidu (NASDAQ: BIDU  ) , but it's also not as blue as it used to be.

China's leading search engine posted ho-hum quarterly results on Monday after the market close. Revenue soared 42% to $1.02 billion, and that's just ahead of the $1.01 billion that Wall Street was targeting.

Bulls will argue that this is the most important takeaway from the report. In its first full quarter butting heads with Qihoo 360 (NYSE: QIHU  ) since the browser and security software specialist launched its own platform, Baidu didn't miss a beat. Users stuck around. Advertisers did, too. Baidu closed out 2012 with 406,000 marketing customers. Not only is that 31% ahead of where it was a year earlier, but the average sponsor is spending 8% more.

The good news begins to deteriorate after that.

Expenses across most of the vital categories -- bandwidth, content, SG&A, R&D -- all grew faster than revenue. The end result is that operating profit climbed just 24% during the quarter. Net income did manage to surge 36% to $1.28 a share. That may be in line with analyst expectations, but that figure was padded by a one-time gain related to its step acquisition of video-streaming website iQiyi.

Don't expect that to be the last Baidu acquisition. The company has $5.2 billion in cash and marketable securities at a time when it helps to diversify.�

Its guidance for the current quarter is disappointing, though it could've been worse. The dot-com giant is forecasting $945.4 million to $975.9 million in revenue. Yes, that's a 4% to 7% decline sequentially, but earlier in the day Sohu.com (NASDAQ: SOHU  ) announced that its Sogou search platform would be posting a 12% to 17% sequential decline on the top line.

Analysts were braced for the seasonal dip, but the midpoint of Baidu's range is below the $967.1 million that Wall Street was modeling.

Baidu survived -- and that's certainly commendable in this kind of climate -- but the stock needs the company to thrive if it wants to resume its winning ways.

Betting on Baidu

Regardless of your short-term view on the Chinese economy, there may be opportunity in Baidu (a.k.a. the "Chinese Google"). Our brand-new premium report breaks down the dominant Chinese search provider's strengths and weaknesses. Just click here to access it now.