Baidu Inc (ADR) (NASDAQ:BIDU) is set to report its fiscal fourth quarter and full year 2013 results on February 26, 2014 after the U.S. market close. Jefferies analysts Cynthia Meng, Karen Chan and Nick Wang write in a research note that they expect the Chinese search engine company to post solid fourth quarter results.

Baidu

Baidu’s Q4 margins under pressure due to 91 Wireless integration

Jefferies expects Baidu Inc (ADR) (NASDAQ:BIDU)’s Q4 revenues to jump 49.2% YoY to 9.45 billion yuan, which is 1.8% above the Wall Street consensus. However, its non-GAAP net profit is expected to plunge 2.9% YoY to 2.8 billion yuan. That’s because profit margins are likely to be affected by the integration of 91 Wireless. The company purchased 91 Wireless from NetDragon WebSoft for $1.9 billion. The acquisition of 91 Wireless would make it the second biggest app store in Chain with 16.7% market share.

Baidu App Store

The Chinese company’s PC search business has seen stable growth, while mobile search is likely to see explosive growth. Inside sources told Jefferies that the Chinese company will benefit from the rising mobile search as advertisers allocate more ad budget to Baidu’s mobile search. According to AdSage, its mobile search attracts 19% of the total financial sector search ad budgets. Baidu invested heavily in mobile last year.

Thanks to its large, highly quality traffic, Baidu Inc (ADR) (NASDAQ:BIDU) has the average click-through-rate of 1.66%, compared to non-Baidu average of 1.28%. In July 2013, the Beijing-based company Zhixin search for four verticals including travel, finance, education and medical. Zhixin enhances the user experience by showing highly-relevant search results on an easy to read page.

Baidu CPC

Baidu CTR

Baidu’s mobile market share jumps to 65%

Baidu Inc (ADR) (NASDAQ:BIDU) management recently said that the combined daily distribution volume for Baidu and 91 Wireless jumped from 69 million in August 2013 to 90 million in December 2013. Baidu is a clear leader in mobile search. Rising mobile ad spending and adoption of mobile should help boost the company’s revenues. The chart below shows that Baidu had a 45.6% market share in mobile search in January 2013. And its share went up to 65.5% by December 2013.

Baidu Mobile Share

Jefferies has a Buy rating on the stock with $222 price target. Baidu Inc (ADR) (NASDAQ:BIDU) shares were down 1.02% to $172.01 in pre-market trading Wednesday.