The sky isn't falling at Baidu , 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 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 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.

The article Baidu Can Do Better originally appeared on Fool.com.

Longtime Fool contributor Rick Aristotle Munarriz has no position in any stocks mentioned. The Motley Fool recommends Baidu and Sohu.com. The Motley Fool owns shares of Baidu. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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