By Paul Carsten
BEIJING (Reuters) - China's dominant Internet search engine Baidu Inc (NASDAQ:BIDU) on Thursday posted its slowest revenue growth rate in almost seven years in the first quarter of 2015, as customers spent less money on its core online marketing business.
The company's bid to create new avenues of income from mobile in China, the world's biggest smartphone market, also took their toll. Baidu's profit margins sank to their lowest in a decade, or 19 percent, as promotional costs for new businesses and research and development expenses skyrocketed.
Baidu is still grappling with the effects of a shift from personal computers to mobile, where it made half of its revenues. However, customers pay less for advertising on smartphones compared with computers, an issue with which U.S. peer Google Inc (NASDAQ:GOOGL) is also struggling.
The number of Baidu's active online marketing customers remained relatively steady from the previous quarter at 524,000. Despite this, those clients spent on average 9.8 percent less.
Larger rivals like social networking and online entertainment company Tencent Holdings Ltd and Alibaba (NYSE:BABA) Group Holding Ltd, which rules China's e-commerce industry, also pose fierce competition.
The search company's bid to promote new mobile-centric businesses like food delivery to compete with Tencent and Alibaba saw selling, general and administrative expenses rocket 47.2 percent to $477 million from a year ago.
Revenues of 12.73 billion yuan (1 billion pounds) came in below forecasts of 12.9 billion yuan, according to a Thomson Reuters SmartEstimate poll of 16 analysts.
Coupled with a 3.4 percent decline in net profit from the previous year, this prompted shares to slide 2.6 percent in trading after market close in New York.
Baidu said it expected second-quarter revenue to be between 16.37 billion yuan and 16.75 billion yuan.
A hiring spree for research and development also pushed the department's expenses up 79.1 percent to $368.8 million.
Baidu's net income, its lowest in two years, was 2.4 billion yuan for the first three months of 2015. Profit margins of 19 percent were the lowest in almost a decade.
(Story refiled to correct 3rd paragraph to say customers spend less on mobile advertising)