HONG KONG: Handheld devices make up more traffic than PC for China's biggest search company. Yet revenue and margins have disappointed because advertisers don't pay as much on smart phones. Baidu's self-reinvention is necessary, but investors may not have realized how costly it would be.

Baidu, China's largest search engine operator by user traffic, reported revenue of $2.3 billion in the fourth quarter of 2014, a 47.5 percent increase from the same period last year. Earnings increased by 16 percent year on year to $520 million.

Baidu has been investing heavily in its mobile products since 2013. Selling, general and administrative expenses totalled $568 million for the fourth quarter, up 89.2 percent year on year. The company has attributed the increase to promotional spending for mobile products and services.

Mobile revenue for the quarter accounted for 42 percent of total revenue, up from 36 percent in the previous three months.

Shares of the Nasdaq-listed Baidu were down 9.2 percent in the after-hours market on February 11 Eastern Time.

Copyright Reuters, 2015