Bloomberg News

Baidu Profit Rises 80% as China Search-Engine Ad Sales Surge

October 28, 2011

Oct. 28 (Bloomberg) -- Baidu Inc., China’s biggest Internet company by market value, said third-quarter profit rose 80 percent, beating analysts’ estimates, as revenue from search- engine advertising surged.

Net income attributable to Baidu climbed to 1.88 billion yuan ($296 million), or 5.38 yuan per American depositary receipt, compared with 1.05 billion yuan, or 3 yuan, a year earlier, Baidu said yesterday. That exceeded the 1.85 billion yuan average of eight analysts’ estimates compiled by Bloomberg.

Chief Executive Officer Robin Li, named by Forbes magazine as China’s second-richest man, is boosting investments on services, such as wireless and travel features, to meet competition from rivals Alibaba Group Holding Ltd. and Tencent Holdings Ltd. Fourth-quarter revenue is forecast to rise at least 80 percent, Baidu said, after advertisers paying more for keywords to reach online users in China boosted sales 85 percent in the three months ended September.

“Baidu reported strong results in 3Q and offered robust 4Q guidance,” Eric Wen, a Hong Kong-based analyst with Mirae Asset Securities, wrote in a note today. The fourth quarter “is traditionally the high season for online retailers” so heavy advertising spending likely will continue, wrote Wen, who rates the stock “buy.”

Third-quarter sales jumped to 4.18 billion yuan, from 2.26 billion yuan a year earlier, the company said. That exceeded the 3.93 billion average of 16 analysts’ estimates.

Baidu shares rose 5.8 percent to close at $138.39 in Nasdaq Stock Market trading yesterday. The stock has climbed 43 percent this year, outpacing rivals.

Sales Forecast

Revenue is expected to rise to between 4.41 billion yuan and 4.54 billion yuan in the fourth quarter, Chief Financial Officer Jennifer Li said on a conference call today. That compares with the 4.1 billion yuan average of 13 analysts’ estimates compiled by Bloomberg.

“Baidu is getting its customers to increase their advertising spending,” Kelvin Ho, who rates the stock “buy” at Yuanta Securities in Hong Kong, said before the earnings announcement. Baidu is gaining market share in China from rivals including Google Inc., he said.

Gaining Share

Baidu, which fields more than 80 percent of its search- engine queries in China, accounted for 77.7 percent of the Asian nation’s search-engine market by revenue in the third-quarter, rising from 77.3 percent in the previous three months, according to research company iResearch. Google’s share dropped to 18.3 percent from 19.3 percent, the researcher said.

Google has been losing ground in China’s search-engine market since January 2010, when the Mountain View, California- based company said it was no longer willing to comply with Chinese regulations to self-censor Web content. Two months later, the U.S. company shut its Google.cn service and redirected Chinese users to its site in Hong Kong.

Mobile Internet and cloud computing are the focus areas of Baidu’s investments this year, Chief Financial Officer Li said last month.

In September, Baidu revamped the design of its homepage to offer users increased access to external websites and applications, and unveiled a new mobile-phone platform. Baidu is working on an online travel service with Qunar, where it acquired a majority stake for $306 million this year, CEO Li said in July.

Baidu’s new homepage caters to past search requests to automatically display information that may interest users, the chief executive said today. That may have a “slight negative” impact on sales because users will do fewer searches, Li said. Over the long run, it will make users spend more time on the site, he said.

Robin Li’s wealth increased to $9.2 billion from $7.2 billion a year earlier, ranking him behind only Sany Heavy Industry Co. Chairman Liang Wengen among China’s richest, Forbes Asia said last month.

--Edmond Lococo, Mark Lee. Editors: Suresh Seshadri, Garry Smith.

To contact Bloomberg News staff for this story: Edmond Lococo in Beijing at elococo@bloomberg.net; Mark Lee in Hong Kong at wlee37@bloomberg.net

To contact the editor responsible for this story: Michael Tighe at mtighe4@bloomberg.net


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