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April 28, 2009 5:36 am

China’s Baidu outpaces profit expectations

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Baidu, China’s largest internet search group, reported a 23.5 per cent increase in first-quarter net profits as it took advantage of continued growth in the number of web users in Asia’s second largest economy.

But the Nasdaq-listed company warned that the global downturn was affecting online advertising. The company registered a rare drop in the number of of active online marketing customers – companies bidding for paid search listings or keywords or buying ads on Baidu’s pages – and in the revenue per online marketing customer from the fourth quarter.

Online ad customers were down by 6.1 per cent from the fourth quarter 2008 to 185,000, and revenue per customer was Rmb4,400, down 4.3 per cent sequentially.

“The sequential decreases were primarily due to the usual seasonality associated with the Chinese New Year, a weaker economy, and the carry-over effect of the actions Baidu took near the end of 2008 to improve the quality of its customer base,” the company said.

In November 2008, Baidu pledged to stop selling paid search rankings and keywords to unlicensed medical websites and other ‘problematic’ customers after the practice triggered criticism from the government and threats of legal action from disenchanted customers.

In the wake of the controversy, Baidu also slightly adjusted its sales model.

More than 95 per cent of the company’s revenues come from paid search listings. Last week, it officially introduced ‘Phoenix Nest’, a new keyword bidding system under which more paid listings will be more easily recognisable as such for users of Baidu’s search engine.

However, the new system is no more than a tweak of the company’s model, and Baidu is not planning to abandon mixing paid and ‘organic’ search results altogether.

Robin Li, chief executive, said the new system was having a negative impact on revenues in the short term but he expected a positive impact in the longer term.

Baidu holds more than 60 per cent of China’s online search market. Google, the distant second in the Chinese market, has seen its market share rise over the past year and is getting more aggressive with free online music search service launched last month.

In the three months to March 31 2009, Baidu reported net profit of Rmb181.1m ($26.5m) on total revenues up 41.5 per cent from a year earlier at Rmb810.7m.

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