Last updated: April 29, 2010 8:57 pm

Baidu profits lifted by Google’s exit

Baidu gave an upbeat forecast that highlighted how much China’s leading online search company was benefiting from Google’s partial exit from the Chinese market, after reporting a leap in first-quarter net profit.

Shares in Baidu jumped 14 per cent to a new high of $710.41 in after-hours trading on Nasdaq after the Chinese company reported late on Wednesday that net earnings in the three months to March 31 more than doubled from Rmb181.1m a year earlier to Rmb480.5m ($70.4m). Revenue was up 60 per cent year on year to Rmb1.29bn.

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Baidu said it expected revenue to increase at an even faster pace of 67-70 per cent, year on year, in the second quarter.

The strong results come after Google moved its Chinese web search from its mainland site to Hong Kong last month in a stand-off with the Chinese government over censorship.

Since then, China’s “Great Firewall”, the country’s filtering system for foreign web content, has partly disrupted access to web search results on Google.

Google’s share of Chinese online search market revenues dropped from 35.6 per cent in the fourth quarter of 2009 to 31 per cent in the first quarter of 2010. That coincided with Baidu’s share rising from 58.4 per cent to 64 per cent over the same period, according to Analysys, the Beijing research group.

However, Baidu management and many analysts believe that the benefits from Google’s partial withdrawal will be limited over the long term.

“The performance of Baidu is largely driven by our own execution, especially when we already have north of 75 per cent of the total traffic share,” Robin Li, Baidu chief executive, told analysts in a call.

“If we can execute well, we will certainly benefit from the growth opportunity of this market. If not, there is lots of competition ready to take up [the opportunity],” he said.

Analysts believe that Taobao, an online retail arm of Alibaba Group, is getting more aggressive in competing with Baidu.

Tencent, China’s largest internet company by market capitalisation, has also started a search engine and is expected to make an impact from next year.

Baidu said it would be difficult to lower further its cost of traffic acquisition – the portion of revenues it needs to spend in order to gain new users – after it came down from 15.3 per cent a year ago to 13.2 per cent in the first quarter in the face of competition from smaller rivals.

Immediately after Google’s move, some websites that had been using Google’s search engine on their sites switched to Baidu. “We will reward those [partner websites] who bring incremental traffic,” said Shen Haoyu, Baidu’s chief operating officer. “Although the competitive environment has changed, there are still other search engines who want to come in.”

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