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Last updated: February 23, 2006 12:09 am

Online advertising drives Baidu profit

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Baidu.com, China’s most frequently used internet search engine, said net profits last year rose nearly fourfold to Rmb47.6m ($5.9m), driven by online advertising sales.

The Nasdaq-listed company also forecast that this year’s first-quarter revenues would be higher than the previous quarter, triggering a sharp rise in the group’s shares in morning trade in New York yesterday.

For the full year, Baidu said revenues were up 172 per cent at Rmb319.2m, while fourth-quarter sales were 168 per cent higher than the same period last year at Rmb114.9m, exceeding projections by Wall Street analysts.

Baidu’s financial results suggest there has been sustained demand for online search and advertising services in the country, where the total number of web users has reached 111m but many internet businesses are still in their infancy.

“We’ve been very proud of the progress we’ve made in a short time,” said Robin Li, the group’s chairman.

The company’s debut on Nasdaq in August last year, when its share price soared from $27 to a peak of $154 on the second day of trading, made Mr Li one of China’s wealthiest individuals.

But the float prompted worries that some Chinese technology companies could be significantly overvalued. Baidu’s shares were trading up nearly 12 per cent at $56.66 in New York yesterday morning.

The company said it currently had 63,000 online advertisers. Shawn Wang, chief financial officer, estimated 97 per cent of revenues came from these advertisers, whereby companies pay Baidu based on the number of clicks on their ads.

“More companies are realising the benefits of this business model,” said Mr Wang, who noted that a very small portion of revenues came from search software sales to Chinese websites.

Google, which has a small stake in Baidu, is its most direct competitor.

Google has in recent weeks come under fire for admitting filtering results which Beijing deems sensitive from its China-specific site.

Mr Li admitted that Baidu, as a local company, at times had to carry out “a little bit” of self-censorship, especially since its servers were within China. Beijing has a highly sophisticated system for controlling information on the internet, involving many government agencies.

“For us, it’s very simple – we just obey the Chinese law,” said Mr Li. “We grew up in this country – we understand better [when it comes to the rules and culture]… it’s really up to them [foreign companies] to do whatever they want to do.”

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