Baidu profits from Google's China woes

Baidu gave an upbeat revenue outlook as it reported second-quarter earnings but China’s leading online search engine is facing a tougher environment now that Google has patched up its differences with the Chinese government.

The Chinese internet company said after the US market close on Wednesday that quarterly earnings had more than doubled from a year ago, building on a leap in first-quarter profit as it continued to gain market share from Google in the world’s largest internet market.

Analysts said Baidu’s growth would be less remarkable for the rest of this year after China this month renewed Google’s operating licence following a six-month stand-off with the US internet giant.

“The growth of Baidu will still be high, but not as high as before,” said Wallace Cheung, an analyst at Credit Suisse.

Mr Cheung said companies that had withdrawn ads from Google might return to the US search engine as they seek to diversify.

Google in January said it would stop complying with a requirement that it censor web searches in China and threatened to quit the market altogether. In March, in an effort to circumvent Chinese censorship rules, it began automatically redirecting visitors from its mainland site to its Hong Kong site.

The company’s future in China became uncertain after Beijing deemed the redirection “unacceptable”, raising questions about whether the government would renew its licence, without which it would be unable to continue operating on the mainland.

This month Google surprised many in the industry by announcing that Beijing had agreed to renew its licence, removing the immediate threat of a complete withdrawal from the Chinese market.

Analysts said the fact that Google could now keep operating its website was potentially detrimental to Baidu, which has profited from the US company’s partial exit.

Baidu contends that its strong performance this year was not caused by Google’s semi-departure, but by the rapid growth in the number of internet users in China, which rose almost 10 per cent to 420m from the end of 2009 to June this year.

In the second quarter, Baidu’s market share rose to 70.8 per cent from 67.8 per cent in the previous three months. Over the same period, Google’s market share fell from 29.5 per cent to 27.3 per cent, according to the technology research firm iResearch.

Before the censorship dispute Google had been slowly gaining ground in China. In the last three months of 2009 its market share was 32.8 per cent, compared with Baidu’s 64.8 per cent.

In the second quarter of this year, Baidu said revenue had totalled $282.3m, a 48 per cent increase from the previous three months and a 74.4 per cent jump from the same period a year ago.

Net income was $123.5m, rising 74.3 per cent from the first quarter and 118.5 per cent from the same period in 2009. For the third quarter, Baidu said it expected revenue of $324.4m-$333.3m.

Baidu shares in New York lost 1 per cent to $73.31 on Wednesday.

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