Baidu Meets Q1 Profit Views As Sales Top Forecasts

Baidu.com met analysts' first-quarter earnings forecasts on better-than-expected sales as it continues to trounce Google and Yahoo in China's burgeoning Internet advertising market .

China's top Web search firm earned 60 cents per share, or 4.22 yuan based on the conversion rate on March 31, the last day of the quarter. That figure is nearly double the 32 cents posted in the year-ago quarter.

Excluding special items, Baidu earned 67 cents.

Overall sales jumped 108% to $81.9 million, nearly 9% over the average estimate of analysts polled by Thomson Reuters.

Baidu BIDU is making progress in its main business of selling text-based search ads while increasing sales of online display ads, said Robin Li, Baidu's chief executive in a prepared statement.

"This was another excellent quarter for Baidu," he said. "Our revenue growth remained strong and is an indication of our ability to execute our strategy of providing the best possible user experience and service to our customers."

Shares rose about 2% in after-hours trading.

Baidu is benefiting from other factors, including currency appreciation and stronger-than-expected advertising activity around the Chinese New Year, says James Lee, an analyst for investment bank Stern, Agee & Leach.

Baidu's ads sales jumped 108.5% to $81.7 million. It ended the quarter with 161,000 marketing advertising customers, up 43.8% from the year-ago period.

Baidu defied seasonality issues, says C. Ming Zhao, analyst for Susquehanna Financial Group.

"Q1 is a weak quarter for business in China due to the Chinese New Year holiday (in February), and there was also a snowstorm in Q1 that made business slow down," he said.

For its second quarter, Baidu expects sales of up to $114 million, or 99.4% over the year-ago period. Analysts had forecast $100.6 million.

Baidu shares jumped about 10% April 18 -- the day after Google reported better-than-expected results-- to close at 341.

"After the Google earnings, the Street became more bullish about these Internet search ideas," Zhao said.

Like Google and to some extent Yahoo, Baidu makes most of its revenue from selling text-based search ads, known as paid search, that show up near search results.

Baidu owns at least 60% of the paid search market in China, followed by Google with 20% and Yahoo with 10%.

Google is the search leader in the U.S., far ahead of rivals Yahoo and Microsoft.

But Lee says Internet users in China believe Google doesn't deliver the goods nearly as well in China.

"In some cases users say when you search for certain keywords you get stuff faster and more accurately from Baidu," he said. "And if you search for certain news items, you get a faster retrieval from Baidu."

Baidu, Google and Yahoo are scrambling to get a piece of one of the fastest growing Internet markets in the world.

According to the Chinese government, the country has 221 million Internet users, vs. 137 million at the end of 2006.

China is quickly closing in on the U.S., which also has about 221 million Internet users, according to numbers compiled by Nielsen Online, a research firm.

Baidu is attempting to broaden its reach in China. One strategy is using portal-like channels such as music to help diversify its business into graphical display ads, Lee says.

"It's important because 60% of their traffic in the last quarter is non-search-related," he said.