Baidu Announces Second Quarter 2008 Results

BEIJING, July 23 /Xinhua-PRNewswire/ -- Baidu.com, Inc. (Nasdaq: BIDU),
the leading Chinese language Internet search provider, today announced its
unaudited financial results for the second quarter ended June 30, 2008. (1)
(Logo: http://www.newscom.com/cgi-bin/prnh/20041011/BAIDULOGO )
(1): This announcement contains translations of certain RMB amounts into
U.S. dollars at specified rates solely for the convenience of the reader.
Unless otherwise noted, all translations from RMB to U.S. dollars are made at
a rate of RMB 6.8591 to USD 1.00, the effective noon buying rate as of June
30,
2008 in The City of New York for cable transfers of RMB as certified for
customs purposes by the Federal Reserve Bank of New York.
Second Quarter 2008 Highlights
-- Total revenues in the second quarter of 2008 increased to RMB802.6
million (US$117.0 million), representing a 100.0 % increase from the
corresponding period in 2007.
-- Operating profit in the second quarter of 2008 increased to RMB276.3
million (US$40.3 million), representing a 114.3 % increase from the
corresponding period in 2007.
-- Net income in the second quarter of 2008 increased to RMB265.0 million
(US$38.6 million), representing an 86.7 % increase from the corresponding
period in 2007.
-- Diluted earnings per share ("EPS") for the second quarter of 2008 were
RMB7.62(US$1.11); diluted EPS excluding share-based compensation expenses
(non-GAAP) for the second quarter of 2008 were RMB8.46(US$1.23). Costs and
expenses related to Baidu's Japan operations, incurred in both Japan and
China,
in the second quarter of 2008 were RMB29.5 million (US$4.3 million), which
reduced diluted EPS by RMB0.85(US$0.12).
-- The number of active online marketing customers during the second
quarter grew to over 181,000, an increase of 12.4 % from the previous quarter.
"This quarter saw impressive growth for Baidu," said Robin Li, Baidu's
chairman and chief executive officer. "Our ability to make such progress was
due to the appreciation of paid search by our loyal small and medium sized
enterprise customers as well as a growing appreciation of search engine
marketing by large enterprises in China. The scalability of our business,
aided by increasing numbers of large enterprise customers, helped Baidu post
record results this quarter, despite some impact from the devastating
earthquake this past May."
Jennifer Li, Baidu's chief financial officer, said, "In the second quarter
of 2008, we were able to produce steady increases in both the number of active
online marketing customers and revenues per active online marketing customer.
We are also pleased to report that our operating margin improved from previous
quarters reflecting the scalability of our search business."
In order to better serve customers' needs, Baidu recently launched "My
Marketing Center", which is a customized platform integrating industry
information, market trends and business and industry news and reports to aid
existing customers in their sales and marketing efforts. The platform combines
Baidu's vast resources in online information search and aggregation to help
customers make better use of search marketing tools to improve customer
targeting, increase sales and enhance brand impact. From the inception of the
company, Baidu's objective has been to provide the best way for people to find
information, My Marketing Center tailors this objective to serve the Chinese
enterprises that participate in China's vast and dynamic online business
community.
Second Quarter 2008 Results
Baidu reported total revenues of RMB802.6 million (US$117.0 million) for
the second quarter ended June 30, 2008, representing a 100.0 % increase from
the corresponding period in 2007.
Online marketing revenues for the second quarter were RMB802.2 million
(US$117.0 million), representing a 100.2 % increase from the second quarter of
2007. Growth was mainly driven by increases in both the number of active
online marketing customers and revenue per customer. Baidu had more than
181,000 active online marketing customers in the second quarter of 2008,
representing a sequential increase of 12.4% and an increase of 41.4% from the
corresponding period in 2007. Revenue per active online marketing customer for
the second quarter increased to approximately RMB4,400(US$641), a sequential
increase of 22.2% and an increase of 41.9% from the corresponding period in
2007.
Traffic acquisition costs (TAC) as a component of cost of revenues were
RMB101.7 million (US$14.8 million), representing 12.7% of total revenues,
compared to 11.2 % in the corresponding period in 2007. The increase in TAC as
a percentage of total revenues primarily reflects the continued growth of
revenue contribution from Baidu Union members.
Bandwidth costs as a component of cost of revenues were RMB43.0 million
(US$6.3 million), representing 5.4% of total revenues, compared to 7.1% in the
corresponding period in 2007. Depreciation costs as a component of cost of
revenues were RMB57.8 million (US$8.4 million), representing 7.2% of total
revenues, compared to 8.5% in the corresponding period in 2007.
Selling, general and administrative expenses were RMB174.2 million
(US$25.4 million), representing an increase of 85.9% from the corresponding
period in 2007, primarily due to expansion of the direct sales force and an
increase in customer service staff.
Research and development expenses were RMB71.1 million (US$10.4 million),
representing a 123.7 % increase from the corresponding period in 2007,
primarily due to an increase in research and development staff.
Share-based compensation expenses, which were allocated to related
operating cost and expense line items, increased in aggregate by 229.9% to
RMB29.3 million (US$4.3 million) in the second quarter of 2008 from RMB8.9
million in the corresponding period in 2007. The increase in share-based
compensation reflects a change in estimated forfeiture rate and increased
grants to employees.
Operating profit was RMB276.3 million (US$40.3 million), representing a
114.3% increase from the corresponding period in 2007. Operating profit
excluding share-based compensation expenses (non-GAAP) was RMB305.6 million
(US$44.6 million) for the second quarter of 2008, a 121.7% increase from the
corresponding period in 2007.
Adjusted EBITDA (non-GAAP), which is defined in this announcement as
earnings before interest, taxes, depreciation, amortization, other non-
operating income and share-based compensation expenses, were RMB376.8 million
(US$54.9 million) for the second quarter of 2008, representing a 110.0 %
increase from the corresponding period in 2007.
Income tax expense was RMB28.6 million (US$4.2 million), compared to an
income tax expense of RMB1.8 million in the second quarter of 2007. The
increase in tax expenses over last year is due to higher tax rates applicable
to some PRC-based subsidiaries as their tax holidays either expired or
partially elapsed.
Net income was RMB265.0 million (US$38.6 million), representing an 86.7%
increase from the corresponding period in 2007. Basic and diluted EPS for the
second quarter of 2008 amounted to RMB7.74(US$1.13) and RMB7.62(US$1.11),
respectively.
Net income excluding share-based compensation expenses (non-GAAP) was
RMB294.3 million (US$42.9 million), a 95.2% increase from the corresponding
period in 2007. Basic and diluted EPS excluding share-based compensation
expenses (non-GAAP) for the second quarter of 2008 were RMB8.60(US$1.25) and
RMB8.46(US$1.23), respectively.
As of June 30, 2008, Baidu's cash, cash equivalents and short-term
investments amounted to RMB 1.9 billion (US$280.3 million). Net operating cash
inflow and capital expenditures for the second quarter of 2008 were RMB403.4
million (US$58.8 million) and RMB112.9 million (US$16.5 million),
respectively.
A portion of capital expenditure was associated with the construction of
Baidu's new campus facility.
Outlook for Third Quarter 2008
Baidu currently expects to generate total revenues in an amount ranging
from RMB905 million(US$132 million) to RMB935 million (US$136 million) for
the third quarter of 2008, representing a 82 % to 88 % increase from the
corresponding period in 2007 and a 13 % to 16% increase from the second
quarter of 2008. This reflects our anticipation of temporarily altered user
behavior during the Beijing Summer Olympic Games. We believe the event will
have long term beneficial effect on the internet industry as more and more
people will appreciate the Internet as an effective tool to find information.
This third quarter forecast reflects Baidu's current and preliminary view,
which is subject to change.
Conference Call Information
Baidu's management will hold an earnings conference call on July 23, 2008
at 8:00 PM U.S. Eastern Standard Time (8:00 AM, July 24, Beijing/Hong Kong
time).
Dial-in details for the earnings conference call are as follows:
US: +1 617.786.2963
UK: +44.207.365.8426
Hong Kong: +852.3002.1672

Passcode for all regions: 14473564

A replay of the conference call may be accessed by phone at the following
number until 07/30/2008:
International: +1 617.801.6888
Passcode: 63806335
Additionally, a live and archived webcast of this conference call will be
available at http://ir.baidu.com .
About Baidu
Baidu.com, Inc. is the leading Chinese language Internet search provider.
As a technology-based media company, Baidu aims to provide the best way for
people to find information. In addition to serving Internet search users,
Baidu provides an effective platform for businesses to reach potential
customers. Baidu's ADSs, each of which represents one Class A ordinary share,
currently trade on the NASDAQ Global Select Market under the symbol "BIDU".
Safe Harbor Statement
This announcement contains forward-looking statements. These statements
are made under the "safe harbor" provisions of the U.S. Private Securities
Litigation Reform Act of 1995. These forward-looking statements can be
identified by terminology such as "will," "expects," "anticipates," "future,"
"intends," "plans," "believes," "estimates" and similar statements. Among
other things, the outlook for the third quarter of 2008 and quotations from
management in this announcement, as well as Baidu's strategic and operational
plans, contain forward-looking statements. Baidu may also make written or oral
forward-looking statements in its periodic reports to the U.S. Securities and
Exchange Commission, in its annual report to shareholders, in press releases
and other written materials and in oral statements made by its officers,
directors or employees to third parties. Statements that are not historical
facts, including statements about Baidu's beliefs and expectations, are
forward-looking statements. Forward-looking statements involve inherent risks
and uncertainties. A number of factors could cause actual results to differ
materially from those contained in any forward-looking statement, including
but not limited to the following: our growth strategies; our future business
development, results of operations and financial condition; our ability to
attract and retain users and customers; competition in the Chinese language
and Japanese language Internet search markets; competition for online
marketing customers; changes in our revenues and certain cost or expense items
as a percentage of our revenues; the outcome of ongoing, or any future,
litigation or arbitration, including those relating to copyright and other
intellectual property rights; the expected growth of the Chinese language and
Japanese language Internet search markets and the number of Internet and
broadband users in China; and Chinese governmental policies relating to the
Internet and Internet content providers. Further information regarding these
and other risks is included in our annual report on Form 20-F and other
documents filed with the Securities and Exchange Commission. Baidu does not
undertake any obligation to update any forward-looking statement, except as
required under applicable law. All information provided in this press release
and in the attachments is as of July 24, 2008, and Baidu undertakes no duty to
update such information, except as required under applicable law.
About Non-GAAP Financial Measures
To supplement Baidu's consolidated financial results presented in
accordance with GAAP, Baidu uses the following measures defined as non-GAAP
financial measures by the SEC: adjusted EBITDA, operating profit excluding
share-based compensation expenses, net income excluding share-based
compensation expenses, and basic and diluted EPS excluding share-based
compensation expenses. The presentation of these non-GAAP financial measures
is not intended to be considered in isolation or as a substitute for the
financial information prepared and presented in accordance with GAAP. For more
information on these non-GAAP financial measures, please see the tables
captioned "Reconciliations of non-GAAP results of operations measures to the
nearest comparable GAAP measures" and "Reconciliation from net cash provided
by operating activities to adjusted EBITDA" set forth at the end of this
release.
Baidu believes that these non-GAAP financial measures provide meaningful
supplemental information regarding its performance and liquidity by excluding
certain expenses and expenditures that may not be indicative of its operating
performance from a cash perspective. We believe that both management and
investors benefit from referring to these non-GAAP financial measures in
assessing our performance and when planning and forecasting future periods.
These non-GAAP financial measures also facilitate management's internal
comparisons to Baidu's historical performance and liquidity. Baidu computes
its non-GAAP financial measures using the same consistent method from quarter
to quarter, except that the non-GAAP measures for the quarter ended March 31,
2006 reflected the one-time cumulative effect of change in accounting
principle due to our adoption of SFAS 123(R) since January 1, 2006. We believe
these non-GAAP financial measures are useful to investors in allowing for
greater transparency with respect to supplemental information used by
management in its financial and operational decision making. A limitation of
using non-GAAP operating profit excluding share-based compensation expenses,
net income excluding share-based compensation expenses, and basic and diluted
EPS excluding share-based compensation expenses is that these non-GAAP
measures exclude share-based compensation charge that has been and will
continue to be for the foreseeable future a significant recurring expense in
our business. A limitation of using non-GAAP Adjusted EBITDA is that it does
not include all items that impact our net income for the period. Management
compensates for these limitations by providing specific information regarding
the GAAP amounts excluded from each non-GAAP measure. The accompanying tables
have more details on the reconciliations between GAAP financial measures that
are most directly comparable to non-GAAP financial measures.
Baidu.com, Inc.
Condensed Consolidated Balance Sheets

June 30 December 31,
(in RMB thousands) 2008 2007
Unaudited Audited

ASSETS
Current assets:
Cash and cash equivalents 1,791,003 1,350,600
Short-term investments 131,823 242,037
Accounts receivable, net 82,336 64,274
Prepaid expenses and other current
assets 79,973 65,996
Deferred tax assets, net 2,587 2,587
Total current assets 2,087,722 1,725,494

Non-current assets:
Fixed assets, net 760,483 678,886
Land use right, net 95,496 96,472
Intangible assets, net 36,370 40,460
Goodwill 51,083 51,093
Investments, net 25,831 15,439
Deferred tax assets, net 24,537 15,716
Other non-current assets 75,666 32,348
Total non-current assets 1,069,466 930,414

TOTAL ASSETS 3,157,188 2,655,908

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accrued expenses and other
liabilities 372,050 359,310
Customers' deposits 309,887 257,577
Deferred revenue 18,883 11,832
Deferred income 1,054 2,485
Total current liabilities 701,874 631,204

Non-current liabilities:
Long-term payable -- 3,000
Deferred income -- 332
Total non-current liabilities -- 3,332

Total liabilities 701,874 634,536

Shareholders' equity
Class A Ordinary Shares, Par value
US$0.00005 per share, 825,000,000
shares authorized, and 25,136,147
shares and 25,363,476 shares issued
and outstanding as of December 31,
2007 and June 30, 2008 11 10
Class B Ordinary Shares, Par value
US$0.00005 per share, 35,400,000
shares authorized, and 8,996,842
shares and 8,876,881 shares issued
and outstanding as of December 31,
2007 and June 30, 2008 4 4
Additional paid-in capital 1,233,773 1,171,575
Accumulated other comprehensive loss (121,793) (81,953)
Retained earnings 1,343,319 931,736
Total shareholders' equity 2,455,314 2,021,372

TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY 3,157,188 2,655,908

Baidu.com, Inc.
Condensed Consolidated Statements of Income

For the Three Months Ended
(in RMB thousands except for share, June 30, June 30, March 31,
per share information) 2008 2007 2008
Unaudited Unaudited Unaudited
Revenues:
Online marketing services 802,183 400,647 572,710
Other services 428 606 1,686
Total revenues 802,611 401,253 574,396

Operating costs and expenses:
Cost of revenues (note 1, 2) (280,980) (146,795) (228,592)
Selling, general and administrative
(note 2) (174,213) (93,728) (147,031)
Research and development (note 2) (71,078) (31,770) (51,406)
Total operating costs and expenses (526,271) (272,293) (427,029)

Operating profit 276,340 128,960 147,367

Other income:
Interest income 10,378 11,574 10,604
Exchange loss, net (204) 18 (1,708)
Other income, net 7,032 3,186 1,194
Total other income 17,206 14,778 10,090

Income before income taxes 293,546 143,738 157,457

Income taxes (28,561) (1,839) (10,859)

Net income 264,985 141,899 146,598

Earnings per share for Class A and
Class B ordinary shares:
Basic 7.74 4.19 4.29
Diluted 7.62 4.09 4.22

Weighted average aggregate number of
Class A and Class B ordinary shares
outstanding:
Basic 34,217,081 33,877,358 34,154,776
Diluted 34,786,342 34,709,957 34,765,164

(1) Cost of revenues are detailed as
follows:

Business tax and surcharges (49,511) (24,857) (35,071)
Traffic acquisition costs (101,693) (44,892) (76,632)
Bandwidth costs (43,012) (28,320) (38,365)
Depreciation costs (57,790) (33,941) (53,194)
Operational costs (27,795) (14,433) (24,415)
Share-based compensation expenses (1,179) (352) (915)
Total cost of revenues (280,980) (146,795) (228,592)

(2) Includes share-based compensation
expenses as follows:

Cost of revenues (1,179) (352) (915)
Selling, general and administrative (16,484) (3,442) (8,014)
Research and development (11,618) (5,083) (7,252)
Total share-based compensation
expenses (29,281) (8,877) (16,181)

Reconciliations of non-GAAP results of operations measures to the nearest
comparable GAAP measures (*) (in RMB thousands, unaudited)
Three months ended June 30, 2007
GAAP Adjustment Non-GAAP
Result Result
Operating profit 128,960 8,877 137,837

Three months ended June 30, 2007
GAAP Adjustment Non-GAAP
Result Result
Net income
141,899 8,877 150,776

Three months ended March 31, 2008
GAAP Adjustment Non-GAAP
Result Result
Operating profit
147,367 16,181 163,548

Three months ended March 31, 2008
GAAP Adjustment Non-GAAP
Result Result
Net income
146,598 16,181 162,779

Three months ended June 30, 2008
GAAP Adjustment Non-GAAP
Result Result
Operating profit 276,340 29,281 305,621

Three months ended June 30, 2008
GAAP Adjustment Non-GAAP
Result Result
Net income
264,985 29,281 294,266

(*) The adjustment is only for share-based compensation.

Reconciliation from net cash provided by operating activities to adjusted
EBITDA(*) (in RMB thousands, unaudited)

Three As a Three As a Three As a
months % of months % of months % of
ended total ended total ended total
June 30, revenues March 31, revenues June 30, revenues
2007 2008 2008

Net cash
provided by
operating 276,963 69% 248,876 43% 403,378 50%
activities

Changes in
assets and
liabilities,
net of
effects of
acquisitions (84,538) -21% (21,273) -4% (37,893) -5%
Income taxes
expenses 1,839 0% 10,859 2% 28,561 4%
Interest
income and
other, net (14,778) -4% (10,090) -2% (17,206) -2%

Adjusted EBITDA 179,486 44% 228,372 39% 376,840 47%

(*) Definition of adjusted EBITDA: earnings before interest, taxes,
depreciation, amortization, other non-operating income, and share-
based compensation expenses.

For investor inquiries, please contact:

China

Helen Zhang
Baidu.com, Inc.
Tel: +86-10-8260-7558
Email: ir@baidu.com

Helen Plummer
Ogilvy Financial, Beijing
Tel: +86-10-8520-3090
Email: helen.plummer@ogilvy.com

US
Jeremy Bridgman
Ogilvy Financial, New York
Tel: +1-212-880-5363
Email: jeremy.bridgman@ogilvypr.com

SOURCE Baidu.com, Inc.

Helen Zhang of Baidu.com, Inc. at +86-10-8260-7558 or ir@baidu.com; China,
Helen Plummer of Ogilvy Financial, Beijing at +86-10- 8520-3090 or
helen.plummer@ogilvy.com; US, Jeremy Bridgman of Ogilvy Financial, New York at
+1-212-880-5363 or jeremy.bridgman@ogilvypr.com, all for Baidu.com, Inc.