* Q3 sales seen $184 mln to $189 mln vs Street's $179 mln
* Q2 adjusted EPS $1.71 vs Street's $1.56
* Q2 revenue $161 mln vs Street's $158 million
* Shares down 2.3 percent in after-hours trade
(Adds detail from earnings call, bylines, SHANGHAI dateline)
By Alexei Oreskovic and Melanie Lee
SAN FRANCISCO/SHANGHAI, July 23 Chinese
Internet search leader Baidu Inc (BIDU.O) expects sales to grow
faster than market forecasts in the third quarter, helped by
rising customer acceptance of its new advertising system.
Already, the roll out of the advertisement keyword bidding
system -- Phoenix Nest, similar to Google Inc's (GOOG.O)
AdWords -- played a part in Baidu's better-than-expected
second-quarter revenue growth of 37 percent, along with China's
rapidly growing number of Internet users.
For the third quarter, Baidu projected sales of $184
million to $189 million, compared with the average analyst
estimate of $178.9 million.
"We expect the benefits of Phoenix Nest to ramp up in the
quarter to come, in terms of enhanced monetisation and as well
as improved ad relevancy," Chief Executive Robin Li told a
Phoenix Nest will display paid links and keywords on the
right side of Baidu's search page and will provide clients with
"The new bidding system should lead to more targeted
results and higher revenue over time," Steve Weinstein, an
analyst from Pacific Crest Securities said in a note.
Baidu, the No. 1 search engine in China, controlled 61.6
percent of China's search market in the second quarter,
according to Analysys International. The firm is holding off
rival Google Inc (GOOG.O), which held 29 percent of the China
Baidu, whose shares surged roughly 140 percent since the
start of the year, fell 2.3 percent to $325.00 in after-hours
trade on Thursday, amid a decline in most technology stocks
following Microsoft Corp's (MSFT.O) weaker-than-expected
According to a Deutsche Bank note, web traffic to Baidu
increased gradually since late March while traffic to Google
China remained flattish.
Analysts expect Phoenix Nest to be a key growth driver for
Baidu in the upcoming quarters as China's search market
continues to expand at a rapid pace. The market grew 47 percent
year-on-year in the second quarter to 18.1 billion yuan ($2.6
billion), according to data from Analysys International.
Baidu reported net income of $56.1 million, or $1.61 a
share, for the second quarter, compared with $38.6 million, or
$1.11 cents a share, a year ago.
Revenue grew to $161 million in the second quarter from
$117 million in the year-ago period, beating analysts' average
forecast of $158 million.
"During the second-quarter, macroeconomic conditions
remained challenging even as we began to see some signs of
recovery in the Chinese economy," Li said.
Jennifer Li, Baidu's chief financial officer, said the firm
was expecting higher costs in the third quarter because Baidu
was hiring more sales people for Phoenix Nest and hosting a
forum in that period.
The company said the number of online marketing customers
using its site increased 9.7 percent quarter-over-quarter to
203,000 in the second quarter.
Excluding the effects of stock-based compensation, Baidu
earned $1.71 a share, above analysts' average expectation of
$1.56 a share, according to Reuters Estimates.
(Editing by Lincoln Feast and Muralikumar Anantharaman)