April 29, 2010 / 1:10 AM / 7 years ago

Baidu outlook rockets after Google exit

<p>A pedestrian looks at the company logo of Baidu as he walks past their headquarters in Beijing March 24, 2010. REUTERS/David Gray</p>

SHANGHAI/LOS ANGELES (Reuters) - China’s top Internet search firm Baidu Inc is emerging as a big winner following Google’s recent retreat from China as it smashed analysts’ forecasts, suggesting increased business from advertisers.

Baidu’s American Depositary Shares -- which have already more than doubled this year on Google’s shuttering of its Google.cn site -- soaring 14 percent to $710 in after-hours trade from its close of $621.38 in regular trading.

“It’s not going to happen overnight but over time Google’s traffic will decline gradually and over time we expect one-third of the advertising dollar to shift to Baidu,” said Elinor Leung, a CLSA analyst in Hong Kong, said citing a 2-3 year period

Baidu captured more than 64 percent of China’s search market in the first quarter, up from 58.4 in the fourth quarter, while Google’s share fell to 31 percent from 35.6 percent, according to research firm Analysys International.

After warning in January that it might pull out of China, Google shut its mainland Chinese-language portal and began rerouting searches to its Hong Kong site in late March, to avoid the self-censorship Beijing demands.

Baidu’s increased market share in the first quarter might partly reflect Google’s likely exit.

Baidu, whose name comes from a Song dynasty poem about a man searching for his love, has grown from a tiny player operating out of a dingy Beijing hotel room to China’s top search company on a sprawling 91,500 square meter campus.

Baidu said it saw only a limited impact from Google’s move in China, the world’s biggest Internet market with 400 million users.

“We saw marginal benefit from this so-called semi exit of Google,” said Robin Li, Baidu’s charismatic chief executive said during a conference call to discuss his company’s results.

“We are certainly benefiting from this. But at the end of the day the China search market is still in its very early stage, the performance of Baidu is largely driven by our own execution not the competitive landscape change,” Li said.

The search engine founded in 2000 by Li trades at an expensive 65 times 2010 earnings versus Google’s 19.5 times and Yahoo Inc’s 26.

Many brokers had upgraded their ratings and earnings forecasts for Baidu for 2010 after Google’s shock move in January.

Baidu expects second-quarter revenue to jump 67 to 70 percent, easily outstripping Wall Street estimates. It forecast revenue of $268.1 million to $274 million versus Wall Street’s forecast of $240.38 million.

“Baidu’s first quarter results beat our and consensus numbers nicely, but second quarter revenue guidance is a blowout number,” said Ming Zhao, an analyst at Susquehanna Financial Group, in a research note.

Baidu’s new advertising keyword system was fully implemented in December, providing a more sophisticated targeting and bidding for search keywords and tools to track user traffic.

GOOGLE REBOUND?

Investors are monitoring the impact on Baidu’s longer-term operations from Google’s highly public spat with Beijing and its subsequent withdrawal from China.

Despite the shuttering of its Google.cn site, Google continues to sell advertisements in China via its Google.hk Hong Kong site, which now has a version using simplified Chinese characters specifically targeted at mainland users.

“We are expecting third quarter growth to come down a bit, especially if advertisers have more confidence on the Google platform, they will go back,” said Credit Suisse analyst Wallace Cheung who rates Baidu as an “underperform.”

Shen Haoyu, Baidu’s vice president of business operations, said the search market remains competitive in China with many small search players ready to jostle into the vacuum.

China’s search market was worth 1.95 billion yuan ($286 million) in the first quarter, up 43 percent from a year ago, Analysys said.

Baidu posted first-quarter net earnings of $70.4 million, or $2.10 per share. Analysts expected profit of $53.6 million, or $1.51 a share, according to Thomson Reuters I/B/E/S.

Editing by Doug Young and Anshuman Daga

Our Standards:The Thomson Reuters Trust Principles.
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