February 10, 2010 / 6:17 AM / 9 years ago

UPDATE 4-Baidu tops forecasts, sees gains from Google-China spat

* Q4 EPS $1.80 vs Street estimate $1.69

* Sees Q1 rev $176 mln-$181 mln vs market estimate $170.2 mln

* Shares hit record high in after-hours trade

* Results helped by customer spend on new advertising system

* Analysts see benefits for Baidu after Google’s China threat (Adds details from conference call, analyst quotes)

By Alexei Oreskovic and Melanie Lee

SAN FRANCISCO/SHANGHAI, Feb 9 (Reuters) - China’s top search engine, Baidu Inc (BIDU.O), provided more ammunition to bulls with a strong outlook and said it would gain from Google’s (GOOG.O) high profile threat to exit the country.

Baidu, which controls over 60 percent of the search market in China, the world’s biggest Internet market, beat earnings forecasts after its move to a new advertising system went smoother-than-expected.

Baidu shares jumped nearly 9 percent in U.S. after-hours trade to a record $473.58, extending a recent rally spurred by Google’s threat last month to quit China over hacking and censorship concerns. [ID:nN12131967]

“If I was a Google customer, I would want to start looking for alternatives to plan for my 2010 advertising budget. I may want to hedge my bets in case Google really wants to leave the country,” said Hong Kong-based CLSA analyst Elinor Leung.

Baidu reported its strongest fourth quarter results and gave a robust quarterly outlook, suggesting its recently rolled-out Phoenix Nest advertising system had not badly affected revenue.

If Google exits, analysts say, Baidu stands to soak up much of the U.S. group’s 30-odd percent market share. If Google stays, Baidu will be in a strong position to sign up advertisers now leery about working with Google. [ID:nTOE60D016]

“It’s going to be net-net positive for Baidu. They are the obvious choice or the only choice at the moment,” said Leung.”

“It took them years to develop Phoenix Nest. I don’t think other small search engines can offer a comparable platform,” she said. China is the world’s largest Internet market with over 380 million users.

Many brokers had upgraded their recommendations and earnings forecast for Baidu for 2010 after Google’s shock announcement in January.

Baidu, carved out from an experimental search engine, Rankdex, was formed by Robin Li, who started his company in 1999 with the belief in the power of the Internet to change people’s lives.

Li’s views on censorship are largely unknown but Baidu, named from an ancient Song Dynasty poem, cooperates with Beijing censors to leave out politically sensitive search results.

“We have not factored in any potential change, material change, in the competitive landscape (into our Q1 forecasts), but what we are seeing in the market is that our customers and our partners’ confidence level in Baidu is certainly higher,” said Li, the chief executive of Baidu.

Baidu shares, which closed Tuesday’s regular trading session at $435.0. The stock has risen 13 percent since Google’s announcement on Jan 12, while Google shares have fallen 9 percent.


Baidu expects revenue in the first quarter, traditionally a weak quarter due to seasonality, to range between $176 million and $181 million, beating the average analyst expectation of $170.2 million, according to Thomson Reuters I/B/E/S.

Baidu’s net income rose 48 percent in the fourth quarter to $62.7 million, or $1.80 per share, beating the average analyst expectation of $1.69, as polled by Thomson Reuters I/B/E/S.

Shen Haoyu, senior vice president of business operations, said the impact of the Phoenix Nest transition was milder than the company previously expected.

Baidu’s quarterly revenue totaled $184.7 million, above the average $180 million estimated by analysts. (Editing by Anshuman Daga)

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