Baidu tempers profit rise with warning

PUBLISHED : Friday, 16 February, 2007, 12:00am
UPDATED : Friday, 16 February, 2007, 12:00am

After earnings surge 400pc in fourth quarter, mainland's top search engine expects seasonal ad revenue to weaken, operator of the mainland's largest search engine, yesterday reported a 400 per cent jump in fourth-quarter profit on increased customer spending, but it warned that sales growth would slow this quarter.

Fourth-quarter net profit rose to 122.8 million yuan from 24 million yuan a year earlier, while revenue more than doubled to 271.3 million yuan from 114.9 million yuan.

Beijing-based Baidu expected its revenue for the first quarter of this year to reach 265 million yuan to 275 million yuan, about double that of the same period last year.

Chief executive Robin Li attributed the expected slower growth mainly to the Lunar New Year.

'During the Lunar New Year, many customers choose to pause their advertising initiatives,' Mr Li said yesterday.

Despite increased competition from global giants such as Google and Yahoo, Baidu reported 71 per cent year-on-year growth in the number of active customers in the fourth quarter to 108,000.

The average spending per customer also grew 41 per cent to 2,500 yuan during the period.

'Baidu produces more search traffic than all rivals combined, according to,' Morgan Stanley analyst Richard Ji wrote in a report.

Baidu's market share as the preferred search engine by mainland internet users surged to 62 per cent, topping Google's 25 per cent and Yahoo China's 5 per cent, according to the government-backed research firm CNNIC.

Morgan Stanley expects China's online search industry to grow 60 per cent yearly over the next three years, with Baidu expanding its market share.

'Google and Yahoo China/Alibaba have both experienced senior management turnover lately,' Mr Ji said.

'Despite traffic escalation, Tencent's SoSo and Sohu's Sogou may need to boost their paid-listing sales force.'

However, Liu Keyu, analyst of Beijing market research firm Analysys, said that Baidu's earnings growth was less impressive than in the previous quarter.

'Compared with the third quarter, Baidu's revenue increased 13 per cent. This is the slowest growth rate in a year,' he wrote in a report.

Baidu had not yet resolved the problem of click fault, which had led to increasing customer complaints, said Mr Liu.

According to an industry source, clicks of dubious nature can account for 20 per cent of a search engine's traffic.

Moreover, Baidu's move from channel sales to direct sales caused its customer growth rate to suffer, said Mr Liu.

'Moving from channel to direct sales, to a certain extent, can increase customer satisfaction,' he said.

'But the sales teams need to change and follow up with their clients, so in the short term customer growth will suffer.'

Baidu's number of customers fell 5.9 per cent in the fourth quarter from the previous one, the slowest quarterly growth in a year.