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Baidu sees small gains in Google exit
Published on: 2010-07-02
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Baidu Inc expects only marginal gains if China ousts rival Google Inc from its Web search market, and is banking instead on rapid Internet adoption in that country, Baidu's chief financial officer said on Thursday.

The impact is minimal on Baidu's business as the companies share common clients, CFO Jennifer Li told Reuters in a telephone interview.

"I think the Google incident is only generating marginal impact, positive impact on our platform," Li said.

Baidu instead expects to grow as the number of people using the Web in China rises. It also sees its new search keyword bidding system spurring growth in coming quarters, Li said.

"We have a lot of leeway ahead of us, there are a lot of positive forces working for us," Li said.

Baidu's shares have rocketed 76 percent since Google said in January that it might leave China because of censorship concerns and a hacking episode that it said originated in the country.

Google shares have fallen about 25 percent since then, while the Nasdaq is down 8 percent.

Google said on Monday it would end automatic redirection of users to its Hong Kong search site. Beijing had expressed displeasure at the practice and said it would be unwilling to renew its Internet Content Provider license if it continued.

Analysts said Baidu could win as much as half of Google China's search revenue if that happened. That would add as much as $330 million annually to Baidu's top line, representing a more than 50 percent increase on 2009 revenue of 4.45 billion yuan ($654.8 million).

Baidu's aim, she said, is to expand China's 7.15 billion yuan search market.

"We are investing heavily and very aggressively in growing ourselves first and having a bigger team and sales force to make sure we have a better reach and bigger reach to our customers," Li said.

Baidu is expected to report second-quarter results this month. The firm is expected to earn $104.05 million and hit $270.54 million in sales for the quarter, according to analysts polled by Thomson Reuters I/B/E/S.

That implies an 85.5 percent rise in net income and a 68 percent rise in revenue. Baidu forecast revenue of $268.1 million to $274 million for the second quarter.

Li said the average revenue per user will continue to rise because of Baidu's new search keyword bidding system.

Baidu trades at a forward 2010 price-to-earnings ratio of 61 times, more than triple that of Google.

Baidu captured more than 64 percent of China's search market in the first quarter, while Google had about 30 percent, according to research firm Analysys International.

EXPANSION AND CENSORSHIP

Baidu, whose name comes from a Song dynasty poem, is famous in China but not well-known overseas. Baidu Japan, the firm's venture into the Japanese search market, has been loss-making ever since its inception.

However, Baidu still has global ambitions, Li said, as shown by its plans to hire its first crop of Silicon Valley software engineers early this month.

Baidu chess moves overseas could be a litmus test of its ability to compete with the established players, like Google and Yahoo; not just in the provision of information but in brand credibility.

China requires all Internet operators to censor politically sensitive keywords, such as Tiananmen or the Dalai Lama. Searching through a local search site such as Baidu will yield far fewer search results than a user searching outside China on Google.

The fewer search results on Baidu are due to self-censorship and also China's infamous "Great Firewall."

Despite the Western perception and hurdles, Baidu believes in the positive power of the Internet for China, Li said.

"I think the Internet tremendously changed the open flow of information, it has changed young people's lives," she said.

"So put it into the context of the development in China: they are going toward the right direction, a healthy direction. I think we are living in a good time. Compared to people's access to information 30 years ago, there is no comparison."

 


 

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