Baidu's Profits Rise, Outlook Drops

Earnings for China's largest search engine rose 42% in the third quarter largely due to its new Phoenix Nest online-marketing system. But fourth quarter revenue projections of ＄174 million to ＄180 million were less than the ＄205 million analysts were expecting.

The company attributed the temporary drop in revenue to the recent switch to a new Phoenix Nest Advertising system.

The advertising system, introduced earlier this year, is an overhaul of the company's keyword advertising bidding system and is expected to improve the monetization of Baidu's search results.

"With 70% of customers already using Phoenix Nest, we believe this is the right time to complete the switch to the new system," Chairman and Chief Executive Robin Li said.

"The move to a single upgraded bidding platform will more efficiently utilize company resources and relieve customers from the burden of maintaining two systems."

Although Baidu maintain its position as China's most popular search engine, companies such as Google and Alibaba.com Ltd.'s Taobao.com have seen gains in the market.

Baidu's market share year to date  has a seen a decline of 3% while Google's market share has increased to 29% up from 26% last year.

Baidu shares have more than tripled since the start of the year as a result of the recovery and a rebound in the advertising spending domestically.

Analysts see the drop in projected revenue as only a minor setback that should not effect the company's long term prospects.

Revenue in the third quarter totaled ＄187.3 million up from ＄135.4 million a year earlier. Third-quarter net income rose to ＄72.2 million, or ＄2.07 a share, up from ＄51.2 million, or ＄1.47 a share, during the same period last year.

Links and Sources
Baidu: Baidu Announces Third Quarter 2009 Results