Baidu gains from Google's China move

Google Inc.'s decision to stop censoring Internet search in China last month has provided a boost to rival Baidu.com.

Baidu, the Internet search leader in China even before Google's move, reported its net profit more than doubled in the first quarter as its revenue rose on strong gains in online marketing. The company has also gained market share in China, while Google notched a decline.

"We delivered another strong quarter with record top-line [revenue] results and strong earnings growth," said Robin Li, Baidu's chairman and CEO, in a conference call.

The company's revenue rose 59.6% year-on-year in the first quarter to 1.29 billion Chinese yuan ($189.6 million U.S.), while its net profit soared 165.3% to 480.5 million Chinese yuan. Baidu forecast its revenue will reach a fresh record high in the second quarter, between 1.83 billion yuan and 1.87 billion yuan.

The better-than-expected financial results surprised analysts and investors.

Baidu's stock price soared 14.3%, or $89.13, in after-market trading on the Nasdaq Stock Market to end at $710.51 per share. Baidu released its first-quarter financial results after regular Nasdaq trading had ended.

Google announced in March that it would stop censoring Internet searches in China and would redirect queries to its Hong Kong site. Although the official announcement came near the end of the quarter, Google had first raised the idea in January, after hack attacks believed to have originated in China targeted the Gmail e-mail accounts of Chinese human rights activists. Some Google advertising clients voiced concerns at the time, viewing Google's statement as a challenge to Beijing and a sign it may exit the China market.

The head of Baidu acknowledged the business impact of Google's decision, saying "We saw marginal benefit from this so-called 'semi-exit' by Google... we are certainly benefiting from this, but at the end of the day I think the China search market is still in its very early stage, and the performance of Baidu is largely driven by our own execution."

Analysys International, a Beijing-based market research firm, said Baidu's share of all Internet searches in China rose to 64% in the first quarter from 58.4% in the previous quarter, while Google's dropped to 30.9% from 35.6%. The figures are the first real sign of a decline in Google's business in China since its March announcement.

During Google's own first quarter conference earlier this month, the Internet search giant's executives played down changes to the company's China business since the move.

"We have explained to people that the revenue numbers for China were kind of immaterial to the financial performance of the company," said Patrick Pichette, Google's chief financial officer, during the company's conference call. He said that despite the changes, Google continues to operate in China and conduct sales there.

Copyright © 2010 IDG Communications, Inc.

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