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Baidu Shares Soar as Revenue Doubles; Net Income Jumps 150%

Chinese Web search leader Baidu said on Thursday its first-quarter net income rose 143%
and revenue should double in the current quarter, sending shares up 21% in after-hours trade.

Receptionist at Baidu.com office
AP
Receptionist at Baidu.com office

The Beijing-based company forecast second-quarter total revenue to reach $48.9 million to $50.2 million, at the upper end of analysts' forecasts of between $41.0 million and $50.8 million, according to Reuters Estimates. The consensus prediction had been $44.3 million.

Baidu's forecast marks year-over-year revenue growth of 97% to 103%, suggesting there is no let-up in a growth rate that has it doubling each year.

"They beat on both Q1 (profit and revenue) estimates and the Street expectations on the Q2 numbers. The perception about the numbers was so negative heading into the quarter that the fact they beat really gave a big boost to the stock price," said Ming Zhao, an analyst with Susquehanna Financial Group.

Shares jumped to levels around $135 before settling back to around $132.15 in after-hours trade, up 20.8% from the closing price of $109.39 in composite Nasdaq trading.

Anticipating strong results, the stock had gained 4.4% on Nasdaq ahead of the report -- meaning the shares have gained 26.7% on the day as a whole.

Baidu posted first-quarter net income of 85.5 million yuan ($11.1 million) or 2.47 yuan per share (32 cents), compared with the year-earlier quarter's 35.2 million yuan ($4.4 million), or 1.02 yuan a share (13 cents).

Excluding one-time items and stock options expenses, Baidu's profit was 37 cents per share, a penny above the average forecast from analysts according to Reuters Estimates.

Revenue more than doubled to 275.6 million yuan, or $35.7 million, which includes 28.3 million yuan in payments to Web site affiliates that run Baidu's advertisements. Such so-called traffic acquisition costs were 10.3% of revenue in the latest quarter compared with 9.1% a year ago.

Analysts were looking for revenue, on average, of $34.9 million, according to Reuters Estimates. Forecasts ranged from $34.4 million to $35.9 million.

The company also said its chief operating officer, David Zhu, had resigned this month, citing personal reasons. The resignation is effective at the end of June.

In the quarter, Baidu said it spent 11.3 million yuan, or $1.5 million, on a planned expansion into Japan. Baidu hopes to break into the market using its expertise in search in Chinese, which has common roots with Japanese Kanji characters.

Baidu has said it will spend $15 million on its nascent Japanese site (http://www.baidu.jp), which started last month and is its first regular service outside of China. Overall, first-quarter network bandwidth costs rose to $2.8 million, or 7.8% of revenue, from 5.6% a year ago, reflecting increased investments in data centers in south China and Japan.

Baidu controlled 62% of China's Web search market in late 2006, according to China Internet Network Information Center. The state agency said Google had only a 25% of the market, losing 8 percentage points in a year.

Baidu counted 112,000 advertisers at the end of March, up 3.7% from the fourth quarter of 2006 and 74,000 customers at the end of March 2006.

At the close, Baidu stock was off 2.9% in U.S. trading in the year-to-date. With the surge in extended trade following the results, the stock is now up 17.2% on the year. By contrast, the Nasdaq has risen 5.76% this year.

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