Baidu gains from Google's China move

Baidu's net profit more than doubled in the first quarter as it gained market share in China

Google's decision to stop censoring Internet search in China last month has proved 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 percent year-on-year in the first quarter to 1.29 billion Chinese yuan (US$189.6 million), while its net profit soared 165.3 percent 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 soared 14.3 percent, or US$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 trading on the Nasdaq had already ended.

Google announced in March that it would stop censoring Internet search in China and redirect all 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 Gmail e-mail accounts of Chinese human rights activists. Some Google ad 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 that "we saw marginal benefit from this so-called 'semi-exit' by Google...we are certainly benefitting 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 researcher, said Baidu's share of all Internet searches in China rose to 64 percent in the first quarter from 58.4 percent in the previous quarter, while Google's dropped to 30.9 percent from 35.6 percent. The figures are the first real sign of Google's decline in business in China since its March announcement.

During its own first quarter conference earlier this month, Google executives played down changes to its 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.

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