China Internet Leader Baidu Sees its Profits Soar Nearly 80%

By William Patalon III
Executive Editor
Money Morning/The Money Map Report

Internet-search giant Inc. (BIDU) - the Google Inc. of China - reported that fourth-quarter profits soared a better-than-expected 79%, although it cautioned that results for the current quarter would be weaker because of heavy winter weather.

Baidu is riding a powerful wave: It’s the dominant Web-services provider in a country that is soon to become the world’s largest market as measured by total Internet users. China’s Internet population reached 176.5 million in 2007, placing it just behind the United States, which has 188.1 million users, Internet researcher eMarketer reported this week.

That total for China includes Hong Kong.

Baidu does compete against global Internet search leader Google Inc. (GOOG), in China, although Google ranks a distant second to the Beijing-based Baidu.

Baidu’s shares jumped as much as 7% in early trading yesterday (Thursday) - and were up 1.5% at midday. Baidu shares closed yesterday at $264.50, up $3.41 each, or 1.31%. But the shares still are down more than 60% from their 52-week high of $429.19, and are down 28% from where they started the year, thanks to a sharp sell-off in many of the Asia markets.
Shares of Baidu more than tripled last year.

Baidu said its fourth-quarter net income rose to $30.1 million, or 87 cents per fully diluted share, compared with net income of $15.7 million, or 45 cents per fully diluted share, in the same quarter a year ago.

Those results absolutely thrashed expectations. According to Reuters Estimates, a service that surveys analysts, Wall Streeters had been looking for Baidu to earn 75 cents per share.
Excluding so-called "one-time" items, the company reported a profit of 92 cents per share in the latest quarter. The company said that the cost of expanding from its base market in China to Japan cut its reported profit by 10 cents a share.

Baidu’s fourth-quarter revenue rose 125% to reach $78.3 million - about 1% ahead of the consensus estimate of $77.2 million, according to Reuters. However, the forecasts ranged from $71.2 million to $83.3 million, putting revenue well within anticipated bounds.

The company cut its first-quarter revenue outlook to a range from $73.1 to $75.1 million. The consensus revenue estimate had been $77.9 million, with forecasts ranging from $70.6 million to $89.2 million, Reuters reported.

But China has been hit by blizzards and some of the coldest weather the country’s densely populated central and southern regions have seen in a hundred years. Weather conditions have led to outages of both power and Internet access in parts of China.

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About the Author

Before he moved into the investment-research business in 2005, William (Bill) Patalon III spent 22 years as an award-winning financial reporter, columnist, and editor. Today he is the Executive Editor and Senior Research Analyst for Money Morning at Money Map Press.

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