UPDATE 3-Baidu posts robust outlook, e-commerce set to soar

* Q3 EPS, revenue, beats Street targets

* Sees Q4 revenue above market’s $348.5 mln projection

* Eyes increased capex, R&D spending in upcoming quarters

* Bullish on e-commerce, contextual ad growth

* Shares up 0.5 pct in after-hours trade
(Adds analysts quotes, quotes from earnings call)

By Alexei Oreskovic and Melanie Lee

SAN FRANCISCO/SHANGHAI, Oct 21 (BestGrowthStock) – Baidu Inc’s
(BIDU.O: ) results and revenue forecasts beat expectations after
China’s biggest search company increased its Web traffic and
customers at the expense of rival Google Inc (Read more about Google Stock Analysis) (GOOG.O: ).

Google has pulled back in China, the world’s largest
Internet market with 420 million Web surfers, after it tangled
with Beijing this year over censorship and hacking claims.

Baidu, whose name is taken from an ancient Song dynasty
poem, now commands more than 70 percent of China’s search
market and is aggressively seeking other revenue streams by
diversifying into e-commerce and online video.

Baidu executives said the firm will upgrade its network
servers in the coming quarters and increase its sales and
research and development teams to bolster future growth.

“Overall, it is positive news that they beat the current
quarter slightly, and for the next quarter they gave good
guidance and the margin scalability continues to be very
strong,” said Eric Wen, an analyst with Mirae Asset.

Baidu shares rose 0.5 percent to $104.09 in after-hours
trading following the results, building on a 2.5 percent gain
during Thursday’s regular session. The share price has more
than doubled since Google’s troubles in China began in January.

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Graphic on Baidu vs Google market share:

http://link.reuters.com/bam59p

Graphic on Baidu vs Google timeline:

http://link.reuters.com/hac29p

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REVENUE TO RISE

Baidu expects fourth quarter revenue of between $354.2
million and $364.7 million, ahead of the average analyst
forecast of $348.5 million.

Third-quarter net income more than doubled to $156.4
million, or 45 cents a share, from $72.2 million, or $2.07 per
share, a year ago before a 10-for-1 stock split. Analysts were
expecting earnings of 41 cents per share.

Revenue surged to $337.2 million from $187.3 million a year
ago. Analysts, on average, had expected revenue of $333.3
million, according to Thomson Reuters I/B/E/S.

Analysts credited the stabilization of Baidu’s advertising
keyword system for the uptick in paid click volume and
increased customers in the third quarter.

In the third quarter, China’s search market grew 59 percent
to 3.13 billion yuan ($471 million). Baidu had 72.9 percent of
the market, while Google had 24.6 percent, according to
technology research firm iResearch. [ID:nTOE69I04B]

E-COMMERCE FORCES

While Baidu’s surge in search continues, it faces increased
competition from local players. This month, Taobao, a unit of
Alibaba Group, China’s largest e-commerce company, launched
search engine Etao.

Analysts said Baidu, which formed an e-commerce joint
venture with Japan’s Rakuten (4755.Q: ) to compete against
Alibaba, may start generating income by the fourth quarter.

“This certainly diversifies its revenue, and starting from
Q4 they will start having this revenue,” said Fiona Zhou, an
analyst with Pacific Epoch. “They have always wanted to
leverage their shared search traffic to help the e-commerce
revenue, but they have never successfully done that. I think
the JV with Rakuten will be a success.”

China’s e-commerce market was worth 119.1 billion yuan
($17.9 billion) in transaction value in the second quarter.
Robin Li, Baidu’s chief executive, said the number of online
retailers advertising with Baidu had doubled in the
third-quarter from a year ago.

The expansion of Baidu and Alibaba into each other’s turf
could lead to cannabilisation of the market and intense
competition, but Li was unfazed.

“The majority of the users are lazy. They usually want to
rely on one search box to satisfy their information needs,” Li
said on an earnings call.

“I don’t see significant build up in organic traffic from
those vertical search services, going forward I still believe
the super majority of users will first come to Baidu,” Li
said.
($1=6.650 Yuan)
(Editing by Ken Wills and Lincoln Feast)

UPDATE 3-Baidu posts robust outlook, e-commerce set to soar