Baidu, the leading Chinese-language Internet search provider, recently reported a strong year-over-year rise in first-quarter earnings. Compared to the first quarter of 2011, the Chinese search engine increased first quarter net income by 76% to $299 million (1.88 billion Yuan) and total revenue by 75% to $677 million (4.26 Billion Yuan). However, due to a prediction that revenue will slow and that earnings will fall short of analysts’ predictions this quarter, Baidu’s American depositary shares plummeted over 10% on the news.
Although the recent financial data from Baidu was not welcomed by investors, there is little doubt that Chinese search engine is the dominant leader in the market niche. The Chinese company, which holds 78.5% of the country’s search engine market’s revenue share, has a commanding lead over Google in the region. In January of 2010, Google decided that the Chinese censorship laws were too constraining and that they would no longer comply with the self-regulation requirements. Two months later, Google.cn began redirecting the Chinese users to the Hong Kong version of its service. Since March of 2010, Google has been consistently losing revenue share which has been diminished to only 16.6% of the Chinese market.
The Chief Financial Officer of Baidu, Jennifer Li, told the press the following regarding the Baidu’s long-term investment strategy:
“We are committed to this aggressive investment strategy for the year ahead and will maintain our focus on managing operational efficiency to ensure sustainable growth.”
Since Baidu currently has 412,000 marketing customers, strong operating margins, a growing Chinese middle class, no real competition, and exponential net income growth rates, many analysts are predicting that the new financial data is not cause for serious concern. Although a slow-down in growth is never something an investor wants to see, the data strongly suggests that Baidu will remain the market leader for the foreseeable future.