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Baidu Announces Second Quarter 2010 Results
Jul 21, 2010 (04:07 PM EDT)


BEIJING, July 21 /PRNewswire-Asia/ -- Baidu, Inc. (Nasdaq: BIDU), the leading Chinese language Internet search provider, today announced its unaudited financial results for the second quarter ended June 30, 2010(1).

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    Second Quarter 2010 Highlights

    -- Total revenues in the second quarter of 2010 were RMB1.914 billion
       ($282.3 million), a 74.4% increase from the corresponding period in
       2009.

    -- Operating profit in the second quarter of 2010 was RMB971.8 million
       ($143.3 million), a 129.8% increase from the corresponding period in
       2009.

    -- Net income in the second quarter of 2010 was RMB837.4 million ($123.5
       million), a 118.5% increase from the corresponding period in 2009.
       Diluted earnings per ADS(2) for the second quarter of 2010 was RMB2.40
       ($0.35); diluted earnings per ADS excluding share-based compensation
       expenses (non-GAAP) for the second quarter of 2010 was RMB2.46 ($0.36).

    (1) This announcement contains translations of certain RMB amounts into
        U.S. dollars at specified rates solely for the convenience of the
        reader. Unless otherwise noted, all translations from RMB to U.S.
        dollars are made at a rate of RMB6.7815 to US$1.00, the effective noon
        buying rate as of June 30, 2010 in The City of New York for cable
        transfers of RMB as certified for customs purposes by the Federal
        Reserve Bank of New York.

    (2) Effective on May 12, 2010, Baidu adjusted the ratio of its American
        depositary shares ("ADSs") representing Class A ordinary shares from
        one (1) ADS for one (1) share to ten (10) ADSs for one (1) share. All
        earnings per ADS figures in this announcement give effect to the
        forgoing ADS to share ratio change.

"Baidu's record top and bottom line results reflect the healthy growth of our customer base and continued improvements in monetization efficiency," said Robin Li, Baidu's chairman and chief executive officer. "This quarter's strong performance also underscores the vast Internet market opportunities for us and the growing appreciation for search engine marketing in China."

Mr. Li added, "Baidu continues to focus on user experience and has many initiatives on this front to ensure Baidu remains at the center of China's Internet ecosystem."

Jennifer Li, Baidu's chief financial officer, commented, "Effective execution resulted in impressive revenue growth and healthy margin improvements for second quarter 2010. Over the next quarters, we will continue to aggressively invest in R&D, sales and infrastructure to drive innovation, enhance monetization and support our growth."

Second Quarter 2010 Results

Baidu reported total revenues of RMB1.914 billion ($282.3 million) for the second quarter of 2010, representing a 74.4% increase from the corresponding period in 2009.

Online marketing revenues for the second quarter of 2010 were RMB1.913 billion ($282.2 million), representing a 74.5% increase from the corresponding period in 2009. Baidu had about 254,000 active online marketing customers in the second quarter of 2010, representing a 25.1% increase from the corresponding period in 2009 and a 14.9% increase from the previous quarter. Revenue per online marketing customer for the second quarter was approximately RMB7,500 ($1,106), a 38.9% increase from the corresponding period in 2009 and a 27.1% increase from the previous quarter.

Traffic acquisition cost (TAC) as a component of cost of revenues was RMB185.6 million ($27.4 million), representing 9.7% of total revenues, as compared to 16.0% in the corresponding period in 2009 and 13.2% in the first quarter of 2010. The decrease in TAC as a percentage of total revenues is primarily due to the quality improvement of Baidu Union traffic.

Bandwidth costs as a component of cost of revenues were RMB67.9 million ($10.0 million), representing 3.5% of total revenues, compared to 4.6% in the corresponding period in 2009. Depreciation costs as a component of cost of revenues were RMB83.6 million ($12.3 million), representing 4.4% of total revenues, compared to 5.5% in the corresponding period in 2009.

Selling, general and administrative expenses were RMB265.0 million ($39.1 million), representing an increase of 47.1% from the corresponding period in 2009, primarily due to increased headcount cost and marketing expenses.

Research and development expenses were RMB159.3 million ($23.5 million), a 66.2% increase from the corresponding period in 2009. The increase was primarily due to increased R&D personnel expenses.

Share-based compensation expenses, which were allocated to related operating costs and expense line items, were RMB21.6 million ($3.2 million) in the second quarter of 2010, compared to RMB19.5 million in the previous quarter and RMB22.9 million in the corresponding period in 2009.

Operating profit was RMB971.8 million ($143.3 million), representing a 129.8% increase from the corresponding period in 2009. Operating profit excluding share-based compensation expenses (non-GAAP) was RMB 993.4 million ($146.5 million), a 122.9% increase from the corresponding period in 2009.

Income tax expense was RMB140.5 million ($20.7 million), compared to an income tax expense of RMB51.1 million in the corresponding period in 2009. The effective tax rate for the second quarter of 2010 was 14.4% as compared to 12.8% in the previous quarter and 11.8% for the corresponding period in 2009. The increase in effective tax rate was due to a new tax circular issued in the second quarter resulting in changes to the applicable tax for one of our subsidiaries in China.

Net income was RMB837.4 million ($123.5 million), representing a 118.5% increase from the corresponding period in 2009. Basic and diluted earnings per ADS for the second quarter of 2010 amounted to RMB2.41 ($0.36) and RMB2.40 ($0.35), respectively.

Net income excluding share-based compensation expenses (non-GAAP) was RMB859.0 million ($126.7 million), a 111.5% increase from the corresponding period in 2009. Basic and diluted earnings per ADS excluding share-based compensation expenses (non-GAAP) for the second quarter of 2010 amounted to RMB2.47 ($0.36) and RMB2.46 ($0.36), respectively.

As of June 30, 2010, the Company had cash, cash equivalents and short-term investments of RMB5.913 billion ($872.0 million). Net operating cash inflow and capital expenditures for the second quarter of 2010 were RMB1.240 billion ($182.8 million) and RMB181.6 million ($26.8 million), respectively.

Adjusted EBITDA (non-GAAP), defined in this announcement as earnings before interest, taxes, depreciation, amortization, other non-operating income and share-based compensation expenses, was RMB1.104 billion ($162.8 million) for the second quarter of 2010, representing a 112.0% increase from the corresponding period in 2009.

Outlook for Third Quarter 2010

Baidu currently expects to generate total revenues in an amount ranging from RMB2.200 billion ($324.4 million) to RMB2.260 billion ($333.3 million) for the third quarter of 2010, representing a 72% to 77% year-over-year increase. This forecast reflects Baidu's current and preliminary view, which is subject to change.

Conference Call Information

Baidu's management will hold an earnings conference call at 8:00 PM on July 21, 2010 U.S. Eastern Time (8:00 AM on July 22, 2010 Beijing/Hong Kong time).

    Dial-in details for the earnings conference call are as follows:

     US:            +1.857.350.1676
     UK:            +44.207.365.8426
     Hong Kong:     +852.3002.1672

     Passcode for all regions: 91851178

A replay of the conference call may be accessed by phone at the following number until July 28, 2010:

    International: +1.617.801.6888

    Passcode: 25736168

Additionally, a live and archived webcast of this conference call will be available at http://ir.baidu.com .

About Baidu

Baidu, Inc. is the leading Chinese language Internet search provider. As a technology-based media company, Baidu aims to provide the best way for people to find information. In addition to serving individual Internet search users, Baidu provides an effective platform for businesses to reach potential customers. Baidu's ADSs currently trade on the NASDAQ Global Select Market under the symbol "BIDU". Each of Baidu's Class A ordinary shares is represented by 10 ADSs.

Safe Harbor Statement

This announcement contains forward-looking statements. These statements are made under the "safe harbor" provisions of the U.S. Private Securities Litigation Reform Act of 1995. These forward-looking statements can be identified by terminology such as "will," "expects," "anticipates," "future," "intends," "plans," "believes," "estimates," "confident" and similar statements. Among other things, the outlook for the third quarter 2010 and quotations from management in this announcement, as well as Baidu's strategic and operational plans, contain forward-looking statements. Baidu may also make written or oral forward-looking statements in its periodic reports to the U.S. Securities and Exchange Commission, in its annual report to shareholders, in press releases and other written materials and in oral statements made by its officers, directors or employees to fourth parties. Statements that are not historical facts, including statements about Baidu's beliefs and expectations, are forward-looking statements. Forward-looking statements involve inherent risks and uncertainties. A number of factors could cause actual results to differ materially from those contained in any forward-looking statement, including but not limited to the following: our growth strategies; our future business development, including development of new products and services; our ability to attract and retain users and customers; competition in the Chinese and Japanese language Internet search markets; competition for online marketing customers; changes in our revenues and certain cost or expense items as a percentage of our revenues; the outcome of ongoing, or any future, litigation or arbitration, including those relating to intellectual property rights; the expected growth of the Chinese language Internet search market and the number of Internet and broadband users in China; Chinese governmental policies relating to the Internet and Internet search providers and general economic conditions in China, Japan and elsewhere. Further information regarding these and other risks is included in our annual report on Form 20-F and other documents filed with the Securities and Exchange Commission. Baidu does not undertake any obligation to update any forward-looking statement, except as required under applicable law. All information provided in this press release and in the attachments is as of July 21, 2010, and Baidu undertakes no duty to update such information, except as required under applicable law.

About Non-GAAP Financial Measures

To supplement Baidu's consolidated financial results presented in accordance with GAAP, Baidu uses the following measures defined as non-GAAP financial measures by the SEC: adjusted EBITDA, operating profit excluding share-based compensation expenses, net income excluding share-based compensation expenses, and basic and diluted earnings per ADS excluding share-based compensation expenses. The presentation of these non-GAAP financial measures is not intended to be considered in isolation or as a substitute for the financial information prepared and presented in accordance with GAAP. For more information on these non-GAAP financial measures, please see the tables captioned "Reconciliations of non-GAAP results of operations measures to the nearest comparable GAAP measures" and "Reconciliation from net cash provided by operating activities to adjusted EBITDA" set forth at the end of this release.

Baidu believes that these non-GAAP financial measures provide meaningful supplemental information regarding its performance and liquidity by excluding certain expenses, particularly share-based compensation expenses, that may not be indicative of its operating performance or financial condition from a cash perspective. We believe that both management and investors benefit from referring to these non-GAAP financial measures in assessing our performance and when planning and forecasting future periods. These non-GAAP financial measures also facilitate management's internal comparisons to Baidu's historical performance and liquidity. Baidu has computed its non-GAAP financial measures using the same consistent method from quarter to quarter since April 1, 2006. We believe these non-GAAP financial measures are useful to investors in allowing for greater transparency with respect to supplemental information used by management in its financial and operational decision making. A limitation of using these non-GAAP financial measures is that these non-GAAP measures exclude share-based compensation charge that has been and will continue to be for the foreseeable future a significant recurring expense in our results of operations. A limitation of using non-GAAP adjusted EBITDA is that it does not include all items that impact our net income for the period. Management compensates for these limitations by providing specific information regarding the GAAP amounts excluded from each non-GAAP measure. The accompanying tables have more details on the reconciliations between GAAP financial measures that are most directly comparable to the non-GAAP financial measures.

    For investor and media inquiries, please contact:

    China
     Victor Tseng
     Baidu, Inc.
     Phone: +86-10-5992-7244
     Email: ir@baidu.com

     Cynthia He
     Brunswick Group LLC
     Phone: +86-10-6566-2256
     Email: che@brunswickgroup.com

    U.S.
     Ms. Kate Tellier
     Brunswick Group LLC
     Phone: +1-212-333-3810
     Email: ktellier@brunswickgroup.com



    Baidu, Inc.
    Condensed Consolidated Balance Sheets

                                            June 30,   December 31,  June 30,
    (in RMB thousands)                        2010        2009        2009
                                           Unaudited    Audited    Unaudited
    ASSETS
      Current assets:
        Cash and cash equivalents          4,154,849   4,199,889   2,918,670
        Short-term investments             1,758,412     381,149     435,624
        Accounts receivable, net             198,867     161,610     134,405
        Other assets, current                113,393      91,067      83,031
        Deferred tax assets, net              14,413       9,157      11,168
      Total current assets                 6,239,934   4,842,872   3,582,898

      Non-current assets:
        Fixed assets, net                  1,152,685     997,557     801,359
        Intangible assets, net               117,562     122,595     120,079
        Goodwill                              63,691      63,691      54,082
        Long-term investments, net            53,057      14,308      12,295
        Deferred tax assets, net              33,799      33,799      27,679
        Other assets, non-current            119,483      82,153      71,237
      Total non-current assets             1,540,277   1,314,103   1,086,731

    TOTAL ASSETS                           7,780,211   6,156,975   4,669,629

    LIABILITIES AND SHAREHOLDERS' EQUITY
      Current liabilities:
        Accounts payable and accrued
         liabilities, current                888,343     749,861     485,161
        Customer advances and deposits,
         current                             716,866     607,828     406,044
        Deferred revenue                      45,760      42,035       9,167
      Total current liabilities            1,650,969   1,399,724     900,372

      Non-current liabilities:
        Long-term payable for business
         acquisition                           4,150       4,150          --
        Deferred Income, non-current           5,000          --          --
      Total non-current liabilities            9,150       4,150          --

    Total liabilities                      1,660,119   1,403,874     900,372

    Shareholders' equity
      Class A Ordinary Shares, Par value
       US$0.00005 per share, 825,000,000
       shares authorized, and 26,298,960
       shares and 26,585,811 shares issued
       and outstanding as at December 31,
       2009 and June 30, 2010                     11          11          11
      Class B Ordinary Shares, Par value
       US$0.00005 per share, 35,400,000
       shares authorized, and 8,454,332
       shares and 8,214,332 shares issued
       and outstanding as at December 31,
       2009 and June 30, 2010                      4           4           4
      Additional paid-in capital           1,477,570   1,426,070   1,364,543
      Accumulated other comprehensive
       loss                                 (115,923)   (113,513)   (115,104)
      Retained earnings                    4,758,430   3,440,529   2,519,803
    Total shareholders' equity             6,120,092   4,753,101   3,769,257

    TOTAL LIABILITIES AND SHAREHOLDERS'
     EQUITY                                7,780,211   6,156,975   4,669,629



    Baidu, Inc.
    Condensed Consolidated Statements of Income

                                              For the Three Months Ended
    (in RMB thousands except for share,     June 30,    June 30,   March 31,
     per share information)                  2010        2009        2010
                                           Unaudited   Unaudited   Unaudited
    Revenues:
      Online marketing services            1,913,467   1,096,624   1,293,396
      Other services                             927         845         519
    Total revenues                         1,914,394   1,097,469   1,293,915

    Operating costs and expenses:
      Cost of revenues (note 1, 2)          (518,336)   (398,591)   (426,405)
      Selling, general and
       administrative (note 2)              (265,003)   (180,204)   (214,568)
      Research and development (note 2)     (159,271)    (95,853)   (122,129)
    Total operating costs and expenses      (942,610)   (674,648)   (763,102)

    Operating profit                         971,784     422,821     530,813

    Other income:
      Interest income                         15,069       7,588      11,374
      Exchange loss, net                         (23)         (1)         (1)
      Gain and loss from equity method
       investments                               243          --         247
      Other income, net                       (9,201)      3,913       8,797
    Total other income                         6,088      11,500      20,417

    Income before income taxes               977,872     434,321     551,230

    Income taxes                            (140,508)    (51,061)    (70,693)

    Net income                               837,364     383,260     480,537


    Earnings per share for Class A and
     Class B ordinary shares:
      Basic                                     24.07       11.09       13.82
      Diluted                                   23.98       11.02       13.77

    Earnings per ADS (1 Class A ordinary
     share=10 ADSs):
      Basic                                      2.41        1.11        1.38
      Diluted                                    2.40        1.10        1.38

    Weighted average aggregate number of
     Class A and Class B ordinary shares
     outstanding:
      Basic                                34,794,808  34,571,453  34,766,823
      Diluted                              34,912,940  34,785,181  34,894,049

    (1) Cost of revenues are detailed as
        follows:
      Business tax and surcharges            (121,627)    (67,877)    (81,301)
      Traffic acquisition costs              (185,642)   (175,445)   (171,349)
      Bandwidth costs                         (67,927)    (50,050)    (58,012)
      Depreciation costs                      (83,627)    (60,106)    (65,888)
      Operational costs                       (57,743)    (43,472)    (48,256)
      Share-based compensation expenses        (1,770)     (1,641)     (1,599)
      Total cost of revenues                 (518,336)   (398,591)   (426,405)

    (2) Includes share-based compensation
        expenses as follows:
      Cost of revenues                         (1,770)     (1,641)     (1,599)
      Selling, general and administrative      (9,064)    (10,912)     (8,593)
      Research and development                (10,757)    (10,332)     (9,339)
      Total share-based compensation
       expenses                               (21,591)    (22,885)    (19,531)



    Reconciliations of non-GAAP results of operations measures to the nearest
     comparable GAAP measures (*) (in RMB thousands, unaudited)

                                Three months ended June 30, 2009
                         GAAP Result     Adjustment        Non-GAAP Results
    Operating profit       422,821         22,885              445,706

                                Three months ended June 30, 2009
                         GAAP Result     Adjustment        Non-GAAP Results
    Net income             383,260         22,885              406,145


                               Three months ended March 31, 2010
                         GAAP Result     Adjustment        Non-GAAP Results
    Operating profit       530,813         19,531              550,344

                               Three months ended March 31, 2010
                         GAAP Result     Adjustment        Non-GAAP Results
    Net income             480,537         19,531              500,068


                                Three months ended June 30, 2010
                         GAAP Result     Adjustment        Non-GAAP Results
    Operating profit       971,784         21,591              993,375

                                Three months ended June 30, 2010
                         GAAP Result     Adjustment        Non-GAAP Results
    Net income             837,364         21,591              858,955

    (*) The adjustment is only for share-based compensation.



    Reconciliation from net cash provided by operating activities to adjusted
    EBITDA(*) (in RMB thousands, unaudited)

                          Three             Three             Three
                          months   As a     months   As a     months   As a
                          ended    % of     ended    % of     ended    % of
                         June 30,  total   March 31, total   June 30,  total
                           2009   revenues   2010   revenues   2010   revenues
    Net cash provided
     by operating
     activities          519,052    47%    432,169    33%   1,239,850     65%

      Changes in assets
       and liabilities,
       net of effects of
       acquisitions      (37,741)   -3%    158,711    12%    (270,138)   -14%
      Income taxes
       expenses           51,061     5%     70,693     5%     140,508      7%
      Interest income
       and other, net    (11,500)   -1%    (20,417)   -2%      (6,088)     0%

    Adjusted EBITDA      520,872    48%    641,156    48%   1,104,132     58%

    (*) Definition of adjusted EBITDA: earnings before interest, taxes,
        depreciation, amortization,  other non-operating income, and
        share-based compensation expenses.

SOURCE Baidu, Inc.