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Baidu Announces Third Quarter 2007 Results
Oct 25, 2007
           Third Quarter 2007 Net Income Grows 113% Year-Over-Year

BEIJING, Oct. 25 /Xinhua-PRNewswire/ -- Baidu.com, Inc. (Nasdaq: BIDU), the leading Chinese language Internet search provider, today announced its unaudited financial results for the third quarter ended September 30, 2007 (1).

    (Logo: http://www.newscom.com/cgi-bin/prnh/20041011/BAIDULOGO )


    Third Quarter 2007 Highlights

     -- Total revenues in the third quarter of 2007 increased to RMB496.5
        million ($66.3 million), representing a 107.5% increase from the
        corresponding period in 2006.

     -- Net income in the third quarter of 2007 increased to RMB181.7 million
        ($24.2 million), representing a 113.2% increase from the corresponding
        period in 2006.

     -- Diluted earnings per share ("EPS") for the third quarter of 2007 were
        RMB5.23 ($0.70); diluted EPS excluding share-based compensation
        expenses (non-GAAP) for the third quarter of 2007 were RMB5.38 ($0.72).
        Costs and expenses related to Baidu's Japan operations were RMB20.3
        million ($2.7 million), which reduced diluted EPS by RMB0.58 ($0.08).

     -- The number of active online marketing customers during the third
        quarter grew to around 143,000, an increase of 11.6% from the previous
        quarter. Revenue per online marketing customer reached approximately
        RMB3,500 ($467.1), representing a sequential increase of 11.0%.

"During the third quarter, we saw solid revenue and earnings growth driven by an increase in user traffic and active online customers," said Robin Li, Baidu's chairman and chief executive officer. "Our results reflect the scalability of our pay for performance (P4P) business model and demonstrate our growing reputation as the Chinese language search provider of choice."

Mr. Li added, "We also saw strong uptake of our community-based products and entertainment platforms, which we continued to enhance and expand over the third quarter to serve the evolving needs of our users. While we maintain our focus on our core search business, we also continue to launch new products and services that leverage our strengths and high user traffic."

Shawn Wang, Baidu's chief financial officer, said, "During the third quarter, we successfully executed our strategy of leveraging our thorough understanding of Chinese customers and emphasis on customer service to drive a healthy increase in total online marketing customers."

"Looking forward, we will continue to enhance our product offerings, invest in key business segments and improve the overall user experience, as well as explore strategic partnerships that bring value to our users. The Chinese search market is still in the early stages of its development and we are committed to positioning Baidu to capture growth opportunities presented in this large and attractive market," added Mr. Wang.

Third Quarter 2007 Results

Baidu reported total revenues of RMB496.5 million ($66.3 million) for the third quarter ended September 30, 2007, representing a 107.5% increase from the corresponding period in 2006.

Online marketing revenues for the third quarter were RMB496.1 million ($66.2 million), representing a 108.8% increase from the third quarter of 2006. The growth was driven by the increases in both the number of active online marketing customers and revenue per customer. Baidu had nearly 143,000 active online marketing customers in the third quarter of 2007, representing a sequential increase of 11.6% and an increase of 38.5% from the corresponding period in 2006. Revenue per online marketing customer for the third quarter of 2007 increased to approximately RMB3, 500 ($467.1), representing a sequential increase of 11.0% and an increase of 50.7% from the corresponding period in 2006.

Traffic acquisition costs (TAC) as a component of cost of revenues was RMB59.2 million ($7.9 million), representing 11.9% of total revenues, compared to 9.0% in the corresponding period in 2006. The increase in TAC as a percentage of total revenues primarily reflects the continued growth of revenue contribution from Baidu Union members.

Bandwidth costs as a component of cost of revenues was RMB31.8 million ($4.2 million), representing 6.4% of total revenues, compared to 4.4% in the corresponding period in 2006. Depreciation costs as a component of cost of revenues was RMB40.7 million ($5.4 million), representing 8.2% of total revenues, compared to 5.9% in the corresponding period in 2006. The increase in bandwidth and depreciation costs as percentages of total revenues reflects expansion of network capacity to support Baidu's long-term growth.

Selling, general and administrative expenses were RMB110.3 million ($14.7 million), representing an increase of 57.2% from the corresponding period in 2006, primarily due to expansion of the direct sales force.

Research and development expenses were RMB37.4 million ($5.0 million), representing a 52.7% increase from the corresponding period in 2006, primarily due to headcount increases.

Share-based compensation expenses, which were allocated to related operating cost and expense line items, decreased in aggregate to RMB5.5 million ($0.7 million) in the third quarter of 2007 from RMB16.4 million in the corresponding period in 2006.

Costs and expenses related to Japan operations in the third quarter of 2007 were RMB20.3 million ($2.7 million) in aggregate.

Operating profit was RMB168.1 million ($22.4 million), representing a 120.5% increase from the corresponding period in 2006. Operating profit excluding share-based compensation expenses (non-GAAP) was RMB173.6 million ($23.2 million) for the third quarter of 2007, an 87.4% increase from the corresponding period in 2006.

Income tax expense was RMB2.6 million ($0.3 million).

Net income was RMB181.7 million ($24.2 million), representing a 113.2% increase from the corresponding period in 2006. Basic and diluted EPS for the third quarter of 2007 amounted to RMB5.35 ($0.71) and RMB5.23 ($0.70), respectively.

Net income excluding share-based compensation expenses (non-GAAP) was RMB187.2 million ($25.0 million), an 84.2% increase from the corresponding period in 2006. Basic and diluted EPS excluding share-based compensation expenses (non-GAAP) for the third quarter of 2007 were RMB5.51 ($0.74) and RMB5.38 ($0.72), respectively.

As of September 30, 2007, Baidu's cash, cash equivalents and short-term investments amounted to RMB1.4 billion ($190.7 million). Net operating cash inflow and capital expenditures for the third quarter of 2007 were RMB254.9 million ($34.0 million) and RMB150.0 million ($20.0 million), respectively. The increase in capital expenditure was primarily due to capacity expansion and construction on Baidu's new campus facility.

Adjusted EBITDA (non-GAAP), which is defined in this announcement as earnings before interest, taxes, depreciation, amortization, other non- operating income and share-based compensation expenses, were RMB223.4 million ($29.8 million) for the third quarter of 2007, representing a 98.9% increase from the corresponding period in 2006.

Outlook for Fourth Quarter 2007

Baidu currently expects to generate total revenues in an amount ranging from RMB560 million ($74.7 million) to RMB575 million ($76.7 million) for the fourth quarter of 2007, representing a 106% to 112% increase from the corresponding period in 2006 and a 13% to 16% increase from the third quarter of 2007. 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 PM on October 25, 2007 U.S. Eastern Time (8 AM on October 26, 2007 Beijing/Hong Kong time).

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

     US:        +1-617-614-3471
     UK:        +44-207-365-8426
     Hong Kong: +852-3002-1672

     Passcode for all regions: 18272644

A replay of the conference call may be accessed by phone at the following number until November 1, 2007:

International: +1-617-801-6888

Passcode: 97321379

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

    (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 RMB7.4928 to US$1.00, the effective noon
        buying rate as of September 28, 2007 in The City of New York for cable
        transfers of RMB as certified for customs purposes by the Federal
        Reserve Bank of New York.

    About Baidu

Baidu.com, 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 Internet search users, Baidu provides an effective platform for businesses to reach potential customers. Baidu's ADSs, each of which represents one Class A ordinary share, currently trade on the NASDAQ Global Market under the symbol "BIDU".

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" and similar statements. Among other things, the outlook for fourth quarter 2007 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 third 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, results of operations and financial condition; our ability to attract and retain users and customers; competition in the Chinese language 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 copyright and other intellectual property rights; the expected growth of the Chinese language and Japanese language Internet search markets and the number of Internet and broadband users in China; and Chinese governmental policies relating to the Internet and Internet content providers. 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 October 25, 2007, 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 EPS 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 and expenditures that may not be indicative of its operating performance 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 computes its non-GAAP financial measures using the same consistent method from quarter to quarter, except that the non-GAAP measures for the quarter ended March 31, 2006 reflected the one-time cumulative effect of change in accounting principle due to our adoption of SFAS 123(R) since January 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 non-GAAP operating profit excluding share-based compensation expenses, net income excluding share-based compensation expenses, and basic and diluted EPS excluding share-based compensation expenses 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 business. 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 non-GAAP financial measures.

                             -- TABLES FOLLOW --



                               Baidu.com, Inc.
                    Condensed Consolidated Balance Sheets

                                               September 30,      December 31,
    (in RMB thousands)                              2007              2006
                                                 Unaudited          Audited

    ASSETS
        Current assets:
     Cash and cash equivalents                   1,301,072         1,136,274
     Short-term investments                        128,168            85,339
     Accounts receivable, net                       50,615            23,051
     Prepaid expenses and other current
      assets                                       109,354            32,339
     Deferred tax assets, net                        1,866             1,734
        Total current assets                     1,591,075         1,278,737

        Non-current assets:
     Fixed assets, net                             494,852           191,734
     Land use right, net                            96,960            92,400
     Intangible assets, net                         37,715            44,386
     Goodwill                                       51,097            47,316
     Investments, net                                5,697                --
     Deferred tax assets, net                        8,745             5,802
     Other non-current assets                       51,830             7,702
        Total non-current assets                   746,896           389,340

    TOTAL ASSETS                                 2,337,971         1,668,077

    LIABILITIES AND SHAREHOLDERS' EQUITY
        Current liabilities:
    Accrued expenses and other
     liabilities                                   302,455           153,141
    Customers' deposits                            229,408           141,185
    Deferred revenue                                11,295             2,583
    Deferred income                                  3,206             4,090
        Total current liabilities                  546,364           300,999

        Non-current liabilities:
    Long-term payable                                3,000             7,000
    Deferred income                                    634             2,817
        Total non-current liabilities                3,634             9,817

    Total liabilities                              549,998           310,816

    Shareholders' equity
    Class A Ordinary Shares, Par value
     US$0.00005 per share, 825,000,000
     shares authorized, and 22,574,381
     shares and 23,578,817 shares issued
     and outstanding as at December 31,
     2006 and September 30, 2007                        10                 9
    Class B Ordinary Shares, Par value
     US$0.00005 per share, 35,400,000
     shares authorized, and 11,130,018
     shares and 10,481,002 shares issued
     and outstanding as at December 31,
     2006 and September 30, 2007                         4                 5
    Additional paid-in capital                   1,140,499         1,088,176
    Accumulated other comprehensive
     income/(loss)                                 (64,438)          (33,697)
    Retained earnings                              711,898           302,768
    Total shareholders' equity                   1,787,973         1,357,261

    TOTAL LIABILITIES AND SHAREHOLDERS'
     EQUITY                                      2,337,971         1,668,077



                               Baidu.com, Inc.
                 Condensed Consolidated Statements of Income

                                               For the Three Months Ended

                                             September   September     June
    (in RMB thousands except for                30,         30,         30,
     share, per share information)             2007        2006        2007
                                             Unaudited   Unaudited   Unaudited
     Revenues:
     Online marketing services                496,120     237,625     400,647
     Other services                               410       1,706         606
     Total revenues                           496,530     239,331     401,253

     Operating costs and expenses:
     Cost of revenues (note 1, 2)            (180,704)    (68,399)   (146,795)
     Selling, general and administrative
      (note 2)                               (110,312)    (70,184)    (93,728)
     Research and development (note 2)        (37,433)    (24,520)    (31,770)
     Total operating costs and expenses      (328,449)   (163,103)   (272,293)

     Operating profit                         168,081      76,228     128,960

     Other income:
     Interest income                           12,188      11,337      11,592
     Other income, net                          4,040        (286)      3,186
     Total other income                        16,228      11,051      14,778

     Income before income taxes               184,309      87,279     143,738

     Income taxes                              (2,580)     (2,026)     (1,839)

     Net income                               181,729      85,253     141,899


    Earnings per share for Class A and
     Class B ordinary shares:
    Basic                                        5.35        2.54        4.19
    Diluted                                      5.23        2.46        4.09

    Weighted average aggregate number of
     Class A and Class B ordinary shares
     outstanding:
    Basic                                  33,983,137  33,500,948  33,877,358
    Diluted                                34,763,639  34,628,611  34,709,957

     (1) Cost of revenues are detailed as
      follows:
     Business tax and surcharges              (30,702)    (14,891)    (24,857)
     Traffic acquisition costs                (59,155)    (21,640)    (44,892)
     Bandwidth costs                          (31,837)    (10,503)    (28,320)
     Depreciation costs                       (40,654)    (14,053)    (33,941)
     Operational costs                        (17,979)     (6,723)    (14,433)
     Share-based compensation expenses           (377)       (589)       (352)
     Total cost of revenues                  (180,704)    (68,399)   (146,795)

     (2) Includes share-based compensation
      expenses as follows:
     Cost of revenues                            (377)       (589)       (352)
     Selling, general and administrative          (68)    (10,014)     (3,442)
     Research and development                  (5,027)     (5,779)     (5,083)
     Total share-based compensation
      expenses                                 (5,472)    (16,382)     (8,877)



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

                             Three months ended September 30, 2006
                         GAAP Result    Adjustment       Non-GAAP Results
    Operating profit        76,228        16,382              92,610

                             Three months ended September 30, 2006
                         GAAP Result     Adjustment      Non-GAAP Results
    Net income              85,253        16,382             101,635


                               Three months ended June 30, 2007
                         GAAP Result     Adjustment      Non-GAAP Results
    Operating profit       128,960         8,877             137,837

                               Three months ended June 30, 2007
                         GAAP Result     Adjustment      Non-GAAP Results
    Net income             141,899         8,877            150,776


                              Three months ended September 30, 2007
                         GAAP Result     Adjustment      Non-GAAP Results
    Operating profit       168,081         5,472            173,553

                             Three months ended September 30, 2007
                         GAAP Result     Adjustment      Non-GAAP Results
    Net income             181,729         5,472            187,201


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



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


                        Three    As a %    Three    As a %   Three    As a %
                        months     of      months     of     Months     of
                        ended     total    ended     total   ended     total
                      September revenues  June 30, revenues September revenues
                      30, 2006              2007            30, 2007
    Net cash
     provided by
     operating
     activities        131,068     55%    276,963     69%    254,870     51%

    Changes in
     assets and
     liabilities,
     net of
     effects of
     acquisitions       (9,695)    -4%    (84,538)   -21%    (17,800)    -4%
    Income taxes
     expenses            2,026      1%      1,839      0%      2,580      1%
    Interest
     income
     and other,
     net               (11,051)    -5%    (14,778)    -4%    (16,228)    -3%

    Adjusted EBITDA    112,348     47%    179,486     44%    223,422     45%

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



    For more information, please contact:

    Investor inquiries:

     Lynn Lin
     Baidu.com, Inc.
     Tel:   +86-10-8262-1188 ext.8239
     Email: ir@baidu.com

    Investor and media inquiries:

     China

     Helen Plummer
     Ogilvy Public Relations Worldwide (Beijing)
     Tel:   +86-10-8520-3090
     Email: helen.plummer@ogilvy.com

     US

     Thomas Smith
     Ogilvy Public Relations Worldwide (New York)
     Tel:   +1-212-880-5269
     Email: thomas.smith@ogilvypr.com
SOURCE  Baidu.com, Inc.
    -0-                             10/25/2007
    /CONTACT:  Lynn Lin of Baidu.com, Inc., +86-10-8262-1188 x8239, or
ir@baidu.com; or Helen Plummer of Ogilvy Public Relations Worldwide (Beijing),
+86-10-8520-3090, or helen.plummer@ogilvy.com, or Thomas Smith of Ogilvy
Public Relations Worldwide (New York), +1-212-880-5269, or
thomas.smith@ogilvypr.com, for Baidu /
    /Photo:   http://www.newscom.com/cgi-bin/prnh/20041011/BAIDULOGO
              PRN Photo Desk, 888-776-6555 or 212-782-2840/
    /Web site:  http://www.baidu.com /
    (BIDU)

CO:  Baidu.com Inc.
ST:  China
IN:  CPR MLM ITE ENT
SU:  ASI ERN CCA



JL-MC
-- CNTH033 --
6431 10/25/2007 17:00 EDT http://www.prnewswire.com