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Baidu Announces Third Quarter 2010 Results

Oct 21, 2010

BEIJING, Oct 21, 2010 /PRNewswire via COMTEX/ --

Baidu, Inc. (NASDAQ: BIDU), the leading Chinese language Internet search provider, today announced its unaudited financial results for the third quarter ended September 30, 2010.

    Third Quarter 2010 Highlights
    -- Total revenues in the third quarter of 2010 were RMB2.256 billion
       ($337.2 million), a 76.4% increase from the corresponding period in
       2009.
    -- Operating profit in the third quarter of 2010 was RMB1.181 billion
       ($176.6 million), a 126.6% increase from the corresponding period in
       2009.
    -- Net income in the third quarter of 2010 was RMB1.047 billion
       ($156.4 million), a 112.4% increase from the corresponding period in
       2009. Diluted earnings per ADS for the third quarter of 2010 were
       RMB3.00 ($0.45); diluted earnings per ADS excluding share-based
       compensation expenses (non-GAAP) for the third quarter of 2010 were
       RMB3.07 ($0.46).

    (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 RMB6.6905 to US$1.00, the effective noon
        buying rate as of September 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) Class A ordinary share to ten (10) ADSs for
        one (1) Class A ordinary share. All earnings per ADS figures in this
        announcement give effect to the forgoing ADS to share ratio change.

"Strong execution on our initiatives to expand our customer base and enhance customer service drove another quarter of strong results," said Robin Li, chairman and chief executive officer of Baidu. "By focusing on continuously improving our online marketing system and customer engagement while building awareness of search engine marketing, we are successfully enhancing Baidu's position as a key enabler of China's Internet industry."

Mr. Li continued, "On the user experience front, during the quarter we announced several exciting developments including the Baidu Open Application Platform, the first platform integrating web search with an applications library. Such pioneering initiatives that focus on Internet user needs are at the center of our R&D investment."

Jennifer Li, Baidu's chief financial officer, commented, "We are pleased to have delivered record margins in the third quarter, even as we actively invested in sales and marketing, R&D and network equipment. Looking forward, we will continue to invest aggressively to support Baidu's long-term growth."

Third Quarter 2010 Results

Baidu reported total revenues of RMB2.256 billion ($337.2 million) for the third quarter of 2010, representing a 76.4% increase from the corresponding period in 2009.

Online marketing revenues for the third quarter of 2010 were RMB2.256 billion ($337.1 million), representing a 76.5% increase from the corresponding period in 2009. Baidu had about 272,000 active online marketing customers in the third quarter of 2010, representing a 25.9% increase from the corresponding period in 2009 and a 7.1% increase from the previous quarter. Revenue per online marketing customer for the third quarter was approximately RMB8,300 ($1,241), a 40.7% increase from the corresponding period in 2009 and a 10.7% increase from the previous quarter.

Traffic acquisition cost (TAC) as a component of cost of revenues was RMB201.7 million ($30.2 million), representing 8.9% of total revenues, as compared to 15.3% in the corresponding period in 2009 and 9.7% in the second quarter of 2010. The sequential decrease in TAC as a percentage of total revenues reflects faster organic traffic growth during the quarter.

Bandwidth costs as a component of cost of revenues were RMB85.4 million ($12.8 million), representing 3.8% of total revenues, compared to 4.0% in the corresponding period in 2009. Depreciation costs as a component of cost of revenues were RMB84.2 million ($12.6 million), representing 3.7% of total revenues, compared to 5.0% in the corresponding period in 2009.

Selling, general and administrative expenses were RMB296.2 million ($44.3 million), representing an increase of 49.8% from the corresponding period in 2009, primarily due to increased headcount costs and marketing expenses.

Research and development expenses were RMB204.7 million ($30.6 million), a 75.4% 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 RMB24.4 million ($3.7 million) in the third quarter of 2010, compared to RMB21.3 million in the corresponding period in 2009 and RMB21.6 million in the previous quarter.

Operating profit was RMB1.181 billion ($176.6 million), representing a 126.6% increase from the corresponding period in 2009. Operating profit excluding share-based compensation expenses (non-GAAP) was RMB1.206 billion ($180.2 million), a 122.2% increase from the corresponding period in 2009.

Income tax expense was RMB165.2 million ($24.7 million), compared to an income tax expense of RMB49.1 million in the corresponding period in 2009. The effective tax rate for the third quarter of 2010 was 13.6% as compared to 9.1% for the corresponding period in 2009 and 14.4% in the previous quarter.

Net income was RMB1.047 billion ($156.4 million), representing a 112.4% increase from the corresponding period in 2009. Basic and diluted earnings per ADS for the third quarter of 2010 amounted to RMB3.01 ($0.45) and RMB3.00 ($0.45), respectively.

Net income excluding share-based compensation expenses (non-GAAP) was RMB1.071 billion ($160.1million), a 108.3% increase from the corresponding period in 2009. Basic and diluted earnings per ADS excluding share-based compensation expenses (non-GAAP) for the third quarter of 2010 amounted to RMB3.08 ($0.46) and RMB3.07 ($0.46), respectively.

As of September 30, 2010, the Company had cash, cash equivalents and short-term investments of RMB6.938 billion ($1.037 billion). Net operating cash inflow and capital expenditures for the third quarter of 2010 were RMB1.265 billion ($189.0 million) and RMB246.3 million ($36.8 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 RMB1.320 billion ($197.3 million) for the third quarter of 2010, representing a 112.2% increase from the corresponding period in 2009.

Outlook for Fourth Quarter 2010

Baidu currently expects to generate total revenues in an amount ranging from RMB2.370 billion ($354.2 million) to RMB2.440 billion ($364.7 million) for the fourth quarter of 2010, representing an 88% to 93.5% 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 October 21, 2010 U.S. Eastern Time (8:00 AM on October 22, 2010 Beijing/Hong Kong time).

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

    US:                       +1-617-597-5343
    UK:                       +44-207-365-8426
    Hong Kong:                +852-3002-1672
    Passcode for all regions: 48293357

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

International: +1-617-801-6888

Passcode: 57701850

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 fourth 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 October 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.
     Tel:   +86-10-5992-7244
     Email: ir@baidu.com

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

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



    Baidu, Inc.
    Condensed Consolidated Balance Sheets

                                                  Sep 30,           Dec 31,
    (in RMB thousands)                              2010              2009
                                                 Unaudited          Audited

    ASSETS
      Current assets:
        Cash and cash equivalents                5,043,711         4,199,889
        Short-term investments                   1,893,799           381,149
        Accounts receivable, net                   286,113           161,610
        Other assets, current                      177,662            91,067
        Deferred tax assets, net                    14,413             9,157
      Total current assets                       7,415,698         4,842,872

      Non-current assets:
        Fixed assets, net                        1,445,713           997,557
        Intangible assets, net                     118,322           122,595
        Goodwill                                    63,688            63,691
        Long-term investments, net                  50,628            14,308
        Deferred tax assets, net                    33,799            33,799
        Other assets, non-current                  135,318            82,153
      Total non-current assets                   1,847,468         1,314,103

    TOTAL ASSETS                                 9,263,166         6,156,975

    LIABILITIES AND SHAREHOLDERS' EQUITY
      Current liabilities:
        Accounts payable and accrued
         liabilities, current                    1,152,609           749,861
        Customer advances and deposits,
         current                                   827,806           607,828
        Deferred revenue                            58,989            42,035
      Total current liabilities                  2,039,404         1,399,724

      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                            2,048,554         1,403,874

    Shareholders' equity
      Class A Ordinary Shares, Par value
       US$0.00005 per share, 825,000,000
       shares authorized, and 26,298,960
       shares and 26,618,614 shares issued
       and outstanding as at December 31,
       2009 and September 30, 2010                      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 September 30, 2010                       4                 4
      Additional paid-in capital                 1,524,463         1,426,070
      Accumulated other comprehensive loss        (114,949)         (113,513)
      Retained earnings                          5,805,083         3,440,529
      Total shareholders' equity                 7,214,612         4,753,101

    TOTAL LIABILITIES AND SHAREHOLDERS'
     EQUITY                                      9,263,166         6,156,975



    Baidu, Inc.
    Condensed Consolidated Statements of Income

                                               For the Three Months Ended
    (in RMB thousands except for share,      Sep 30,     Sep 30,     Jun 30,
     per share information)                   2010        2009        2010
                                            Unaudited   Unaudited   Unaudited
     Revenues:
     Online marketing services              2,255,512   1,278,192   1,913,467
     Other services                               348         511         927
     Total revenues                         2,255,860   1,278,703   1,914,394

     Operating costs and expenses:
       Cost of revenues (note 1, 2)          (573,571)   (442,851)   (518,336)
       Selling, general and administrative
        (note 2)                             (296,189)   (197,717)   (265,003)
       Research and development (note 2)     (204,731)   (116,691)   (159,271)
     Total operating costs and expenses    (1,074,491)   (757,259)   (942,610)

     Operating profit                       1,181,369     521,444     971,784

     Other income:
       Interest income                         17,410       6,637      15,069
       Exchange loss, net                          --          (1)        (23)
       Gain and loss from equity method
        investments                            (2,776)        (62)        243
       Other income, net                       15,809      13,989      (9,201)
     Total other income                        30,443      20,563       6,088

     Income before income taxes             1,211,812     542,007     977,872

     Income taxes                            (165,159)    (49,145)   (140,508)

     Net income                             1,046,653     492,862     837,364


    Earnings per share for Class A and
     Class B ordinary shares:
      Basic                                     30.06       14.23       24.07
      Diluted                                   29.97       14.14       23.98

    Earnings per ADS (1 Class A ordinary
     share=10 ADSs):
      Basic                                      3.01        1.42        2.41
      Diluted                                    3.00        1.41        2.40

    Weighted average aggregate number of
     Class A and Class B ordinary shares
     outstanding:
      Basic                                34,816,282  34,639,268  34,794,808
      Diluted                              34,924,125  34,849,020  34,912,940

     (1) Cost of revenues are detailed as
         follows:
         Business tax and surcharges         (141,168)    (80,357)   (121,627)
         Traffic acquisition costs           (201,720)   (196,229)   (185,642)
         Bandwidth costs                      (85,399)    (51,194)    (67,927)
         Depreciation costs                   (84,173)    (63,619)    (83,627)
         Operational costs                    (59,791)    (49,880)    (57,743)
         Share-based compensation
          expenses                             (1,320)     (1,572)     (1,770)
         Total cost of revenues              (573,571)   (442,851)   (518,336)

     (2) Includes share-based compensation
         expenses as follows:
         Cost of revenues                      (1,320)     (1,572)     (1,770)
         Selling, general and
          administrative                       (9,544)     (9,142)     (9,064)
         Research and development             (13,564)    (10,539)    (10,757)
         Total share-based compensation
          expenses                            (24,428)    (21,253)    (21,591)



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

                                 Three months ended September 30, 2009
                              GAAP Result  Adjustment   Non-GAAP Results
    Operating profit            521,444      21,253           542,697

                                 Three months ended September 30, 2009
                              GAAP Result  Adjustment   Non-GAAP Results
    Net income                  492,862      21,253           514,115


                                 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


                                 Three months ended September  30, 2010
                              GAAP Result  Adjustment   Non-GAAP Results
    Operating profit          1,181,369      24,428         1,205,797

                                 Three months ended September  30, 2010
                              GAAP Result  Adjustment   Non-GAAP Results
    Net income                1,046,653      24,428         1,071,081

    (*) 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
                           Sept.  revenues June 30,  revenues  Sept.  revenues
                         30, 2009            2010            30, 2010
    Net cash provided
     by operating
     activities           733,866    57%  1,239,850     65%  1,264,502   56%
      Changes in assets
       and liabilities,
       net of effects
       of acquisitions   (140,338)  -11%   (270,138)   -14%    (79,043)  -4%
      Income taxes
       expenses            49,145     4%    140,508      7%    165,159    7%
      Interest income
       and other, net     (20,563)   -2%     (6,088)     0%    (30,443)  -1%

    Adjusted EBITDA       622,110    48%  1,104,132     58%  1,320,175   58%

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

SOURCE Baidu, Inc.