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Baidu Announces Second Quarter 2006 Results
Jul 26, 2006
             Significant Growth in Customer Base and User Traffic
                      Drives Strong Revenue and Earnings

BEIJING, July 26 /PRNewswire-FirstCall/ -- Baidu.com, Inc. (Nasdaq: BIDU), the leading Chinese language Internet search provider, today announced its unaudited financial results for the quarter ended June 30, 2006.(1)

    Second Quarter 2006 Highlights

    -- Total revenues increased by 41.3% sequentially or 174.9% year-over-year
       to RMB191.6 million ($24.0 million).

    -- Net income increased by 65.9% sequentially or 385.2% year-over-year to
       RMB58.5 million ($7.3 million). Basic and diluted earnings per share
       ("EPS") were RMB1.76 ($0.22) and RMB1.69 ($0.21), respectively.

    -- Net income, excluding share-based compensation expenses (non-GAAP), was
       RMB70.2 million (US$8.8 million). Basic and diluted EPS, excluding
       share-based compensation expenses (non-GAAP), were RMB2.11 ($0.26) and
       RMB2.03 ($0.25), respectively.

    -- The number of active online marketing customers grew to more than
       90,000, an increase of 21.6% from the previous quarter.

"We are very pleased Baidu has maintained its revenue growth momentum and achieved another quarter of excellent results," said Robin Li, Chairman and CEO of Baidu. "Our focus on providing the best user experience continues to drive traffic growth and our expanded sales force contributed to a substantial boost in our active customer base."

"Our community-based search products, including Baidu Post Bar, Baidu Knows and Baidupedia, have become increasingly popular because they make users stay connected while searching online. In July, we launched Baidu Space, which allows users to create personalized homepages on Baidu and integrate their use of other Baidu search products in one place. We will continue to develop products tailored to user needs to ensure that Baidu remains the search engine of choice in China," added Mr. Li.

"Our active customer base grew significantly in the second quarter due to expansion of our sales force and increased awareness of Baidu's pay-for- performance services," said Shawn Wang, Baidu's CFO. "In addition to customer base expansion, further optimization in monetization algorithm also contributed to strong revenue growth."

"The scalability of our business was once again demonstrated by margin increase during the quarter while we continued to invest heavily in the fundamental growth drivers of our business to facilitate long term sustainable growth," Mr. Wang continued.

    Second Quarter 2006 Results

    -- Baidu reported total revenues of RMB191.6 million ($24.0 million) for
       the quarter ended June 30, 2006, representing a 41.3% increase from the
       previous quarter and a 174.9% increase from the corresponding period in
       2005.

    -- Online marketing revenues for the second quarter were RMB189.1 million
       ($23.7 million), representing a 43.2% increase from the first quarter
       of 2006 and a 183.3% increase from the second quarter of 2005. The
       growth was driven by the increase in the number of active online
       marketing customers, which increased by 21.6% from the first quarter of
       2006 to more than 90,000 for the second quarter. Customer expansion was
       driven by expansion of the direct sales force and the increased
       effectiveness of the Company's direct sales offices and distributor
       network. Revenue per online marketing customer for the second quarter
       increased to RMB2,081 ($260.3) from RMB1,774, a sequential increase of
       19.3%.

    -- Traffic acquisition cost (TAC) as a component of cost of revenues was
       RMB17.6 million ($2.2 million), representing 9.2% of total revenues,
       compared to 9.1% in the first quarter of 2006. TAC remained largely
       unchanged as a percentage of revenues.

    -- Selling, general and administrative expenses for the second quarter
       were RMB58.7 million ($7.3 million), representing an increase of 16.7%
       from the previous quarter and an increase of 110.1% from the second
       quarter of 2005.

    -- Research and development expenses were RMB18.3 million ($2.3 million),
       representing a 17.5% sequential increase and a 111.3% increase from the
       corresponding period in 2005, primarily due to headcount increase.

    -- Share-based compensation expenses, which were allocated to related
       expense line items, decreased in aggregate to RMB11.7 million ($1.5
       million) in the second quarter of 2006 from RMB12.8 million in the
       previous quarter.

For the full year, we expect share-based compensation expenses for awards granted to employees prior to July 1, 2006 to be RMB37.6 million. This amount does not include expenses to be recognized over the remainder of the year related to awards granted to employees after July 1, 2006 or awards granted to non-employees that have been or may be granted.

    -- Operating profit was RMB58.0 million ($7.3 million), representing a
       115.4% increase from the first quarter of 2006 and a 384.7% increase
       from the second quarter of 2005. Operating profit excluding share-based
       compensation expenses (non-GAAP) was RMB69.7 million ($8.7 million) for
       the second quarter of 2006, a 75.4% increase from the previous quarter
       and a 284.5% increase from the corresponding period in 2005.

    -- Net income was RMB58.5 million ($7.3 million), representing a 65.9%
       increase from the previous quarter and a 385.2% increase from the
       second quarter of 2005. Basic and diluted EPS for the second quarter of
       2006 amounted to RMB1.76 ($0.22) and RMB1.69 ($0.21), respectively.

    -- Net income excluding share-based compensation expenses (non-GAAP) was
       RMB70.2 million ($8.8 million), a 61.6% increase from the previous
       quarter and a 285.3% increase from the second quarter of 2005. Basic
       and diluted EPS excluding share-based compensation expenses (non-GAAP)
       for the second quarter of 2006 was RMB2.11 ($0.26) and RMB2.03 ($0.25),
       respectively.

    -- As of June 30, 2006, the Company had cash and cash equivalents of
       RMB1.1 billion ($133.2 million). Net operating cash flow and capital
       expenditures for the second quarter of 2006 were RMB129.7 million
       ($16.2 million) and RMB41.1 million ($5.1 million), respectively. The
       increase in capital expenditures was primarily due to expenditures
       incurred to support significant traffic growth during the quarter.

    -- Adjusted EBITDA (non-GAAP), which is defined as earnings before
       interest, taxes, depreciation, amortization, other non-operating
       income, and share-based compensation expenses, were RMB85.0 million
       ($10.6 million) for the second quarter of 2006, representing a 62.7%
       increase from the previous quarter and a 243.0% increase from the
       corresponding period in 2005.

    Outlook for Third Quarter 2006

Baidu currently expects to generate total revenues in an amount ranging from RMB238 million ($30 million) to RMB246 million ($31 million) in the third quarter of 2006, representing a 168% to 177% increase from the corresponding period in 2005. 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 9 PM on July 26, 2006 U.S. Eastern Daylight Time (9 AM on July 27, 2006 Beijing/Hong Kong time).

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

    US: +1 617 213 8055
    UK: +44 800 2800 2002
    Hong Kong: +852 3002 1672
    Passcode for all regions: 85731630

A replay of the conference call may be accessed by phone at the following number until 11 PM on July 29, 2006 U.S. Eastern Daylight Time.

International: +1 617 801 6888

Passcode: 57179833

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

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 individual 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 third quarter 2006 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 Internet search market; 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 Internet search market 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 July 26, 2006, 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.

    (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 RMB7.9943 to US$1.00, the effective noon
        buying rate as of June 30, 2006 in The City of New York for cable
        transfers of RMB as certified for customs purposes by the Federal
        Reserve Bank of New York.


    Baidu.com, Inc.
    Condensed Consolidated Balance Sheets

                                                   June 30,       December 31,
    (in RMB thousands)                               2006              2005
                                                  Unaudited          Audited

     ASSETS
         Current assets:
             Cash and cash equivalents           1,064,466           900,593
             Accounts receivable, net of
              allowance                             20,247            22,353
             Prepaid expenses and other
              current assets                        32,567            10,957
             Deferred tax asset, net of
              valuation allowance                    1,186             1,449
         Total current assets                    1,118,466           935,352

         Non-current assets:
            Fixed assets, net                      124,854            96,420
            Prepayment for land use rights          77,200            77,200
            Intangible assets, net                  15,987            13,303
            Goodwill                                17,785             9,287
            Investments                              1,999             2,018
            Deferred tax asset, net of
             valuation allowance                     4,435             2,843
            Other                                    3,746               -
         Total non-current assets                  246,006           201,071

     TOTAL ASSETS                                1,364,472         1,136,423

     LIABILITIES AND SHAREHOLDERS' EQUITY
         Current liabilities:
            Accrued expenses and other
             liabilities                           103,488            53,137
            Customers' deposits                    114,336            70,327
            Deferred revenue                         6,093             7,658
            Deferred income                          2,866               124
         Total current liabilities                 226,783           131,246

         Non-current liabilities:
            Long-term payable                        7,000               -
            Deferred income                          2,699               124
         Total non-current liabilities               9,699               124

     Total liabilities                             236,482           131,370

     Shareholders' equity
         Class A ordinary shares, par value
          US$0.00005 per share, 825,000,000
          shares authorized and 16,783,952
          shares issued and outstanding as
          at June 30, 2006 and 9,460,426
          shares as at December 31, 2005                 7                 4
         Class B Ordinary Shares, Par value
          US$0.00005 per share, 35,400,000
          shares authorized and 16,664,476
          shares issued and outstanding as
          at June 30, 2006 and 23,485,336
          shares as at December 31, 2005                 7                10
         Additional paid-in capital              1,047,215         1,009,488
         Foreign currency translation
          adjustment                               (13,951)           (5,451)
         Retained earnings                          94,712             1,002
     Total shareholders' equity                  1,127,990         1,005,053

     TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY  1,364,472         1,136,423


    Baidu.com, 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)                    2006        2005        2006
                                            Unaudited   Unaudited   Unaudited
     Revenues:
       Online marketing services              189,053      66,721     132,052
       Others                                   2,574       2,982       3,522
     Total revenues                           191,627      69,703     135,574

     Operating costs and expenses:
       Cost of revenues (note 1, 2)           (56,644)    (21,148)    (42,777)
       Selling, general and administrative
        (note 2)                              (58,728)    (27,947)    (50,329)
       Research and development (note 2)      (18,268)     (8,644)    (15,544)
     Total operating costs and expenses      (133,640)    (57,739)   (108,650)

     Operating profit                          57,987      11,964      26,924

     Other income
       Interest income, net                    10,161         920       8,929
       Foreign exchange loss, net                 -           -           (89)
       Other, net                                 702         342         723
     Total other income                        10,863       1,262       9,563

     Income before income tax and
      cumulative effect of change in
      accounting principle                     68,850      13,226      36,487

     Income tax expense                       (10,380)     (1,175)     (5,850)

     Income before cumulative effect of
      change in accounting principle           58,470      12,051      30,637

     Cumulative effect of change in
      accounting principle                        -           -         4,603

     Net income                                58,470      12,051      35,240


    Earnings per share for Class A and
     Class B ordinary shares:
         Basic EPS
           Basic (prior to cumulative effect of
            change in accounting principle)      1.76        0.99        0.93
           Cumulative effect of change in
            accounting principle                  -           -          0.14
           Basic (after cumulative effect of
            change in accounting principle)      1.76        0.99        1.07
         Diluted EPS
           Diluted (prior to cumulative effect
            of change in accounting principle)   1.69        0.39        0.89
           Cumulative effect of change in
            accounting principle                  -           -          0.13
           Diluted (after cumulative effect of
            change in accounting principle)      1.69        0.39        1.02
    Weighted average aggregate number of
     Class A and Class B ordinary shares
     outstanding:
      Basic                                33,295,391  12,156,710  33,065,951
      Diluted                              34,597,580  30,518,035  34,472,978

    Pro forma earnings per share for Class
     A and Class B ordinary shares(2):
      Basic                                      1.76        0.42        1.07
      Diluted                                    1.69        0.39        1.02
    Pro forma weighted average aggregate
     number of Class A and Class B
     ordinary shares outstanding
     on an as converted basis for Class A
     and Class B ordinary shares:
      Basic                                33,295,391  28,805,587  33,065,951
      Diluted                              34,597,580  30,518,035  34,472,978

     (1) Cost of revenues are detailed as follows:
     Business tax and surcharges              (12,185)     (4,529)     (8,400)
     Traffic acquisition costs                (17,611)     (4,270)    (12,298)
     Bandwidth costs                           (9,239)     (4,032)     (7,607)
     Depreciation and amortization costs      (12,339)     (5,483)    (10,201)
     Operational costs                         (4,940)     (2,601)     (3,970)
     Share-based compensation                    (330)       (233)       (301)
     Total cost of revenues                   (56,644)    (21,148)    (42,777)

     (2) Includes share-based compensation
          expenses are allocated as follows:
     Cost of revenues                            (330)       (233)       (301)
     Selling, general and administrative       (7,705)     (4,222)     (9,085)
     Research and development                  (3,696)     (1,714)     (3,427)
     Total share-based compensation
      expenses                                (11,731)     (6,169)    (12,813)

    (2) Pro forma basic and diluted earnings per share are computed by
        dividing net income by weighted average number of ordinary shares
        outstanding for the period plus the number of ordinary shares
        resulting from the assumed conversion of all the outstanding
        redeemable convertible preferred share upon closing of the initial
        public offering as if the conversion had  occurred at the beginning of
        the period, or when the preferred shares were issued, if later.

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

                               Three months ended June 30, 2005
                       GAAP Result      Adjustment      Non-GAAP Results
    Operating profit     11,964           6,169            18,133

                               Three months ended March 31, 2006
                       GAAP Result      Adjustment      Non-GAAP Results
    Operating profit     26,924          12,813            39,737

                               Three months ended June 30, 2006
                       GAAP Result      Adjustment      Non-GAAP Results
    Operating profit     57,987          11,731            69,718


                               Three months ended June 30, 2005
                       GAAP Result      Adjustment      Non-GAAP Results
    Net income           12,051           6,169            18,220

                               Three months ended March 31, 2006
                       GAAP Result      Adjustment      Non-GAAP Results
    Net income           35,240           8,210            43,450

                               Three months ended June 30, 2006
                       GAAP Result      Adjustment      Non-GAAP Results
    Net income           58,470          11,731            70,201

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

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

                            Three            Three            Three
                            months           months           months
                            ended    As a %  ended    As a %  ended     As a %
                            June 30,   of   March 31,   of    June 30,    of
                             2005   revenues  2006   revenues  2006   revenues
    Net cash provided by
     operating activities    32,034    46%    94,526     70%   129,715     68%

       Changes in assets and
        liabilities, net of
        effects of
        acquisitions         (7,177)  -10%   (38,592)   -28%   (44,256)   -23%
       Income taxes expenses  1,175     2%     5,850      4%    10,380      5%
       Interest income and
        other, net           (1,261)   -2%    (9,563)    -7%   (10,863)    -6%

    Adjusted EBITDA          24,771    36%    52,221     39%    84,976     44%

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

SOURCE  Baidu.com, Inc.
    -0-                             07/26/2006
    /CONTACT:  China - Cynthia He, Baidu.com, Inc. (Beijing),
+86-10-8262-1188, ir@baidu.com; or Philip Lisio, Ogilvy Public Relations
Worldwide (Beijing), +86-10-8520-6505, philip.lisio@ogilvy.com, U.S. - Thomas
Smith of Ogilvy Public Relations Worldwide (New York), +1-212-880-5269,
thomas.smith@ogilvypr.com/
    /Web site:  http://www.baidu.com
                http://ir.baidu.com /
    (BIDU)

CO:  Baidu.com, Inc.
ST:  China
IN:  CPR ITE MLM
SU:  ERN ERP CCA

DO
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