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Baidu shares drop on mild growth forecast

Updated: 2010-12-17 10:00

By Melanie Lee and Li Ran (China Daily)

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Baidu shares drop on mild growth forecast

Baidu's third-quarter net profit more than doubled, compared with a year ago, and its revenue almost doubled. [Photo / Provided to China Daily] 

Nation's leading search engine starts exploring investment opportunities

BEIJING - A senior executive of China's top search engine, Baidu Inc, forecast its top- and bottom-line growth rates will be moderate over the next year, sending its shares down 6 percent on Wednesday.

Haoyu Shen, Baidu's senior vice-president of business operations, said that after this year's fast-paced growth the company will face tougher comparisons in 2011, although it would seek growth through acquisitions and new advertising methods.

"No ... We have such a bigger base," he said at the Reuters China Investment Summit when asked whether Baidu can maintain its stellar top- and bottom-line growth rates next year.

Baidu's third-quarter net profit more than doubled, compared with a year ago, and its revenue almost doubled.

"We had a major re-acceleration this year, and that had several reasons," said Shen, citing the rebound in the Chinese economy, the switch to its new keyword advertising system and Google Inc's downscaling in China. "For these reasons, it most likely won't repeat itself next year," he said.

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Baidu shares fell $6.42 to close at $100.42 on the Nasdaq after his comments. They had soared more than 160 percent this year after the company's main competitor, Google, said it would shut its China search page, following a serious hacking episode and on censorship concerns. Shen said the "Google effect" - an increase in traffic resulting from the disruption in the US company's Chinese operations earlier this year - mildly increased Baidu's business but that is largely over now. He said Baidu's strong performance this year was also due to the introduction late last year of its Phoenix Nest keyword advertising system, which was ramped up fully this year.

The system has enabled Baidu, named after an ancient poem, to make money from its clients as well as offer more value-added services.

Shen said traffic acquisition costs as a percentage of revenue will come in near 10 to 11 percent for 2010.

Baidu was the only Asian name in the top 100 holdings of the world's 30 biggest hedge funds in the third quarter of 2010, according to Thomson Reuters' StreetSight. The hedge funds increased their Baidu holdings by about 20 percent in the third quarter, the data show. Although Baidu has delved into e-commerce and online video this year, it will continue to focus on search functions, Shen said.

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