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Baidu CEO Sees Years of Growth as Internet Search Becomes China’s Favorite

Baidu Inc., the owner of China’s most popular search engine, has “plenty of room” to expand, Chief Executive Officer Robin Li forecast after some analysts projected slowing growth at the company.

“Search just became the most popular application for Chinese Internet users, and there is still a lot of growth to expect for many years down the road,” Li said in a conference call with analysts today. Baidu yesterday reported first-quarter profit more than doubled and forecast sales this quarter that beat analysts’ estimates as advertising fees surged.

Li, ranked China’s richest man by Forbes magazine, is spending more to boost Baidu’s search business and expand into services including social networking and electronic commerce. Still, analysts at Morgan Stanley and Credit Suisse Group AG said Baidu’s growth this year won’t match the increase in 2010, when the company gained market share as Google Inc. (GOOG) pulled its search engine from the country.

“The growth rate will not be as fast as last year,” said Muzhi Li, an analyst at Mizuho Securities in Hong Kong. Baidu’s revenue will be helped by advertising spending by online commerce companies, he said.

Baidu stock fell less than one percent on Nasdaq Stock Market trading yesterday before the earnings announcement. It has gained 57 percent this year, compared with the 88 percent gain in Sina Corp., owner of China’s most popular microblogging service, and a 29 percent increase in Tencent Holdings Ltd. (700), operator of the most popular Chinese online-chat software.

Wealth Doubled

Li more than doubled his wealth last year as Baidu’s stock has more than tripled since Google announced plans in January 2010 to pull its search engine out of China.

Baidu’s net income climbed to 1.07 billion yuan ($164.5 million), or 3.06 yuan per American depositary receipt, compared with 480.5 million yuan, or 1.38 yuan, a year earlier, Baidu said in a statement yesterday. That exceeded the 1.02 billion yuan average of nine analysts’ estimates compiled by Bloomberg.

Second-quarter sales will be 3.23 billion yuan to 3.3 billion yuan, Baidu said. That tops the 3.14 billion yuan projected by analysts.

Baidu may “record a slower growth rate in the second half of 2011 due to tougher annual comparisons,” Morgan Stanley analysts including Richard Ji wrote in an April 15 report. Baidu’s revenue growth this year may slow to 69 percent, after sales increased 78 percent in 2010, according to a March 16 report by Credit Suisse.

Google’s Share

Google, owner of the world’s most popular search engine, accounted for 19.2 percent of China’s search market by revenue in the first-quarter, declining from 19.6 percent three months earlier, according to research company Analysys International. Baidu’s market share rose to 75.8 percent from 75.5 percent, according to Analysys.

Google has been losing share in China’s search-engine market since the Mountain View, California-based company said it was no longer willing to comply with Chinese regulations to self-censor Web content. Two months later, the U.S. company shut its Google.cn service and redirected Chinese users to an unfiltered site in Hong Kong.

Baidu’s search engine is installed as the default option on 80 percent of phones in China that run Google’s Android operating system, Yue Guofeng, general manager at Baidu’s mobile Internet division, said this week.

Baidu is working on its “box-computing” technology, which makes it easier for mobile-phone users to access Internet content and applications, CEO Li said today.

To contact the reporter on this story: Mark Lee in Hong Kong at wlee37@bloomberg.net

To contact the editor responsible for this story: Young-Sam Cho at ycho2@bloomberg.net

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