Baidu to Consider Acquisitions to Boost Services, Li Says

Baidu Inc. (BIDU), owner of China’s most-used search-engine, will consider making acquisitions as the company aims to offer new services to users at a faster pace, Chief Executive Officer Robin Li said.

“In most cases, I would say I prefer buy to build,” Li said in a conference call with analysts today after Baidu reported earnings. The Beijing-based company will consider both acquisitions and in-house development to offer a wider range of services, he said, without giving details of potential targets.

Baidu is expanding in display advertising to win sales from clients including Procter & Gamble Co. (PG), and aims to add mobile users as more Chinese access the Web on smartphones. Second-quarter profit rose 70 percent, beating analysts’ estimates, as more small businesses in China bought keywords on Baidu’s search-engine after the company stepped up marketing.

“The company is looking for the next growth driver,” said Dundas Deng, an analyst at Guotai Junan Securities in Shenzhen who rates Baidu buy. Baidu may purchase companies that offer technologies for mobile users, Deng said.

Baidu’s American depositary receipts surged as much as 9.5 percent in extended trading after the earnings announcement. The stock earlier fell 2.8 percent to $107.10 in Nasdaq Stock Market trading.

Second-quarter net income climbed to 2.77 billion yuan ($434 million), or 7.86 yuan per American depositary receipt, compared with 1.63 billion yuan, or 4.67 yuan, a year earlier, Baidu reported yesterday. That exceeded the 2.5 billion-yuan average of 10 analysts’ estimates compiled by Bloomberg. Revenue rose 60 percent to 5.46 billion yuan.

Travel Search Stake

Third-quarter revenue will be in a range of 6.25 billion yuan to 6.41 billion yuan, Baidu said. That compares with the 6.39 billion-yuan average of analysts’ estimates compiled by Bloomberg.

Last year, Baidu paid $306 million for a majority stake in Qunar.com Inc., a Chinese travel search site. Tencent Holdings Ltd. (700), China’s biggest Internet company, is also making acquisitions and investments to add technologies and services.

Making acquisitions, rather than developing technologies internally, “will give us time, and gives us competitive advantages,” Li said today.

Marketing Program

Baidu had more than 350,000 customers for its online advertising services at the end of the second quarter, 9.7 percent more than three months earlier, Chief Financial Officer Jennifer Li said on the call. The company gained customers after a marketing program last quarter, she said.

“The smaller advertisers are helping the company,” Dick Wei, who rates Baidu overweight at JPMorgan Chase & Co. in Hong Kong, said before the earnings release. Still, “it’s the bigger customers who’ll drive growth,” Wei said.

In the second quarter, Baidu accounted for 78.6 percent of China’s search-engine market by revenue, compared with 15.7 percent for Google Inc. (GOOG), according to researcher Analysys International.

China’s online advertising market may expand by 39 percent this year to 65.1 billion yuan, slowing from 46 percent growth in 2011, according to a report by Nomura Holdings Inc. in June.

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

To contact the editor responsible for this story: Michael Tighe at mtighe4@bloomberg.net

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