Baidu Forecasts Slowest Quarterly Sales Growth Since 2009

Baidu Inc. (BIDU), owner of China’s most- used search engine, forecast the slowest quarterly sales growth in three years, lower than analysts’ estimates, as a weaker economy deters online advertising spending.

Revenue will range from 6.16 billion yuan ($987 million) to 6.35 billion yuan in the fourth quarter, Beijing-based Baidu said in a statement yesterday. That compares with the 6.41 billion-yuan average of 13 analysts’ estimates compiled by Bloomberg.

The top end of the forecast range represents year-on-year sales growth of 42 percent, the slowest pace since the fourth quarter of 2009, when revenue gained 40 percent, according to data compiled by Bloomberg. Slowing economic growth in China is damping demand for online advertising at the same time Baidu is fending off new competition from Qihoo 360 Technology Co. (QIHU), maker of China’s most-used Web browser.

“We view the guidance as reflection of a more challenging macro environment and weaker advertiser sentiment,” Alicia Yap, a Hong Kong-based analyst at Barclays Plc, wrote in a report today. “The launch of Qihoo’s search service might also have a slight impact.”

China’s online advertising market may expand 39 percent this year to 65.1 billion yuan, slowing from 46 percent growth last year, Nomura Holdings Inc. forecast in June.

Not As Healthy

“If we look comparatively to last year, the macro environment isn’t as healthy,” Baidu Chief Financial Officer Jennifer Li said on a conference call today.

Baidu yesterday posted third-quarter profit that exceeded analysts’ estimates.

Net income climbed to 3.01 billion yuan, or 8.59 yuan per American depositary receipt, from 1.88 billion yuan, or 5.38 yuan, a year earlier, the company said in its statement. That exceeded the 2.77 billion-yuan average of 10 analysts’ estimates compiled by Bloomberg.

Baidu shares didn’t trade yesterday because of the hurricane on the U.S. East Coast. The stock, which closed at $113.84 in New York on Oct. 26, has fallen 2.3 percent this year, while Google advanced 4.5 percent and Qihoo climbed 30 percent.

Leading Google

Revenue in the third quarter rose 50 percent to 6.25 billion yuan from 4.18 billion yuan. Analysts projected sales of 6.23 billion yuan, based on the average of 15 estimates compiled by Bloomberg.

Chief Executive Officer Robin Li has extended Baidu’s lead over Google Inc. (GOOG) in China since January 2010, when the U.S. company said it would no longer comply with local censorship rules.

Baidu accounted for 78.6 percent of China’s search-engine market by revenue in the third quarter, compared with 15.4 percent for Google, according to Beijing-based researcher Analysys International.

Qihoo debuted its search engine in August. It had little effect on market share by revenue, and wasn’t ranked among the top four engines in China by that measure, Analysys said.

Baidu’s finance chief Li said that new market entrants had no impact on the company in the third quarter, and wouldn’t affect the fourth quarter.

That assessment still may not calm fears of all investors about erosion of Baidu’s share by Qihoo, said Thomas Chong, a Hong Kong-based analyst at BOCI Research Limited.

“Investors remain focused on the change in competitive landscape after the entry of Qihoo before we see mobile start to bear fruit,” Chong said in an e-mailed response to questions today.

Mobile Transition

While Baidu doesn’t see new market entrants as a threat, it must still manage the shift as more users migrate from personal computers to mobile devices such as smartphones and tablets, Chief Executive Officer Li said. Revenue generated from mobile search doesn’t yet match that of traditional PCs, and it won’t catch up for some time, he said.

“While we are naturally excited by this new opportunity, we also understand well the challenges that any evolution of this scale inevitably brings,” Li said. “There will be a transition period, lasting a couple of years, before the mobile monetization gap will close.”

To contact Bloomberg News staff for this story: Edmond Lococo in Beijing at elococo@bloomberg.net

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

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