Baidu Announces Third Quarter 2009 Results

BEIJING, Oct. 27 /PRNewswire-Asia/ -- Baidu, Inc. ("Baidu" or "the Company") (Nasdaq: BIDU), the leading Chinese language Internet search provider, today announced its unaudited financial results for the third quarter ended September 30, 2009(1).

(Logo: http://www.prnasia.com/sa/200811032131.jpg )

Third Quarter 2009 Highlights

-- Total revenues in the third quarter of 2009 were RMB1,278.7 million

($187.3 million), a 39.1% increase from the corresponding period in

2008.

-- Operating profit in the third quarter of 2009 was RMB521.4 million

($76.4 million), a 41.6% increase from the corresponding period in 2008.

-- Net income in the third quarter of 2009 was RMB492.9 million ($72.2

million), a 41.7% increase from the corresponding period in 2008.

Diluted earnings per share ("EPS") for the third quarter of 2009 were

RMB14.14 ($2.07); diluted EPS excluding share-based compensation

expenses (non-GAAP) for the third quarter of 2009 was RMB14.75 ($2.16).

Costs and expenses related to Baidu's Japan operations for the third

quarter of 2009 were RMB40.6 million ($6.0 million), which reduced

diluted EPS by RMB1.17 ($0.17).

-- As of the end of the third quarter of 2009, 70% of Baidu customers were

using Online Marketing Professional Edition, also known as Phoenix Nest;

Revenues from Phoenix Nest contributed over 20% of total revenues for

the third quarter of 2009.

(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 RMB6.8262 to US$1.00, the effective noon

buying rate as of September 30, 2009 in The City of New York for cable

transfers of RMB as certified for customs purposes by the Federal

Reserve Bank of New York.

"Once again we delivered a solid quarter driven by our focus on execution," said Robin Li, Baidu's Chairman and CEO. "We continued to see large customers shift more of their marketing budgets to our P4P platform. In addition, we introduced a number of initiatives to support Baidu's long-term growth which will benefit our users, customers and Union members. During the quarter, Phoenix Nest, our new online marketing system, continued to gain customer traction and showed promising trends in key monetization metrics."

"With 70% of customers already using Phoenix Nest, we believe this is the right time to complete the switch to the new system," continued Mr. Li. "The move to a single upgraded bidding platform will more efficiently utilize company resources and relieve customers from the burden of maintaining two systems. We are confident that Phoenix Nest will deliver tremendous benefits to our users, customers and Baidu."

Mr. Li noted that the Company has implemented a customer outreach program to ensure a smooth transition to Phoenix Nest and mitigate short-term revenue impact of the switch, which will occur on December 1, 2009.

"We enjoyed healthy top and bottom line growth in the third quarter," added Jennifer Li, Baidu's chief financial officer. "Looking ahead, prudent investments in our engineering and sales capabilities, branding efforts, and operational efficiency will continue to be key themes for Baidu."

Third Quarter 2009 Results

Baidu reported total revenues of RMB1,278.7 million ($187.3 million) for the third quarter of 2009, representing a 39.1% increase from the corresponding period in 2008.

Online marketing revenues for the third quarter of 2009 were RMB1,278.2 million ($187.2 million), representing a 39.2% increase from the corresponding period in 2008. Baidu had about 216,000 active online marketing customers in the third quarter of 2009, representing an 11.3% increase from the corresponding period in 2008 and a 6.4% increase from the previous quarter. Revenue per online marketing customer for the third quarter was approximately RMB5,900 ($864), a 25.5% increase from the corresponding period in 2008 and a 9.3% increase from the previous quarter.

Traffic acquisition cost (TAC) as a component of cost of revenues was RMB196.2 million ($28.7 million), representing 15.3% of total revenues, as compared to 11.8% in the corresponding period in 2008 and 16.0% in the second quarter of 2009. The year-over-year increase in TAC as a percentage of total revenues reflects the continued fast growth of Baidu's Union business while the sequential decrease reflects normal fluctuation.

Bandwidth costs as a component of cost of revenues were RMB51.2 million ($7.5 million), representing 4.0% of total revenues, compared to 5.2% in the corresponding period in 2008. Depreciation costs as a component of cost of revenues were RMB63.6 million ($9.3 million), representing 5.0% of total revenues, compared to 6.2% in the corresponding period in 2008. The decreases in bandwidth and depreciation costs as percentages of total revenues reflect efficiency improvements as well as increased scalability of investment in capital expenditure.

Selling, general and administrative expenses were RMB197.7 million ($29.0 million), representing an increase of 21.1% from the corresponding period in 2008. The increase was primarily due to increased marketing activities.

Research and development expenses were RMB116.7 million ($17.1 million), a 49.2% increase from the corresponding period in 2008. The increase was primarily due to the increase in headcount related expenses.

Share-based compensation expenses, which were allocated to related operating costs and expense line items, were RMB21.3 million ($3.1 million) in the third quarter of 2009, compared to RMB17.0 million in the corresponding period in 2008 and RMB22.9 million in the previous quarter.

Operating profit was RMB521.4 million ($76.4 million), representing a 41.6% increase from the corresponding period in 2008. Operating profit excluding share-based compensation expenses (non-GAAP) was RMB542.7 million ($79.5 million), a 40.8% increase from the corresponding period in 2008.

Other income was RMB20.6 million ($3.0 million), representing a 43.0% increase from the corresponding period in 2008 and a 78.8% increase from the previous quarter. The increases were primarily due to RMB14.3 million ($2.1 million) of government grants obtained.

Income tax expense was RMB49.1 million ($7.2 million), compared to an income tax expense of RMB34.8 million in the corresponding period in 2008. The effective tax rate for the third quarter of 2009 was 9.1% as compared to 9.1% for the corresponding period in 2008 and 11.8% in the previous quarter. The Company recognized a tax benefit of RMB15.3 million ($2.2 million) for the third quarter of 2009, attributable to obtaining preferential income tax status for one of its subsidiaries for the year of 2008.

Net income was RMB492.9 million ($72.2 million), representing a 41.7% increase from the corresponding period in 2008. Basic and diluted EPS for the third quarter of 2009 amounted to RMB14.23 ($2.08) and RMB14.14 ($2.07), respectively.

Net income excluding share-based compensation expenses (non-GAAP) was RMB514.1 million ($75.3 million), a 40.9% increase from the corresponding period in 2008. Basic and diluted EPS excluding share based compensation expense (non-GAAP) for the third quarter of 2009 amounted to RMB14.84 ($2.17) and RMB14.75 ($2.16), respectively.

As of September 30, 2009, the Company had cash, cash equivalents and short-term investments of RMB4.0 billion ($580.8 million). Net operating cash inflow and capital expenditures for the third quarter of 2009 were RMB733.9 million ($107.5 million) and RMB129.6 million ($19.0 million), respectively.

Adjusted EBITDA (non-GAAP), defined in this announcement as earnings before interest, taxes, depreciation, amortization, other non-operating income and share-based compensation expenses, was RMB622.1 million ($91.1 million) for the third quarter of 2009, representing a 36.0% increase from the corresponding period in 2008.

Outlook for Fourth Quarter 2009

Baidu expects moderate year-over-year growth for the fourth quarter of 2009 due to the temporary negative impact anticipated when the Online Marketing Classic Edition is discontinued.

Given the above considerations, Baidu currently expects to generate total revenues in an amount ranging from RMB1,190 million ($174 million) to RMB1,230 million ($180 million) for the fourth quarter of 2009, representing 32% to 36% year-over-year growth. 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 8 PM on October 26, 2009 U.S. Eastern Time (8 AM on October 27, 2009 Beijing/Hong Kong time).

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

US: +1.617.213.8892

UK: +44.207.365.8426

Hong Kong: +852.3002.1672

Passcode for all regions: 90901274

A replay of the conference call may be accessed by phone at the following number until November 3, 2009:

International: +1.617.801.6888

Passcode: 71996707

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

About Baidu

Baidu, 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 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 Select 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," "confident" and similar statements. Among other things, the outlook for the fourth quarter 2009 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, including development of new products and services; our ability to attract and retain users and customers; competition in the Chinese and Japanese language Internet search markets; 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 intellectual property rights; the expected growth of the Chinese language Internet search market and the number of Internet and broadband users in China; Chinese governmental policies relating to the Internet and Internet search providers and general economic conditions in China, Japan and elsewhere. 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 October 26, 2009, 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, particularly share-based compensation expenses, 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 has computed its non-GAAP financial measures using the same consistent method from quarter to quarter since April 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 these non-GAAP financial measures 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 results of operations. 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.

Baidu, Inc.

Condensed Consolidated Balance Sheets

September 30, December 31,

(in RMB thousands) 2009 2008

Unaudited Audited

ASSETS

Current assets:

Cash and cash equivalents 3,418,572 2,362,171

Short-term investments 546,084 301,244

Accounts receivable, net 164,396 92,777

Prepaid expenses and other

current assets 88,372 80,007

Receivables from a shareholder -- 10,697

Deferred tax assets, net 16,726 5,580

Total current assets 4,234,150 2,852,476

Non-current assets:

Fixed assets, net 941,430 789,714

Land use right, net 93,056 94,520

Intangible assets, net 32,106 31,263

Goodwill 63,691 51,082

Investments, net 13,575 12,281

Deferred tax assets, net 27,679 26,537

Other non-current assets 81,972 80,118

Total non-current assets 1,253,509 1,085,515

TOTAL ASSETS 5,487,659 3,937,991

LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:

Accrued expenses and other

liabilities 665,092 423,029

Customers' deposits 494,967 422,526

Deferred revenue 20,675 3,441

Deferred income -- 332

Total current liabilities 1,180,734 849,328

Non-current liabilities:

Long-term payable for business

acquisition 4,150 --

Total non-current liabilities 4,150 --

Total liabilities 1,184,884 849,328

Shareholders' equity

Class A Ordinary Shares, Par value

US$0.00005 per share, 825,000,000

shares authorized, and 25,641,847

shares and 26,083,427 shares issued

and outstanding as at December 31,

2008 and September 30, 2009 11 11

Class B Ordinary Shares, Par value

US$0.00005 per share, 35,400,000

shares authorized, and 8,873,986

shares and 8,604,332 shares issued

and outstanding as at December 31,

2008 and September 30, 2009 4 4

Additional paid-in capital 1,400,790 1,218,356

Accumulated other comprehensive loss (110,695) (109,552)

Retained earnings 3,012,665 1,979,844

Total shareholders' equity 4,302,775 3,088,663

TOTAL LIABILITIES AND SHAREHOLDERS'

EQUITY 5,487,659 3,937,991

Baidu, Inc.

Condensed Consolidated Statements of Income

For the Three Months Ended

(in RMB thousands except for September 30, September 30, June 30,

share, per share information) 2009 2008 2009

Unaudited Unaudited Unaudited

Revenues:

Online marketing services 1,278,192 918,179 1,096,624

Other services 511 946 845

Total revenues 1,278,703 919,125 1,097,469

Operating costs and expenses:

Cost of revenues (note 1, 2) (442,851) (309,342) (398,591)

Selling, general and admini-

strative (note 2) (197,717) (163,247) (180,204)

Research and development (note 2) (116,691) (78,231) (95,853)

Total operating costs and expenses (757,259) (550,820) (674,648)

Operating profit 521,444 368,305 422,821

Other income:

Interest income 6,637 11,375 7,588

Exchange loss, net (1) (5) (1)

Other income, net 13,989 3,009 3,913

Loss from Equity Method

Investments (62) -- --

Total other income 20,563 14,379 11,500

Income before income taxes 542,007 382,684 434,321

Income taxes (49,145) (34,825) (51,061)

Net income 492,862 347,859 383,260

Earnings per share for Class A and

Class B ordinary shares:

Basic 14.23 10.15 11.09

Diluted 14.14 10.00 11.02

Weighted average aggregate number of

Class A and Class B ordinary shares

outstanding:

Basic 34,639,268 34,257,974 34,571,453

Diluted 34,849,020 34,786,353 34,785,181

(1) Costs of revenues are detailed as

follows:

Business tax and surcharges (80,357) (57,288) (67,877)

Traffic acquisition costs (196,229) (108,797) (175,445)

Bandwidth costs (51,194) (48,029) (50,050)

Depreciation costs (63,619) (56,907) (60,106)

Operational costs (49,880) (37,379) (43,472)

Share-based compensation

expenses (1,572) (942) (1,641)

Total cost of revenues (442,851) (309,342) (398,591)

(2) Includes share-based compensation

expenses as follows:

Cost of revenues (1,572) (942) (1,641)

Selling, general and administrative (9,142) (6,933) (10,912)

Research and development (10,539) (9,149) (10,332)

Total share-based compensation

expenses (21,253) (17,024) (22,885)

Reconciliations of non-GAAP results of operations measures to the nearest

comparable GAAP measures (*) (in RMB thousands, unaudited)

Three months ended September 30, 2008

GAAP Adjustment Non-GAAP

Result Results

Operating profit 368,305 17,024 385,329

Three months ended September 30, 2008

GAAP Adjustment Non-GAAP

Result Results

Net income 347,859 17,024 364,883

Three months ended June 30, 2009

GAAP Adjustment Non-GAAP

Result Results

Operating profit 422,821 22,885 445,706

Three months ended June 30, 2009

GAAP Adjustment Non-GAAP

Result Results

Net income 383,260 22,885 406,145

Three months ended September 30, 2009

GAAP Adjustment Non-GAAP

Result Results

Operating profit 521,444 21,253 542,697

Three months ended September 30, 2009

GAAP Adjustment Non-GAAP

Result Results

Net income 492,862 21,253 514,115

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

Reconciliation from net cash provided by operating activities to adjusted

EBITDA(*) (in RMB thousands, unaudited)

Three As a Three As a Three As a

months % of months % of months % of

ended total ended total ended total

September revenues June 30, revenues September revenues

30, 2008 2009 30, 2009

Net cash provided

by operating

activities 482,172 52% 519,052 47% 733,866 57%

Changes in assets

and liabilities,

net of effects of

acquisitions (45,293) -5% (37,741) -3% (140,338) -11%

Income taxes

expenses 34,825 4% 51,061 5% 49,145 4%

Interest income

and other, net (14,379) -1% (11,500) -1% (20,563) -2%

Adjusted EBITDA 457,325 50% 520,872 48% 622,110 48%

(*) Definition of adjusted EBITDA: earnings before interest, taxes,

depreciation, amortization, other non-operating income, and

share-based compensation expenses.