Baidu Announces Fourth Quarter and Fiscal Year 2008 Results

Baidu, Inc.

2009-02-19 05:50 1117

BEIJING, Feb. 18 /PRNewswire-Asia/ -- Baidu, Inc. (Nasdaq: BIDU), the leading Chinese language Internet search provider, today announced its unaudited financial results for the fourth quarter and fiscal year ended December 31, 2008(1).

(LOGO: http://www.newscom.com/cgi-bin/prnh/20081103/BAIDULOGO )

Fourth Quarter and Fiscal Year 2008 Highlights

-- Total revenues in the fourth quarter of 2008 were RMB902.1 million

($132.2 million), a 58.0% increase from the corresponding period in

2007.

-- Total revenues in fiscal year 2008 were RMB3.2 billion ($468.8 million),

an 83.3% increase from 2007.

-- Operating profit in the fourth quarter of 2008 was RMB304.7 million

($44.7 million), a 72.9% increase from the corresponding period in 2007.

-- Operating Profit in fiscal year 2008 was RMB1.1 billion ($160.7

million), a 100.4% increase from 2007.

(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 RMB6.8225 to US$1.00, the effective noon

buying rate as of December 31, 2008 in The City of New York for cable

transfers of RMB as certified for customs purposes by the Federal

Reserve Bank of New York.

Net income in the fourth quarter of 2008 was RMB288.7 million ($42.3 million), a 31.3% increase from the corresponding period in 2007. Diluted earnings per share ("EPS") for the fourth quarter of 2008 was RMB8.31 ($1.22); diluted EPS excluding share-based compensation expenses (non-GAAP) for the fourth quarter of 2008 was RMB8.93 ($1.31). Costs and expenses related to Baidu's Japan operations for the fourth quarter of 2008 were RMB37.0 million ($5.4 million), which reduced diluted EPS by RMB1.06 ($0.16).

Net income in fiscal year 2008 was RMB1.0 billion ($153.6 million), representing a 66.6% increase from 2007. Diluted EPS for 2008 was RMB30.19 ($4.43); diluted EPS excluding share-based compensation expenses (non-GAAP) for 2008 was RMB32.61 ($4.78). Costs and expenses related to Baidu's Japan operations for 2008 were RMB129.3 million ($19.0 million), which reduced diluted EPS by RMB3.72 ($0.55).

The number of active online marketing customers during the fourth quarter was over 197,000, an increase of 1.5% from the previous quarter.

"Having gone through this important quarter, Baidu has become a stronger company with a higher quality customer base, tighter operational controls and more confidence in our ability to overcome challenges," said Robin Li, Baidu's chairman and CEO. "Looking forward, we will continue to execute on the strategies we have put in place to drive traffic and monetization in these difficult economic times. As the leader in this high-growth market, we remain confident in our business model and long-term potential."

Jennifer Li, Baidu's chief financial officer, commented, "Going into 2009, we will continue to focus on growing the top line and taking a disciplined approach to costs while making investments for long term gains, particularly in the areas of user experience, monetization, sales efficiency and branding."

Fourth Quarter 2008 Results

Baidu reported total revenues of RMB902.1 million ($132.2 million) for the fourth quarter of 2008, representing a 58% increase from the corresponding period in 2007.

Online marketing revenues for the fourth quarter of 2008 were RMB901.4 million ($132.1 million), representing a 58.3% increase from the fourth quarter of 2007. Baidu had more than 197,000 active online marketing customers in the fourth quarter of 2008, representing a 1.5% increase from the previous quarter and a 27.1% increase from the corresponding period in 2007. Revenue per online marketing customer for the fourth quarter was approximately RMB4,600 ($674), a sequential decrease of 2.1% and a 24.3% increase from the corresponding period in 2007. The sequential decrease in revenue per customer was primarily due to a portion of customers in the medical and pharmaceutical sector being temporarily removed from paid search results during the quarter. A large portion of these customers have resumed using our services since then.

Traffic acquisition cost (TAC) as a component of cost of revenues was RMB131.4 million ($19.3 million), representing 14.6% of total revenues, as compared to 12.7% in the corresponding period in 2007 and 11.8% in the third quarter of 2008. The increase in TAC as a percentage of total revenues reflects both the growth in our Baidu Union business and also a one-time adjustment, without which TAC for this quarter would have been 13.9% of total revenues.

Bandwidth costs as a component of cost of revenues were RMB49.2 million ($7.2 million), representing 5.5% of total revenues, compared to 6.3% in the corresponding period in 2007. Depreciation costs as a component of cost of revenues were RMB57.9 million ($8.5 million), representing 6.4% of total revenues, compared to 8.2% in the corresponding period in 2007. The decrease in bandwidth and depreciation costs as percentages of total revenues reflects efficiency improvement as well as increased scalability of investment in capital expenditure.

Selling, general and administrative expenses were RMB175.3 million ($25.7 million), representing an increase of 32.6% from the corresponding period in 2007, primarily due to the increase in compensation and marketing expenses.

Research and development expenses were RMB85.5 million ($12.5 million), representing an 83.8% increase from the corresponding period in 2007, primarily due to increased headcount.

Share-based compensation expenses, which were allocated to related operating costs and expense line items, increased in aggregate by 61.8% to RMB21.5 million ($3.2 million) in the fourth quarter of 2008 from RMB13.3 million in the corresponding period in 2007. The increase in share-based compensation expenses primarily reflects an increase in grants to employees.

Operating profit was RMB304.7 million ($44.7 million), representing a 72.9% increase from the corresponding period in 2007. Operating profit excluding share-based compensation expenses (non-GAAP) was RMB326.2 million ($47.8 million) for the fourth quarter of 2008, a 72.1% increase from the corresponding period in 2007.

Income tax expense was RMB41.8 million ($6.1 million), compared to an income tax benefit of RMB18.6 million for the corresponding period in 2007. The effective tax rate increased from 9.1% in the third quarter to 12.7% in the fourth quarter of 2008, primarily due to catch-up of the applicable tax rate for one of our subsidiaries in China in accordance with certain PRC tax interpretations issued in the fourth quarter. The effective tax rate for the full year 2008 was 10%.

Net income was RMB288.7 million ($42.3 million), representing a 31.3% increase from the corresponding period in 2007. Basic and diluted EPS for the fourth quarter of 2008 amounted to RMB8.39 ($1.23) and RMB8.31 ($1.22), respectively.

Net income excluding share-based compensation expenses (non-GAAP) was RMB310.2 million ($45.5 million), a 33% increase from the corresponding period in 2007. Basic and diluted EPS excluding share-based compensation expenses (non-GAAP) for the fourth quarter of 2008 were RMB9.02 ($1.32) and RMB8.93 ($1.31), respectively.

As of December 31, 2008, the Company had cash, cash equivalents and

short-term investments of RMB2.7 billion ($390.4 million). Net operating cash inflow and capital expenditures for the fourth quarter of 2008 were RMB482.1 million ($70.7 million) and RMB61.4 million ($9.0 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 RMB398.9 million ($58.5 million) for the fourth quarter of 2008, representing a 61.5% increase from the corresponding period in 2007.

Fiscal Year 2008 Results

Total revenues in 2008 were RMB3.2 billion ($468.8 million), representing an 83.3% increase from 2007.

Online marketing revenues in 2008 were RMB3.2 billion ($468.2 million), representing an 83.5% increase from 2007. The growth was driven by increases in both the number of active online marketing customers and revenue per customer. Baidu had more than 284,000 active online marketing customers in 2008, representing a 32.7% increase from 2007. Revenue per online marketing customer for 2008 was RMB11,200 ($1,642), an increase of 38.3% from 2007.

Traffic acquisition costs in 2008 were RMB418.5 million ($61.3 million), representing 13.1% of total revenues, compared to 11.7% in 2007. The increase in TAC as a percentage of total revenues reflects the continued growth of revenue contribution from Baidu Union members.

Selling, general and administrative expenses in 2008 were RMB659.8 million ($96.7 million), representing an increase of 60.5% from the previous year, mainly due to the increase in compensation and marketing expenses.

Research and development expenses totaled RMB286.3 million ($42.0 million) in 2008, representing a 103.4% increase from 2007 primarily due to an increase in research and development staff.

Operating profit in 2008 was RMB1.1 billion ($160.8 million), a 100.4% increase from 2007. Operating profit excluding share-based compensation expenses (non-GAAP) in 2008 was RMB1.2 billion ($173.1 million), representing a 101.1% increase from 2007.

Net income in 2008 was RMB1.0 billion ($153.6 million), representing a 66.6% increase from 2007. Basic and diluted EPS for 2008 amounted to RMB30.63 ($4.49) and RMB30.19 ($4.43), respectively.

Net income excluding share-based compensation expenses (non-GAAP) in 2008 was RMB1.1 billion ($165.9 million), reflecting a 69.3% increase from 2007. Basic and diluted EPS excluding share-based compensation expenses (non-GAAP) in 2008 were RMB33.09 ($4.85) and RMB32.61 ($4.78), respectively.

Full year net operating cash inflow and capital expenditures were RMB1.6 billion ($236.9 million) and RMB417.9 million ($61.3 million), respectively.

Adjusted EBITDA (non-GAAP) was RMB1.5 billion ($214.2 million) in 2008, representing a 90.3% increase from 2007.

Outlook for First Quarter 2009

We expect moderate year-over-year growth for the first quarter of 2009 due to two factors. First, we anticipate a portion of our online marketing customers may scale back on marketing spending given the current market environment. Second, we expect that the removal of certain sponsored links during the fourth quarter of 2008 resulted in a net loss of around 5% of revenue, impacting the first quarter.

Given the above considerations, Baidu currently expects to generate total revenues in an amount ranging from RMB780 million ($114 million) to RMB800 million ($117 million) for the first quarter of 2009, representing a 36% to 39% increase from the corresponding period in 2008. 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 February 18, 2009 U.S. Eastern Standard Time (9 AM on February 19, 2009 Beijing/Hong Kong time).

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

US: +1-617-614-2704

UK: +44-207-365-8426

Hong Kong: +852-3002-1672

Passcode for all regions: 55283502

A replay of the conference call may be accessed by phone at the following number until 10 PM on February 25, 2009 U.S. Eastern Standard Time.

International: +1-617-801-6888

Passcode: 72328702

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 individual 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 first 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, results of operations and financial condition; our ability to attract and retain users and customers; competition in the Chinese language Internet search market; 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 copyright and other 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 content 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 February 18, 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 and expenditures 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 non-GAAP operating profit excluding share-based compensation expenses, net income excluding share-based compensation expenses, and basic and diluted EPS excluding share-based compensation expenses 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 business. 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

December September December

(in RMB thousands) 31, 2008 30, 2008 31, 2007

Unaudited Unaudited Audited

ASSETS

Current assets:

Cash and cash equivalents 2,362,171 2,088,554 1,350,600

Short-term investments 301,244 206,360 242,037

Accounts receivable, net 92,777 100,193 64,274

Prepaid expenses and other current

assets 90,704 109,597 65,996

Deferred tax assets, net 5,580 2,587 2,587

Total current assets 2,852,476 2,507,291 1,725,494

Non-current assets:

Fixed assets, net 789,714 748,582 678,886

Land use right, net 94,520 95,008 96,472

Intangible assets, net 31,263 33,814 40,460

Goodwill 51,082 51,081 51,093

Investments, net 12,281 20,197 15,439

Deferred tax assets, net 26,537 17,060 15,716

Other non-current assets 80,118 84,394 32,348

Total non-current assets 1,085,515 1,050,136 930,414

TOTAL ASSETS 3,937,991 3,557,427 2,655,908

LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:

Accrued expenses and other

liabilities 423,029 371,745 359,310

Customers' deposits 422,526 357,884 257,577

Deferred revenue 3,441 9,149 11,832

Deferred income 332 633 2,485

Total current liabilities 849,328 739,411 631,204

Non-current liabilities:

Long-term payable -- -- 3,000

Deferred income -- -- 332

Total non-current liabilities -- -- 3,332

Total liabilities 849,328 739,411 634,536

Shareholders' equity

Class A Ordinary Shares, Par value

US$0.00005 per share, 825,000,000

shares authorized, and 25,136,147

shares and 25,641,847 shares issued

and outstanding as at December 31,

2007 and December 31, 2008 11 11 10

Class B Ordinary Shares, Par value

US$0.00005 per share, 35,400,000

shares authorized, and 8,996,842

shares and 8,873,986 shares issued

and outstanding as at December 31,

2007 and December 31, 2008 4 4 4

Additional paid-in capital 1,218,356 1,254,593 1,171,575

Accumulated other comprehensive loss (109,552) (127,770) (81,953)

Retained earnings 1,979,844 1,691,178 931,736

Total shareholders' equity 3,088,663 2,818,016 2,021,372

TOTAL LIABILITIES AND SHAREHOLDERS'

EQUITY 3,937,991 3,557,427 2,655,908

Baidu, Inc.

Condensed Consolidated Statements of Income

For the Three Months Ended

(in RMB thousands except for share, December December September

per share information) 31, 2008 31, 2007 30, 2008

Unaudited Unaudited Unaudited

Revenues:

Online marketing services 901,389 569,588 918,179

Other services 731 1,474 946

Total revenues 902,120 571,062 919,125

Operating costs and expenses:

Cost of revenues (note 1, 2) (336,543) (216,012) (309,342)

Selling, general and administrative

(note 2) (175,313) (132,230) (163,247)

Research and development (note 2) (85,541) (46,535) (78,231)

Total operating costs and expenses (597,397) (394,777) (550,820)

Operating profit 304,723 176,285 368,305

Other income:

Interest income 15,320 12,846 11,375

Exchange loss, net (2) (1,898) (5)

Other income, net 10,451 14,044 3,009

Total other income 25,769 24,992 14,379

Income before income taxes 330,492 201,277 382,684

Income taxes (41,826) 18,561 (34,825)

Net income 288,666 219,838 347,859

Earnings per share for Class A and

Class B ordinary shares:

Basic 8.39 6.45 10.15

Diluted 8.31 6.32 10.00

Weighted average aggregate number of

Class A and Class B ordinary shares

outstanding:

Basic 34,392,036 34,087,848 34,257,974

Diluted 34,740,057 34,797,946 34,786,353

(1) Cost of revenues are detailed as

follows:

Business tax and surcharges (58,215) (36,614) (57,288)

Traffic acquisition costs (131,352) (72,299) (108,797)

Bandwidth costs (49,245) (35,857) (48,029)

Depreciation costs (57,908) (46,662) (56,907)

Operational costs (38,317) (23,820) (37,379)

Share-based compensation expenses (1,506) (760) (942)

Total cost of revenues (336,543) (216,012) (309,342)

(2) Includes share-based compensation

expenses as follows:

Cost of revenues (1,506) (760) (942)

Selling, general and administrative (10,220) (5,539) (6,933)

Research and development (9,765) (6,986) (9,149)

Total share-based compensation

expenses (21,491) (13,285) (17,024)

Twelve Months Ended

(in RMB thousands except for share, December 31, December 31,

per share information) 2008 2007

Unaudited Audited

Revenues:

Online marketing services 3,194,461 1,741,021

Other services 3,791 3,404

Total revenues 3,198,252 1,744,425

Operating costs and expenses:

Cost of revenues (note 1, 2) (1,155,457) (645,406)

Selling, general and administrative

(note 2) (659,804) (411,163)

Research and development (note 2) (286,256) (140,702)

Total operating costs and expenses (2,101,517) (1,197,271)

Operating profit 1,096,735 547,154

Other income:

Interest income 47,677 49,009

Exchange loss, net (1,920) (2,425)

Other income, net 21,687 22,478

Total other income 67,444 69,062

Income before income taxes 1,164,179 616,216

Income taxes (116,071) 12,752

Net income 1,048,108 628,968

Earnings per share for Class A and

Class B ordinary shares:

Basic 30.63 18.57

Diluted 30.19 18.11

Weighted average aggregate number of

Class A and Class B ordinary shares

outstanding:

Basic 34,217,443 33,872,611

Diluted 34,717,489 34,724,365

(1) Cost of revenues are detailed as

follows:

Business tax and surcharges (200,085) (108,783)

Traffic acquisition costs (418,474) (204,693)

Bandwidth costs (178,651) (117,554)

Depreciation costs (225,799) (147,115)

Operational costs (127,906) (65,544)

Share-based compensation expenses (4,542) (1,717)

Total cost of revenues (1,155,457) (645,406)

(2) Includes share-based

compensation expenses as follows:

Cost of revenues (4,542) (1,717)

Selling, general and administrative (41,651) (17,371)

Research and development (37,784) (20,760)

Total share-based compensation

expenses (83,977) (39,848)

Reconciliations of non-GAAP Results of Operations Measures to the Nearest

Comparable GAAP Measures (*) (in RMB thousands, unaudited)

Three months ended December 31, 2007

Non-GAAP

GAAP Result Adjustment Results

Operating profit 176,285 13,285 189,570

Three months ended December 31, 2007