This summary is based on the second quarter fiscal 2008 earnings call conducted by Baidu.com Inc. (BIDU) on 23 July, 2008.
Management:
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Senior Manager, Investor Relations: Helen Zhang
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Chairman of the Board, Chief Executive Officer: Robin Li
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Chief Financial Officer: Jennifer Li
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Vice President of Business Operations: Haoyu Shen
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Chief Operating Officer: Peng Ye
Key Investors Issues
- Net income was RMB265 million or RMB7.62 a share, an 87% increase from RM141.9 million or RM4.19 a share in 2007.
- Total revenues of RMB803 million, were up 100% from RM401 million in the prior year.
Second Quarter Highlights
Despite some negative effect from the earthquake, the firm was able to generate total revenues of RMB803 million, up 100% from RM401 million in the prior year.
- The firm increased the number of active online customers by approximately 41% year over year and increased revenue per active online marketing customer by 42% year over year.
- Traffic acquisition cost as a component of cost of revenue were RMB102 million, or 13% of total revenue, up from 11% a year ago.
- The increase over the year-ago level reflects continued growth of the revenue contribution from Baidu union, while the sequential minor decrease reflects normal fluctuations.
- Cost of revenue excluding TAC was RMB179 million, representing 22% of total revenue, compared to 25% in the corresponding period in 2007.
- The decrease is mainly due to a decrease of bandwidth cost, depreciation, and operation costs as a percent of revenue, reflecting improved usage of infrastructure and operational efficiencies.
Total operating expenses were RMB245 million, a 95% increase from a year ago.
- Specifically, SG&A expenses increased 86% over a year ago due to the expansion of the direct sales force and increase in customer service staff to serve growing customer pool.
- R&D expenses increased 124%, mainly due to an expansion in headcount.
- Net income was RMB265 million or RMB7.62 a share, an 87% increase year over year from RM141.9 million or RM4.19 a share in the prior year due to revenue growth.
- Cash equivalents, and short-term investments were RMB1.9 billion, or $280 million and operating cash flow was RMB403 million, a 46% increase year over year.
- Capital expenditures was around RMB113 million, with a portion of the capital expenditure associated with the construction of Baidu''s new campus facility.
Strategic Thoughts:
- Since Baidu''s inception, small and medium sized enterprises have been the most loyal customers.
- Across China, those businesses were the first to understand and appreciate the value of paid search and over the past few quarters, more large enterprises have began to realize the value on paid search marketing.
- The entry of large enterprises into the customer mix has created a considerable pool of customers who can enjoy Baidu''s bundled product.
A new development this quarter has been the launch of My Marketing Center, following requests from customers for tools that will help them make better marketing decisions.
- My Marketing Center is a customized online platform that integrates industry information, market trends, and business and industry news.
- Every online marketing customer, regardless of size and spending, is given access to this platform.
- My Market Center combines Baidu''s vast resources in online information to enable customers to improve their marketing strategies.
- Traffic to the firm’s video search portal has been growing rapidly.
- Hao123 is an index of most popular Chinese websites that allows users to click through navigation to find desired information.
- The C2C platform is moving along as planned and the firm expects a formal launch before the end of the year.
Third Quarter 2008 Outlook:
- The firm expects total revenues to be between RMB905 million and RMB935 million, which would represent year-over-year growth of 82% to 88%, and quarter-over-quarter growth of 13% to 16%.
Key questions and answers from the second quarter earnings call conducted by Baidu.com Inc. (BIDU) on July 23, 2008.
Gene Munster (Piper Jaffray):
Can you walk through a little bit more in detail of how you calculate or anticipate headwind from the Olympics?
Robin Li: We have never experienced an Olympics hosted in China, so there are some uncertainties. In the long run, it’s going to be a huge plus to Baidu because for every major event, lots of people talk about information they get from online, or specifically from Baidu. So that drives more people to come to Baidu in the future.
During the game time, it will probably affect about two months period of time, starting from July 20th to September 20th, where Beijing has traffic control and even before that time, some of the factories in Beijing and the surrounding province will shut down and some customers do not feel the need to do online marketing during that time.
