This is a summary of the third quarter fiscal 2008 earnings call conducted by Baidu.com, Inc. (BIDU) on October 22, 2008.
Management:
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Chairman of the Board, CEO: Robin Li
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Chief Financial Officer: Jennifer Li
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VP of Business Operations: Haoyu Shen
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Chief Operating Officer: Peng Ye
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Senior Manager, IR: Linda Sun
Key Investor Issues:
- Net income in the third quarter increased 91.4 % from a year ago to RMB347.9 million (US$51.2 million).
- Total revenues increased 85.1% from a year ago to RMB919.1 million (US$135.4 million).
- The number of active online marketing customers grew to over 194,000, up 7.2% from the previous quarter.
- Baidu expects to generate total revenues ranging from RMB1,025 million (US$151 million) to RMB1,055 million (US$155 million) for the fourth quarter of 2008, representing an 80% to 85% increase from the corresponding period in 2007 and a 12% to 15% increase from the third quarter of 2008.
Third Quarter Highlights:
- The company generated total revenues of RMB919 million, amid the expected changes in user behavior and user spending during the Olympic Games.
- The results were up 85% from the year-ago period.
- Baidu increased the number of active online customers by approximately 36% year over year and increased revenue per active online marketing customer by 34% year over year.
Adjusted EBITDA, a non-GAAP measure, was RMB457 million, up 105% from the year-ago period.
Operating profit was RMB368 million, up 119% from the corresponding period in ’07.
Traffic acquisition costs, a component of cost of revenue in the third quarter were RMB109 million, or 12% of total revenue, a small decrease from the second quarter ‘08 primarily reflecting the update of business relationships with some new members.
Cost of revenue excluding TAC were RMB201 million, representing 22% of total revenue, compared to 24% in the corresponding period of ’07.
The decrease is mainly due to decreases in bandwidth and depreciation costs as a percent of revenue, reflecting improved usage of infrastructure.
In addition, during the Olympic period, the company delayed equipment purchases, resulting in lower depreciation for the quarter. Cost of revenue excluding TAC before share-based compensation were RMB200 million.
Total operating expenses were RMB551 million, a 68% increase from the year-ago period.
SG&A increased 48% over the year-ago period due to expansion of the direct sales force and increases in the customer service staff to serve the company’s growing customer pool.
R&D increased 109% mainly due to an expansion in headcount. Excluding share-based compensation expenses, SG&A rose 42% year over year and R&D increased 113% year over year.
Baidu Japan incurred operating costs and expenses in the third quarter close to RMB33 million.
- The company expects the fourth quarter expense to approximately the third quarter level, likely slightly higher.
- Income tax expense was approximately RMB35 million.
- The effective tax rate for the quarter was 9.1%.
- Year-to-date, the company has had an effective tax rate of 8.9%.
Net income for the quarter was RMB348 million, a 91% year over year increase.
- Net income excluding share-based compensation expenses, a non-GAAP measure, was RMB365 million, a 95% increase from a year ago.
- Basic and diluted EPS excluding share-based compensation expenses, both non-GAAP measures, were RMB10.65 and RMB10.49, translating roughly to $1.57 and $1.54 respectively.
The company ended the third quarter of 2008 with cash, cash equivalents, and short-term investment of RMB2.3 billion, or $338 million.
- Operating cash flow for the third quarter was RMB482 million, representing a year-over-year increase of 89%.
- Capital expenditure on a cash basis for the third quarter was around RMB85 million.
A portion of the capital expenditure was associated with the construction of Baidu''s new campus facility. Compared to prior quarters, CapEx is lower. This is due to greater optimization of existing equipment, as well as slowed equipment purchases and campus construction during the Olympic period.
