beyondbrics

What China slowdown? Baidu, the country’s top search engine, has taken full advantage of Google’s partial retreat from China and reported impressive results in the third quarter that came in ahead of analyst expectations.

Total revenues, at Rmb4.18bn (US$655m) are up 22 per cent compared to the last quarter, and 85 per cent from a year ago. Combine that with a 57 per cent operating margin, and it’s pretty clear that Baidu sits squarely upon a very attractive piece of the Chinese internet market.

Baidu’s results also show that, despite all the hand-wringing about a credit squeeze on small to medium-sized businesses in China, and dark clouds over export growth, the Chinese economy – or at least its advertising spending – remains fairly resilient.

But it is not all just down to macro-economic factors. As Morgan Stanley analyst Richard Ji notes, Baidu has “been focusing more on a small number of large customers, while some SME customers have cut their ad spending, due to macro overhangs.”

The search company has also cemented its dominant position in the search sales market, partly helped by Google’s partial retreat from China after a dispute over censorship with the government.

In the third quarter, Google’s share in China fell 1.7 percentage points to 17.2 per cent, compared to a 2.3 per cent gain for Baidu, which boosted its market share to 78.2 per cent, according to market research firm Analysys International.

Baidu has, in fact, become so dominant in search in China that it came under attack from CCTV, the state broadcaster, in August for being a “monopolist”.

But Robin Li, Baidu chairman said there was still plenty of room to grow. “China’s search industry is still in its early stages, and as the clear industry leader we see enormous room for continuing growth as users and online marketing customers become increasingly sophisticated,” he said.

With its recent acquisition of online travel site Qunar and the launch of its Baidu Yi software platform for mobile phones, Baidu certainly has ideas for where it could grow next. The question though is whether it could translate its success in its core search business to those new ventures.

Related reading:
Baidu: radical departure from Google strategy, Lex
Google’s China market share: declining, beyondbrics
China: Google’s loss is Baidu’s gain, beyondbrics
China: Baidu’s gain tests Google, beyondbrics