By any measure, Baidu (BIDU), the Chinese search engine company had a spectacular quarter. For the three months that ended December 31,the firm earned 219.8 million yuan ($30.1 million), or 6.32 yuan (87 cents) per share. In the year-ago quarter, Baidu earned 122.8 million yuan. That is a growth rate of 79%.
But, the company guide below what Wall St. expected, an indication that the white-hot growth at Baidu may be slowing. For the current quarter, Baidu expects revenue of 533 million yuan ($73.1 million) to 548 million yuan ($75.1 million). In the first quarter of 2007, the company’s sales totaled 275.6 million yuan.The number seems impressive but analysts wanted more.
The fact of the matter is that Baidu now faces two factors which could drag it momentum down. The first is a slowing Chinese economy. Even the central government admits that 2008 could show a slower GDP expansion than the country has had in recent years. If the US economy goes in recession and imports from China fall, the growth rate there could decelerate very quickly.
Baidu also has to contend with Google (GOOG). The US search company is a distant No.2 in search in China. Since it will soon be the top market in terms of people using the internet, Google cannot afford to be so far behind.
Baidu’s shares are down from over $429 late last year to $261. They belong where they trade now.
Douglas A. McIntyre
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