Google (NASDAQ: GOOG) may not have been gone from mainland China for long, but Baidu’s earnings showed why the American search company never had much of a chance to be a big player in the People’s Republic. Baidu trades near its 52-week high at $621. Its market cap is $22 billion, about the same as the much larger Yahoo! (NASDAQ: YHOO). Phenomenal growth will buy that kind of premium.

Baidu’s revenue in the first quarter of 2010 was $189.6 million, a 59% increase from the same period in 2009. Net income in the first quarter of 2010 was $70.4 million, a 165% increase from the same quarter a year ago. The numbers are not large by the standards of US search properties, but Baidu is now estimated to have 70% of domestic share in the country with the world’s largest internet population which is approaching 400 million people.

Baidu expects it growth rate to continue, as least short-term. The firm currently expects to post revenue in an amount ranging $268 million to $274 million for the second quarter of 2010, representing a 67% to 70% year-over-year increase.

Baidu faces one potentially significant barrier. Because its revenue is relatively small that raises the question about whether search revenue in China will ever approach that in the US .It may be the Chinese’s internet users are willing to looks at search results but do not click on the text ads next to them in any real number. That could be because there are other internet properties in China which are frequently used to find good and services. It could also mean that, in a nation were there is no internet privacy, people are reluctant to show their interests or reveal their behavior because it could be tracked by the government

Baidu may be small and growing quickly, but the search business in China may never be a big one.

Douglas A. McIntyre

Sponsor: 5 best investments for 2010 – The next nine months represent a bold new era for investors.

Thank you for reading! Have some feedback for us?
Contact the 24/7 Wall St. editorial team.