China’s largest search company, Baidu (NASDAQ: BIDU,) released its first quarter 2011 earnings. The firm’s growth rate is impressive, but its total revenue is not.

For the period which ended March 31. revenue was up 88% to $372 million. Net income grew 123% to $164 million.  Baidu does not appear to have aggressively increased personnel costs the way that Google (NASDAQ: GOOG) has done.

For the sake of contrast, Yahoo!’s (NASDAQ: YHOO) quarterly revenue is about $1.6 billion. It can be granted that the number has not grown recently. Google’s quarterly revenue is more than $8 billion.

The Baidu figures create a puzzle because they are so modest compared to China’s internet population  which is about 500 million and has grown 20% per year recently. The number should pass that of total people in the US soon.

Baidu’s revenue would be understandable if it had any real competition, but is has nearly 80% of the market. Google is a very distant second. Baidu has the field to itself.

It is hard to account for Baidu’s size. The major reason individuals in the People’s Republic do not use search may be due to a concern that the central government tracks much of what happens online. An internet search may be a sign of behavior which the government could question. A series of related searches could draw even more government scrutiny. China still monitors and controls internet activity at an unprecedented level.

The other reason Baidu might have modest sales is that Chinese may not use search the way that people in the US and Europe do. They may have other means of gathering information either through the large online portals in the country or through book marked sites that people find particularly useful. It would be a mistake to believe that all cultures and countries have populations which use the internet identically to the way it is used in the US.

Baidu’s revenue may remain modest. The company could be in a position in which it cannot justify its market cap, which is $53 billion compared to Google’s $172 billion. Based on revenue, the Baidu number would seem out-of-place.

Investors may put money into Baidu shares because they think the company is China’s Google. That only matters if the Chinese use search the same way Americans do.

Douglas A. McIntyre

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