China's Baidu forecasts return to sales growth

The top Chinese search engine reported a second quarterly drop in sales

Top Chinese search engine Baidu forecast a recovery in its ad sales this spring as it reported a second consecutive decline in quarterly revenue on Tuesday.

Baidu's sales in the January to March quarter fell after it removed paid ad listings from unlicensed medical and pharmaceutical vendors at the end of 2008. They were pulled in response to public uproar after China's state-owned broadcaster revealed them amid a nationwide poisoning scandal over melamine appearing in dairy products.

Those removals combined with the weak economy and a slowdown during the week-long Chinese New Year holiday to reduce revenue, Baidu said in a statement.

Baidu will continue to monitor and remove ad customers as it sees necessary, though the round of removals started last year are "to a large extent" completed, Jennifer Li, Baidu's CFO, said in a conference call on the earnings.

Baidu's revenue in the first quarter was 810.7 million yuan (US$118.8 million), a rise of 41 percent from a year earlier but a fall from sales of 902.1 million yuan in the final quarter of last year, Baidu said. The revenue figure beat Baidu's own forecast for the quarter.

The firm expects a return to growth in the second quarter with sales of as much as 1.1 billion yuan as it continues to increase spending on marketing, Li said.

Baidu's shares, up over 75 percent this year, rose 3.4 percent to $232.60 in after-hours trading on the Nasdaq Stock Exchange. The firm announced its results after the market closed on Monday in the U.S.

Baidu reported a net profit of 181.1 million yuan, up 23.5 percent from a year earlier but down from 288.7 million yuan in the previous quarter.

Baidu expects the "Phoenix Nest" ad system it launched this month to boost long-term revenue despite an initial negative effect on sales, Robin Li, Baidu's CEO, said on the call. Ad providers who upgrade to the new system will gain more keyword options and better monitoring of their ad results, he said. The system will also improve keyword matching for search users.

Baidu this month also launched what is billed as a search tool for the "hidden Web." The platform, called Aladdin, lets users give Baidu descriptions of unstructured items like tables or charts for inclusion in search results.

Baidu also hopes to work with China's carriers on mobile search, Robin Li said. The country's major carriers plan to expand mobile services as they roll out next-generation networks this year.

(IDG, the parent company of IDG News Service, is an investor in Baidu.)

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