BIDU

Baidu, Inc. (BIDU)

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Baidu Inc. (BIDU)

Q3 2010 Earnings Call

October 22, 2010 8:00 am ET

Executives

Victor Tseng - Director, IR

Robin Li - CEO

Jennifer Li - CFO

Haoyu Shen - SVP, Business Operations

Analysts

James Mitchell - Goldman Sachs

Andrey Glukhov - Brean Murray

Dick Wei - JPMorgan

Alicia Yap - Citigroup

Jin Yoon -Nomura

Gene Munster - Piper Jaffray

Richard Ji - Morgan Stanley

Eddie Leung - Bank of America-Merrill Lynch

Ming Zhao - SIG

Aaron Kessler - ThinkEquity

Eric Wen - Mirae Asset

Stephen Ju - RBC Capital Markets

Wendy Huang - Royal Bank of Scotland

Paul Wuh - Samsung Securities

Alex Yao - Deutsche Bank

Jiong Shao - Macquarie

Jake Li - Guotai Junan

Dick Wei - JPMorgan

Presentation

Operator

Hello and thank you for standing by for Baidu's third quarter 2010 earnings conference call. (Operator Instructions)

I would now like to turn the meeting over to your host for today's conference, Victor Tseng, Baidu's Investor Relations Director.

Victor Tseng

Hello, everyone, and welcome to Baidu's third quarter 2010 earnings conference call. We distributed Baidu's third quarter 2010 earnings release earlier today. You can find a copy of the press release on the company's website as well as on newswire services.

Today, you will hear from Robin Li, Baidu's Chief Executive Officer; and Jennifer Li, Baidu's Chief Financial Officer. After their prepared remarks, Robin and Jennifer will be joined by Haoyu Shen, Senior Vice President of Business Operations, to answer your questions.

Before we carry on, please note that the discussion today will contain forward-looking statements made under the Safe Harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from our current expectations.

Potential risks and uncertainties include, but are not limited to those outlined in our public filings with the SEC, including our annual report on Form 20-F. Baidu does not undertake any obligation to update any forward-looking statements except as required under applicable law.

Our earnings press release on this call includes discussions of certain unaudited non-GAAP financial measures. Our press release contains a reconciliation of the unaudited non-GAAP measures to the unaudited most directly comparable GAAP measures and is available on our IR website at ir.baidu.com.

As a reminder, this conference call is being recorded. In addition, a webcast of this conference call will be available on Baidu's corporate website.

I will now turn the call over to Baidu's CEO, Robin Li.

Robin Li

Hello, everyone, and welcome to today's call. The team worked hard and delivered another outstanding quarter of results.

During the third quarter, both ARPU and customer base increased healthily, which directly contributed to the robust top-line increase.

With our Phoenix Nest platform fully implemented, we continue to improve monetization and provide new value-added tools to help customers optimize account management and improve ROI. As we focus on building out our sales force and engaging with customers more deeply and comprehensively, both larger companies and SMEs are becoming more sophisticated online marketers and spending more with us.

By driving awareness and further enhancing functionality of Phoenix Nest platform, we are confident in seeing further growth and improvements here.

During the quarter, we also made significant progress on a number of box computing related initiatives; in particular, in September at baidu.org we introduced the Baidu open application platform. This idea grew out of our recognition that over 30% of user queries were for applications and not just information.

On this platform, we can intelligently embed not only useful information, but also a wide range of applications such as web-based games, ebooks and popular software that are directly and dynamically accessible in our search results. We are the first search engine company to integrate these functions. We are already seeing strong developer interest and have amassed hundreds of apps, including virus protection software, photo editors, games, and more.

Box computing is technology-intensive, involving Natural Language Processing, machine learning, high performance computing and smart ranking of premium content and the applications. Our box computing initiative, currently including both Baidu open data platform, also known as Aladdin, and Baidu open application platform are the cornerstones of our vision to revolutionize user experience. We believe this will further solidify Baidu's position as the center of China's internet.

Beyond improving our overall user experience and core marketing platform, we are pushing forward on several other fronts. We are putting increasing emphasis on our contextual ads. In this quarter, we rolled out an updated version to promote better relevance and targeting. We are hopeful this area can become a meaningful growth contributor in the future.

On the mobile front, we are seeing strong momentum in mobile carrier growth, and we have many initiatives underway that will leverage our leadership into this increasingly important and growing market. Baidu has been a key enabler and beneficiary of China's e-commerce industry.

In Q3, the number of online retail companies advertising this ad more than doubled year-over-year representing one of our highest growth areas. Our joint venture with Rakuten is one of the many initiatives underway to foster growth of the e-commerce ecosystem in China.

Looking to the Union business, our new revenue sharing policy has been effective in enhancing unit traffic quality and controlling traffic acquisition costs. We are encouraged by the faster growth in our organic traffic versus union. In the near term, we expect to see TAC stabilizing with moderate fluctuations caused by market conditions and union partner mix.

Clearly, the opportunities ahead of us to build on our core search leadership and take the lead in strategic emerging benefits are enormous. One of the keys to this is hiring and retaining great talent. We've been very successful in the past quarter adding 200 sales staff and 700 engineers. We have continued to compete fiercely for top talent wherever it may be.

Read the rest of this transcript for free on seekingalpha.com