Baidu should see blowout quarter

Baidu will report its earnings after the market close on Feb. 21, US time(Feb. 22 morning time in Beijing).

Wallstreet is predicting $12.7 million in revenue and 8 cents in earnings for this quarter.

We predict that Baidu will report an excellent quarter with revenue around $14 -15 million and earnings of around 10 to 12 cents. (admitted we are more cautious now after Google's less stellar quarter than Wallstreet expectations)

There are several factors contributed to Baidu's financial strength:

1. Continue to gain market share in China
2. Strength in MP3, image search, Post(bulletin board) service
3. Successful new service of Zhidao(Baidu Knows) service
4. Increase sponsored placement in popular news service and Post service

There is also increased awareness of search ranking service, thanks to promotional activities of many of Baidu's competitors.

Going forward, Baidu faces the same old challenge from it's major rival, Google. Recently, Google has decided to remove its "do no evil" cover and started "censored" Google.cn. This decision will further level the playing field between these two players.

Due to the nascent market and it's gigantic size, we think Baidu will continue to do super in near future.

Longer term, Baidu must address the "Chinese only" problem. Baidu's CEO has stated that Baidu's "Chinese only" index is Baidu's advantage in the way that it is more focused and easier to update.

From CNNIC and iResearch's published data, we can see Google's usage is often associated with higher income in China. We think that underneath the statistics, it is more of a reflection of the English level of the internet users. Since higher English level often associates with higher income level.

With the 2008 Beijing Olympics approaching, Robin Li will have to think hard on whether to boost Baidu's index to include all web pages besides Chinese ones. The government is promoting English to make almost every citizen in Beijing to speak at least some English. Being left as a Chinese specialty search engine will limit Baidu's future growth significantly and also leaves the door wide open for it's users to move on to Google.

Other events in the quarter: Baidu has bought a large parcel of land in Shangdi (which is in a high tech park not far from its current rented headquarter) to build a new headquarter with capacity to host number of employees twice as many as what Baidu currently have in it's headquarter.

Baidu's webcast will be posted here as soon as it's available.