Olympics equal gold for Baidu Q2

Advertising could slow during Games

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SHANGHAI -- Baidu.com, China's top search engine, posted an 87% surge in quarterly profits Thursday, boosted by Internet traffic growth ahead of the Beijing Olympics.

Beijing-based Baidu, which has nearly 65% of the Chinese market, posted a second-quarter profit of 265 million yuan ($38.6 million) for the three months ending June 30, compared with 141.9 million yuan a year earlier.

"In the long term, Baidu will benefit from the Olympic Games as people will use Baidu.com more frequently to search Olympics-related news and information," Helen Zhang, a Baidu spokeswoman told The Hollywood Reporter.

However, Zhang said, "In the short term, especially during the Games, some new rules, such as the traffic rules, will bring negative effect for our advertising revenue."

According to Zhang, restrictions on automobile traffic, social events and construction have limited the commercial activities of many of Baidu's potential advertisers, who, she said, will decrease their buys on Baidu accordingly.

Revenue doubled to 802.6 million yuan ($117 million) in the quarter, compared with 401.3 million yuan a year earlier.

Baidu dominated China's Web search market in the second quarter, with market share of nearly 64.4%, according to Beijing-based research firm Analysis International, which put Google's market share at about 25% and Yahoo China's at about 8% of the 1.3 billion yuan ($190.6 million) Chinese market.

Analysis says that growth in China's Internet market will slow until 2010, but still keep growing at more than 30% annually -- hitting an estimated 137.5 billion yuan by 2010, with 600 million Web users.

CLSA analyst Elinor Leung said in a research note that while Baidu is not a direct beneficiary of the Olympics, it will benefit from higher Internet usage during and after the event and is likely to double its revenue this year.

The company forecast revenue in the current quarter in a range between $905 million yuan ($132 million) and $935 million yuan ($136 million), representing a rise of 82%-88% from a year earlier. Analysts, on average, are forecasting third-quarter revenue of $135.76 million.

Baidu's Nasdaq-listed stock, which has risen almost 31% in the quarter, closed down 1.25% at $288.70 on Wednesday before the results were announced. In extended trading, shares rose 11% to $319.77.

Reuters contributed to this report.