Baidu.com Inc. (Baidu) reported strong results with higher-than-expected operating performance based on lower cost and operating expenses. Based on renewed sentiments over an anticipated recovery in the global economy, Management gave strong revenue guidance for 3Q 09. Taking into account an anticipated recovery in the Chinese economy by 2H 10 and Baidu's leading position in the online search space in China, we are optimistic regarding the company's…

Baidu’s service offerings and marketing campaigns to strengthen the customer base led to strong y-o-y growth in the number of active customers and ARPU. In addition, we expect Baidu’s ongoing marketing campaigns and launch of a new auction system, Phoenix Nest, to improve monetization capabilities and support revenue growth in the current challenging market conditions. The company’s commercial launch of a Japanese search engine from FY 2009 and the launch…

Removal of unlicensed paid search listings, coupled with slowdown in Chinese economic growth impacting slower consumer demand and corporate advertising spending, is expected to negatively impact Baidu’s performance over the near to medium term. We expect the economic downturn to significantly impact the advertising budgets of Small and Medium Enterprises (SMEs), which comprise most of Baidu’s clients. However, initiatives to launch value added services…