China's search engine leader Baidu (Nasdaq:BIDU) continued its impressive earnings run, as profit more than doubled on soaring revenue in its first quarter. Baidu also provided an outlook for increased growth.

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Growth Pattern Continues
China's rate of internet use is still under 35%, so as Baidu CEO Robin Li maintains, there's still a vast open field for further growth. In its first quarter, Baidu's net income surged to $163.5 million, a 122% gain from $73.5 million, with an EPS at 47 cents per ADR. Revenue rose 88% to $371.8 million from $197 million in the year ago quarter. One factor still boosting Baidu's traffic for search is the effects of Google's exit from China last year.

China Internet
Baidu is reaping most of the internet growth, but even (Nasdaq:SOHU), which has one twenty-fifth Baidu's market share, reported a paid search increase of 183% for its latest quarter. Sohu generates only a fraction of the revenue Baidu does, but Sohu's results underscore the opportunities for growth.

More on Baidu's Quarter
Baidu is building via traffic growth, but emphasizes monetizing via its new features and attempted synergies. With its new Connect and Like features, it's incorporating more social networking. Baidu attempts to add multiple elements to its platforms; it partnered with Sina (Nasdaq:SINA) to create Weibo, a successful microblogging site. Baidu continues to develop its Phoenix Nest platform along with its search engine marketing.

Very Slight Cautions
Revenue per online marketing customer increased 50.8% from the year ago quarter, but was flat compared to the previous quarter. Traffic acquisition costs (TAC) were reduced to 8.2% of total revenues, an improvement from the 13.2% of the year ago quarter, but up slightly from 8.1% in the previous quarter. These and some other metrics were interpreted by some on the Street as a negative for Baidu, however slight.

Investors should also watch the undercurrent from some advertisers expressing unhappiness over the high cost of paid advertising on Baidu. Right now Baidu's enormous scale weighs on the competition, yet there may be opportunities for competitors to make gains in the search space.

The Power of Baidu
These potential negatives shouldn't be considered too important, though, as Baidu is getting to be not just a search engine, but a massive economic engine. It had a great quarter, and it projects a roughly 70% increase in revenue for its next quarter, to the $493 million to $504 million range. Its adjusted EBITDA surged to $211.9 million, an increase of 116.4%, and it holds cash and equivalents of $1.3 billion.

With its skyrocketing earnings matched by its skyrocketing stock price, Baidu is a classic growth stock. China's internet stocks continue to heat up, as internet IPOs (Nasdaq:YOKU) , DangDang (Nasdaq:DANG) and others attest. As for Baidu stock, the brave will keep buying on the way up, while the rest of us will wish we already had or pray for a pull back.

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Tickers in this Article: BIDU, SOHU, SINA, YOKU, DANG

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