Milk, Faltering Economy Spoil Baidu's Fourth Quarter

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A tainted-milk scandal and slowing economy caused the leading Internet search provider in China, Baidu, to post its first sequential quarterly sales decline since the company listed on the Nasdaq Stock Exchange in 2005.

Sales fell in part due to the company's response to accusations late last year that it had managed the search results on behalf of the milk company, Sanlu, at the heart of a melamine poisoning scandal that saw thousands of children admitted to Chinese hospitals. The company denied the allegations but removed paid search listings of some medical and pharmaceutical customers that had not filed their government licenses with Baidu.

The removal of those links and some others during the fourth quarter reduced sales by around 5 percent, Baidu said in a statement.

The result was fourth quarter sales of Chinese renminbi RMB902.1 million (US$132.2 million), which was up 58 percent compared to the same time a year earlier, but down compared to Baidu's third quarter sales of RMB919.1 million.

Worse, the company forecast the sales decline will continue in the first quarter. Baidu's sales are expected to be between RMB780 million and RMB800 million, the company said.

Baidu's shares fell 2 percent in after-hours trading to US$125.49 per share. The company announced the results after the stock market closed.

Baidu reported a net profit of RMB288.7 million for the fourth quarter, up 31.3 percent over the same time a year earlier, but lower than the RMB347.9 million the company reported in the third quarter.

Baidu allows customers to pay for top search result spots on Internet search listings, a program the company calls P4P (pay-for-performance).

The company's first quarter sales will be hurt by the removal of some paid search links, Baidu said, and could also be impacted by customers scaling back on online marketing due to the economic slowdown.

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