PREVIEW-Baidu set to beat Street view on higher customer adds
* What: China Internet Q3 earnings
* When: Baidu reports Oct 21 after U.S. market hours
* Baidu seen beating Street f'casts on platform stablization
* Google losing share in China, Baidu gains
By Melanie Lee
SHANGHAI, Oct 19 (Reuters) - China's top Internet search engine Baidu Inc (BIDU.O) is expected to beat quarterly estimates, boosted by surging paid clicks and an improving online advertising market.
Baidu, which has gained market share since Google's (GOOG.O) high-profile tussle with Beijing earlier this year, has seen its fledgling keyword advertising system, Phoenix Nest, stabilise and yield results in the form of higher paid clicks after a shaky start late last year, analysts said.
Analysts said events such as the World Expo in Shanghai and the upcoming Asian Games in Guangzhou helped to spur an advertising boom in the quarter, which saw China's search market grow 59 percent year-on-year to 3.13 billion yuan ($471 million), according to iResearch. [ID:nTOE69I04B].
"We are optimistic about their earnings and we think it will beat estimates. Their customer acquisitions have been strong in the third quarter, especially in September," said Fiona Zhou, an analyst with research firm Pacific Epoch.
Analysts polled by Thomson Reuters I/B/E/S expect Baidu to post a third quarter revenue of $333.3 million, at the top end of Baidu's own estimates of $324.4 million to $333.3 million. But the result could come in even higher, some said. Baidu still dominated China's search market in the third quarter with 72.9 percent share by revenue while Google had 24.6 percent, said iResearch.
Eric Wen, an analyst with Mirae Asset, said in a note he expects Baidu to beat its own revenue estimates by 5-8 percent on increased advertising spending by large multinationals.
Baidu also benefited from lower traffic acquisition costs, as well as increased customer acquisitions.
The picture looks strong through year-end, though analysts warned Baidu's growth could start decelerating next year on intensifying competition and as Phoenix Nest matures.
"We expect growth rate to peak in Q4 2010 and then gradually slow down," Mirae Asset's Wen said in a note.
Baidu also faces increasing competition from local players. Alibaba Group, China's largest e-commerce firm, launched a search engine recently, taking aim at the lucrative search market dominated by Baidu. [ID:nTOE69B03L]
Top Chinese online game operator Tencent Holdings (0700.HK) and leading Internet portal Sina Corp (SINA.O) are also expected to do well when they report third quarter results, most likely in November, as they cashed in on spending during the China summer holidays and strong advertising growth. ($1 = 6.644 Yuan) (Editing by Doug Young and Anshuman Daga)
