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Here’s the entire text of the Q&A from Baidu’s (ticker: BIDU) Q3 2005 conference call. The prepared remarks are here. We recognize that this transcript may contain inaccuracies - if you find any, please post a comment below and we’ll incorporate your corrections. And please note: this conference call transcript is a Seeking Alpha product, so feel free to link to it but reproduction is not permitted without the explicit permission of Seeking Alpha.

Questions & Answers

Operator

OPERATOR INSTRUCTIONS And our first question comes from the line of Anthony Noto of Goldman Sachs. Please proceed.

Anthony Noto

Thank you very much. Robin and Shawn, congratulations on your first quarter as a public company and the great results. I have three questions. The first is, as I look at the growth in the number of new online marketing customers, it's a record for you. And I was wondering if you would talk a little bit about the initiatives in terms of an internal sales force or other key priorities that have driven that benefit and if you expect that to continue at the rate of over 11,000?

The second question is, as I look at your revenue for online customer, this is the first quarter that we haven't seen a meaningful increase sequentially in revenue for online customer. Is that a function of a lot of your new customers coming late in the quarter, which would, basically, the run rate was probably higher than that and so, it's not really showing the true growth or are the new customers that are coming on spending less than existing customers, so the weighted average doesn't increase as much?

And then the last question is, as I look at your growth sequentially, how should I think about the growth in queries sequentially versus the growth in monetization sequentially? Thank you.

Robin Li

I think for the customer number growth. We are very pleased that we added more than 5,000 GSM new active online marketing customers during the past quarter. I think that's a combination of several factors including the strong branding effect of our successful IPO and our more aggressive approach in investing in the distribution network and the sales force, including direct sales. We certainly cannot guide you on the increase in terms of customer number. But, we do think a number of active online customer is a very important matrix for our business. Active that part revenue per customer, probably Shawn can say some black on that.

Shawn Wang

I think, Anthony, you are right. I think the fact is that, many of the new additional customers were added throughout the quarter. Many of them came in the latter part of the quarter, which contributed to somewhat a reduced per customers spending effect. But, I cannot quantitate to tell you exactly how that impact is. But, I think you're right.

Robin Li

On your third question, I think it's definitely true that the number of queries continued to increase during the past quarter. Our revenue growth was attributable to a combination of traffic growth, customer expansion as well as our continued fine-tuning of our pay-per-performance platform.

At this time, I'd like to say that we will only take one question each person for the first round. And if you have more questions, we'll be happy to come back to you later on.

Operator

And sir, our next question comes from the line of Wallace Cheung of CSFB. Please proceed.

Wallace Cheung

Hi. Morning, Shawn, Robin and Cynthia. Great quarter. Well, one question is, say in the first quarter, which are the top five industry groups of your customers?

Robin Li

There has not been a significant change from our past experience. I think as mentioned during the road show, our industry representation is very diversified, as we serve actually, through the, I think over, close to 40 industries are represented in most of the top, 80% plus of our P4P revenue.

Some of the usual suspects in the one third tends to be on higher than the others include e-commerce companies, then, of course, the manufacturing of healthcares and electronics. These are definitely the first top few that will come to my mind. But, there's not really a dominant factor.

Operator

And our next question, sir, comes from the line of Safa Rashtchy of Piper Jaffray. Please proceed.

Safa Rashtchy

Good morning, Robin and Shawn. Congratulations on a great quarter and your first quarter as a public company. I had a question on the competitive landscape. Could you give us an update on how things are, especially with the Google and now with Yahoo and the Alibaba combined? You obviously have maintained the lead and they are the number one Web site in China. But, what have you observed in the industry in terms of push from the competition and what kind of reactions have you had to those in terms of either increasing your R&D spending or have you done any increased marketing spending and so forth?

Robin Li

As many of you know, that we were not the first to provide Chinese language search. We were actually a latecomer in this area. We were quickly able to catch up and surpass everyone, including the companies you mentioned in the Chinese search space. We do realize that a lot of companies now realize the Chinese search has a big potential. So, we are prepared for more competition going forward.

As of now, I think we are very focused on providing the best user experience and long-term growth. Because of our focused strategy, I’m confident we will be able to maintain and expand our market leadership position. We do not see anything special during the past quarter in the competitive landscape.

Operator

And our next question, sir, comes from the line of Dick Wei of JP Morgan. Please proceed.

Dick Wei

Good morning, Robin and Shawn. I have a question in terms of distribution. You mentioned earlier that Baidu opened up new office in Banjo. And do you have any targets for direct sales versus agency sales? And what is the margin impact of that?

Robin Li

China is a very big country. Different areas have different characteristics. We've been working on our distribution system for a number of years, starting from the beginning of 2002. And it is still evolving. In different areas, we try different strategies and approach whichever well benefit the company in the longer-term. We believe that we will have a combination of direct sales and distributors for a very long time. In short-term, that the margin impact may not be so obvious for that change.

Dick Wei

And of right now is it possibly half and half in terms of?

Robin Li

We don't actually break down in terms of revenue between distributors and direct. And it will certainly change from quarter-to-quarter. We will do whatever is best for our longer-term growth.

Operator

And our next question, sir, comes from the line of Jason Bruesche of Citigroup. Please proceed.

Jason Bruesche

Thank you. Good morning, Robin, Shawn and Cynthia, as well. Let me add my congratulations. I'm going to stay on the distributor question. Could you maybe update us on the total number of distributors that you have, commenting on how many you added during the quarter, did you acquire any of them? And maybe comment, are you comfortable with the current size of your sales network in light of the recent push from Google, Sohoo and what is looking to be a really large sales force at Alibaba Yahoo that is being put together? Thanks.

Robin Li

Yeah. In terms of number of distributors, there has been no significant change for our system. We think the number of distributors is not just the metrics for the efficiency or performance of our sales network. We actually look more on the sales efficiency performance for the number of sales people as well as the per salesperson performance.

We, as I said before, have been working on this sales network, including the distributing system, for quite a few years. We believe we have the best understanding of the Chinese market, online marketing market, especially for the small and medium enterprises across the country. I think currently, we have the best sales network and we continue to gain momentum in this aspect.

Operator

Our next question, sir, comes from the line of Lea Howell of Thomas Weisel Partners. Please proceed.

Lea Howell

Hi. Good morning, Robin and Shawn. I have a question regarding your spending. I understand, you're investing heavily in R&D and SG&A for the new products and, as well as brand building. And I do agree, that's a great strategy at this stage of your business. But, I just wonder if you have any rationale in terms of the spending patterns, i.e., are you targeting any specific percentage of revenue when you make budget or is that more event driven, sort of sporadic spending pattern?

Shawn Wang

Lea, this is Shawn here. Actually, when we look at our business, when we decide how do we spend our resources, we certainly do not have a number that would tie to a percentage of our revenue. Now, margin is not our target. It is not our primary driver. Anything in the near-term is not clearly what drives our investment strategy.

As Robin mentioned, what we were looking at this market we believe is long-term growth potential. During the quarter, we invested very significantly in R&D and in sales distribution network strengthening that instead of direct sales. And none of those is tied anywhere to the near-term in a revenue growth or earnings impact. This is really appropriation for the long-term growth.

Capex is another good example of that. We built a new data center. And associated with that, we have spent significantly more than what we did in any previous quarters. And that is something that we've done for the next few years and it will be good for our service to our users in few years to come.

Operator

And our next question comes from the line of Andrew Collier of New York Global. Please proceed.

Andrew Collier

Yes, thanks for your time. That we have recently, Sohoo said that Sogo now has achieved about one-third of your traffic, up from one-fifth a couple of months ago. I wonder if you could comment on whether you are seeing any impact from their growth. And also, they are at some point in the near future going to start charging for their services on Sogo as opposed to just on Sohoo. And do you have any plans to try to have any campaigns to combat what might be fairly significant competition? Thank you.

Robin Li

So far, their impact has been very minimal. We do not expect it to have a bigger impact for the near future. The market share for Baidu and the domestic Internet companies in China in terms of search are very different. We don't think that they will be able to become a serious threat for us any time soon. We don't expect to make any adjustments in terms of our sales network, marketing strategy based on their moves.

Operator

And our next question is a follow up question from the line of Wallace Cheung of CSFB. Please proceed.

Wallace Cheung

Thanks. This is a question on the fourth quarter guidance. When you are projecting around 200% growth on a year-over-year basis, is there anything related to the seasonality? And also, is it mainly coming from the customer growth rather than the monthly spending growth? Thanks.

Robin Li

Wallace, let me make sure I understand your question. Your question is the guidance for Q4, whether the revenue increase will come from the number of customers or perhaps more revenue. Is that the question?

Wallace Cheung

Yeah. And because maybe your business will have,

Robin Li

I guess, let me just, hello?

Wallace Cheung

Hello. Yeah, still on.

Robin Li

Okay, sorry. Well, Wallace, let me assume that your question is asking where the revenue growth that we projected for Q4, is coming from. As we continue to tell the investors, we believe the number of customer expansion in the foreseeable future will be the main driver for our revenue growth. Given the rapid pace of new customer additions, the impact on the per customer revenue is hard to predict. But, we do project that will be a very significant swing.

Shawn Wang

I do need to add that seasonality is the nature of the business. When we do our future projection on revenue, we do take the seasonality into consideration. Q1, calendar year Q1 is generally the slowest quarter for our business. And when we decided on Q4, we do look at what we have done in the past, especially what's the Q-on-Q and year-on-year growth for Q3 and Q4 for the past few years.

Operator

And our next question comes from the line of Bob Peck of Bear Stearns. Please proceed.

Victor Anthony

Yes, this is actually Victor Anthony in for Bob Peck. I just had a quick question about your product launches. If you have been making good progress on recent product launches; you talked about a few of them earlier in the call. What is it, your thoughts on future product launches relative to some of the recent launches by some services provided by US. For example, blogs, blog search, instant message, emails, toolbars, stop and search. I'd like to get a sense of which of these products actually make sense for the Chinese market and how are you guys thinking about that going forward.

Hello?

Operator

Please stand by, ladies and gentlemen. We are having some audio issue at this time. Once again, please stand by.

Victory Anthony

Hello?

Robin Li

We're waiting for the operator to tell us to go ahead.

Operator

Yes, sir. Your line is open into the main conference call.

Victory Anthony

Okay, good. Okay, this is Victor Anthony in for Bob Peck. And the question I was asking was with regard to product launches. I know you guys have been making some decent product launch, good progress on launches in the past. You talked about a few products early in the call. I wanted to know how you are thinking about product launches relative to the searches provided in the US.

Robin Li

Sure. Baidu is a market-driven company. We do seriously study the market needs and demands. We do seriously study our user requirements and user behavior changes. We have been innovative, we launched a number of new products during the past quarter and we will continue to do so. But, our philosophy is probably a little bit different from some other companies in this industry. When we launch certain new products, our goal is usually not for PR purposes only. We usually think that those products have the potential of becoming a very popular product or service. That's how we look at the product innovation.

Operator

And our next question, sir, is a follow up question from the line of Jason Bruesche of Citigroup. Please proceed.

Jason Bruesche

Thank you. I wanted to talk about the data center expansion. Could you guys comment on how much capacity, in terms of quarters, do you think you now have? Is this new data center going to take you through the next couple of quarters, through all of 2006? And when should we be expecting you guys to perhaps add a new data center or significant expansion to your existing one? Thanks.

Robin Li

Well, our new data center has been added to accommodate our growth in the foreseeable future. It is a fairly significant addition. As you can tell, that depreciation expenses amounted to a quarterly increase of 67%. And I think our cap ex, that we made was rough. 85% of our Q3 Capex was spent on servers and the remaining was on some of the network equipments.

It's something that, the Capex expansion will go in, the gross will be something sort of like a stairs. Once we make investment in the Capex, with, which we built a new data center, the Capex level will stay there for the near fourth quarter until the traffic growth reaches a different level. Then, we have to increase. So, we're not expecting the immediate quarter’s. We will be having a significant increase as we had experienced in Q3.

Operator

And our next question, sir, is a follow up question from the line of Safa Rashtchy of Piper Jaffray. Please proceed.

Safa Rashtchy

Yes, thank you. Robin and Shawn, I wonder if you could give us an update on the whole MP3 issue. Where are you in terms of the legal proceedings, what is the format of your music search offerings right now and do you think you might make some further changes in that?

Robin Li

Safa, as many of you know, that we are only providing a search function for file sites or MP3. It's not a download service. We have been trying to communicate this both internally and externally. We believe that we have the largest user base in terms of visual entertainment. We are actually open to all kinds of options in terms of corporation mix it up of relevant parties. We believe we should be able to play a role as a search engine in the value chain. Having said that, I'll have Shawn to give you a more detailed update on the lawsuit proceedings.

Shawn Wang

Right. Well, as you're probably aware, Baidu was a defendant in a number of MP3 related lawsuits. Specifically, there was probably eight of them. And they were brought against either by the major record labels or by the affiliates in China. Seven of those, the total number of the lawsuits were eight and seven of them were filed against us in the intermediate court in Beijing, except one who was entered in the lower court in the district court in Beijing.

The one that was entered in the lower court, there was a lower court ruling, which the ruling was against Baidu and the actual result was, approximately one-tenth of the damage claimed by the plaintiff, was awarded to them. And that's a total of approximately less than $70,000 US in the amount of damage. Baidu believes that ruling was not with any merit and we have already appealed in the higher court. We continue to believe that Baidu's business practice and conduct is in compliance with laws and regulations in China.

We are a search engine company. We do not upload or store or edit or download any MP3 services. I think the lower court ruling was based on a misunderstanding of the facts. Actually, the higher court proceedings are still ongoing. We cannot at this moment comment on any specifics, there's not any progress yet. We're still in the legal proceedings.

Operator

And our next question, sir, is a follow up question from the line of Lea Howell of Thomas Weisel Partners. Please proceed.

Lea Howell

Hi, there. Just wondering if you have observed any trend in terms of the geographic locations of your new customer sign up? In another word, are most of your customers concentrated from tier one cities or more moving downstream to tier two or tier three?

Shawn Wang

Lea, let me, Shawn here. Let me answer that question. We have not seen any drastic changes in patterns. Historically, what we have seen is that, our revenue, our customer base, fairly represents that of the economic, the pattern of Chinese economic development where the largest cities more in the coastal areas tends to be areas where we draw a majority of our customers. We've seen that pattern continue at this stage.

Robin Li

Because we are in a very early stage in the paid search industry, I think almost every region has a great potential. So, as a result, I believe wherever we put our sales force, either direct or distributor, to work, we will be able to grow the revenue quicker than areas we don’t have a presence yet.

Operator

And our next question comes from the line of Ming Zhao of Susquehanna Financial Group. Please proceed.

Ming Zhao

Hi, good morning. My questions also relate to the music search. Can you, because there are many stories about the new business model on the music search. Can you comment on the new business model people are saying about some fee-based feature? Also related to that, I see some brand advertising on the music search channel. Do you have a breakdown in terms of how much revenue from the music search channel? Thank you.

Robin Li

As I mentioned before, we probably have the largest user base in terms of digital entertainment, both on our MP3 search and other searches, including the Web based search. A lot of people come to Baidu to look for entertainment or animated materials. So, we are happy that we are in the leadership position of this and we are open to all kinds of new business models that may help us to better moneterize our traffic and better serve our users and our customers.

In terms of the potential changes, we, at this time, it’s not easy for us to say we will go with a paid model or continue the advertising model. But, at the end of the day, because of the demand for digital increment is so high, we believe we should be able to capitalize on that longer-term.

Shawn Wang

Ming, should answer your question as to the proportion of the MP3 related revenues, we, in the past, in recent past quarters, our MP3 related revenues was a very significant amount of our total revenue. There has been around or less than 5% in recent quarters.

Operator

And our next question is a follow up question from the line of Anthony Noto of Goldman Sachs. Please proceed. Mr. Noto, your line is open, sir.

Anthony Noto

Thank you. Shawn, I know that you had mentioned that you will continue to invest and as did Robin. And I was wondering if you could give us a general sense of where you see margins going over the next couple of quarters? Is it fair for us to continue to think that EBITDA will continue to grow sequentially? And how should we think about margin expansion at a high level in terms of, maybe, incremental flow through?

Shawn Wang

Anthony, as we mentioned in our, I think I addressed the question earlier, as well. When we look at our business, we're looking at the number one priority, we focus on is what our users are looking for and what our customers are looking for and how should we better provide them because we believe in the inherent leverage in the P4P business model. We believe, as long as we are able to grow our customer base and provide user preferred features and product services, that we are there for the long-term gain.

In the near-term, we are now focusing on targeting in margin target or a leveraged target. But having said that, I think, like I said, it is the leverage that is inherent in our business and we will be making investment and we will be enjoying the benefits of leverage going forward.

Robin Li

In terms of our current margin, I believe we are in line with some of the market leaders in the US, if you compare us with them on apples-to-apples basis, meaning either including or excluding the traffic acquisition cost. Because we are at such an early stage, the revenue size is relatively small. Margin could fluctuate depending on how we execute our strategy to invest and to grow our business. To give you an example, on July 1, the first day of Q3, we decided to take off a number of text links, sponsored links, that is not query sensitive on our Web page search results. That took away about $1 million US from our top line.

We believe this kind of action would benefit our users and would benefit the company in the longer term. Although Q3 is the first quarter for the company as a public traded company, we didn't try to push the revenue higher and they try to show a better margin in expense of our longer-term growth. This is what we believe that we will do in the future, too.

Operator

OPERATOR INSTRUCTIONS. And our next question is a follow up question from the line of Wallace Cheung of CSFB. Please proceed.

Wallace Cheung

Hi. Thanks. Just wanted to get an update on the Baidu union development because I find that the traffic acquisition cost as a percent of revenue actually has gone up by 3% from second quarter to first quarter. Is that meaning that you are getting more revenue from the Baidu union than you expected, that you measure? Thank you.

Robin Li

Wallace, it's, the general trend in Baidu's business operations is that our organic traffic has been growing very rapidly, although our union traffic has been growing, but it's at a somewhat lower speed. We do see opportunities in the union funding continue to grow. There has not been any significant change in terms of the revenue share arrangement with union members. But, however, we are looking to initiative new avenues of increasing our affiliate traffic. There has not been any significant increase and we are not expecting a significant increase. But, we see that though we see that is now with that we could potentially grow. Wallace, does that answer your question?

Operator

And our next question comes from the line of James Mitchell of Goldman Sachs. Please proceed.

James Mitchell

Good morning. I just wanted to check. I was thinking about revenue per customer correctly. I believe you suggested earlier your main growth driver going forward will be number of customers rather than sales revenue per customer. Do you find that new customers and old customers have fairly similar spend or do you find that the old customers are increasing their cost, by say number of hits over time while the new customers are populating new categories that initially lower cost per click and then getting up over time?

Robin Li

We don’t believe there are distinctions between the new customers and old customers in the aspect you just mentioned. The rather flattish revenue per customer really reflects that we add new customers to our customer base.

Operator

And our next question, sir, comes from the line of Jason Bruesche of Citigroup. Please proceed.

Jason Bruesche

Thank you. Maybe a follow up question on competition. I know you guys have commented on this, but do you think that you've outgrown or grown faster than the market this quarter, hence taking share? And if so, whom do you think you've taken share from? Or does your top line strength in many respects just reflect more of an up tick in the overall search market benefited by your IPO, if nothing else, that's bringing more query traffic to search in general in China? Thanks.

Robin Li

Jason, it's really hard for us to give any concrete evidence on that because many of our competitors in this space do not disclose any information related to their page view or number of customers, that kind of thing. We believe that we are executing our strategy very solidly and we believe that we have added more customers than anybody else in this space during the past quarter.

Shawn Wang

Jason, just to supplement Robin's point, it is not only the strong brand impact of IPO that has led to this, our revenue growth for the quarter. There are actually a number of factors. And the IPO, in fact, was only one of them. And I think the others are our improvement in effecting the sales and distribution and also of the traffic growth itself. And all that contributed to the revenue growth.

Operator

And our next question is a follow up question from the line of Bob Peck of Bear Stearns. Please proceed.

Victor Anthony

Yeah, it's actually Victor Anthony again. I apologize if I missed this earlier. But, I wanted to get a mix of your headcount increase. I think you said earlier it increased about 300 sequentially from the second quarter. And second, I wondered if you could just comment about the traffic coming from outside of China to Baidu.

Shawn Wang

Let me answer the first question in terms of headcount increase. The most significant headcount increase came from the area of sales and marketing. As we mentioned, we set up our direct sales forces in Banjo. That contributed almost half of the headcount increase for the quarter. But, next to that is really R&D area that we have increased close to 30% of our headcount in R&D. And that's an area that we want to continue to invest aggressively.

Robin Li

In terms of traffic outside China, during our history, it's been always under 10%. As the Internet population in China keeps growing at a faster pace than other regions of the world, we believe that the domestic traffic will continue to appreciate in terms of percentage of the total traffic. Also, I believe that in the future, going forward, more Chinese will only need to search for Chinese information only. Previously, a few years ago, maybe people still need, a lot of people in a lot of cases, to access English information. And as you know, Baidu is a Chinese language search engine. We do not collect lots of pages in other languages. I think going forward, more and more people will find it sufficient to search for Chinese information only. So, that actually will work for us as time passes by.

Operator

And our next question, sir, is a follow up question from the line of Wallace Cheung of CSFB. Please proceed. And, Mr. Cheung, your line is open, sir.

Wallace Cheung

Yes, sorry. Hi. I recognize that you have increased the first time deposit from 1,500 to 2,400 and the minimum deposit, as well. Should we expect revenue and customer deposit will increase even at much faster rate in the fourth quarter and then more quick quarter? Thank you.

Robin Li

The increase in the initial deposit was just a measure to make our sales effort more efficient, especially for those deals that need sales face-to-face communication or multiple rounds of phone calls. We believe that businesses across China are not so sensitive about the initial deposit of 1,500 or RMB2,500. Also, it does not affect our top line or bottom line or margin or whatever. It's just for convenience. In the future, we may adjust it from time to time, but it's probably not going to play any important role in the business.

Shawn Wang

And our business is very much a recurring business, so the initial deposit was not a big factor. And I think the real reason is the efficiency of the operations and the convenience for our customers.

Operator

And our next question, sir, is a follow up question from the line of Ming Zhao of Susquehanna Financial Group. Please proceed.

Ming Zhao

Thank you. I would like to get your thoughts on two aspects that may limit your growth. One is the online payment system in China is not mature. Two, many SMEs, they don't even have Web sites. So, do you think those will limit your growth?

Robin Li

I think you are right that online payment system in China is not mature and the SMEs, many of the SMEs are not online yet. But, from our perspective, we actually see this as opportunities. We've been growing very fast during the past two years given that, despite the fact that these two factors are actually limiting factors. I have to say that more and more SMEs are getting online nowadays and payment systems have been improving. So, going forward, we will be less limited by these two factors.

Operator

And our next question is a follow up question from the line of James Mitchell of Goldman Sachs. Please proceed.

James Mitchell

Hi again. You mentioned earlier that you removed a non-query specific link in July. Are you planning any other inventory changes in the near future? Thank you.

Operator

Mr. Mitchell, may I have you re-ask your question please, sir?

James Mitchell

Sure. I believe that the management mentioned earlier that you removed a non-query specific link at the beginning of July. Are you planning any other substantial changes in your advertising inventory in the near future?

Robin Li

Yeah, let me answer that again. We do not have any plans to do, to make significant changes in our inventory. But, we are a user and market driven company and we do look at the long-term growth potential for our business. So, we will make adjustments from time to time if we decide that would benefit the company longer-term.

Operator

OPERATOR INSTRUCTIONS And our next question is a follow up from the line of Dick Wei of JP Morgan. Please proceed.

Dick Wei

Hi. Robin, you mentioned earlier that you have made some enhancements to the P4P platform for Baidu. I wondered what are those enhancements and if that leads to any of the growth during the third quarter? And also, how is that P4P platform compared to some of your other competitors like Yahoo or Google? Thanks.

Robin Li

Yeah. As I mentioned during our road show, P4P is a young model. We started to offer this back in the fourth quarter of 2001 and we continue to see that there is a lot of room for us to improve to better serve our users and customers. During the past quarter, we continued our efforts in refining those. That's including an adjustment of our click-through rate, coverage rate, the average clicking price, the position or location we show other links on our Web page to the search without page, the way our customers describe their Web sites, the title summary, the way they submit their key words, lots of places that we are making adjustments to better serve our customers and users.

This is probably a combination of two slightly different business models between the old overture model and the current, say Google model. I would say our model is somewhere in between.

Operator

And our next question comes from the line of Richard Ji of Morgan Stanley. Please proceed.

Richard Ji

Hi, Robin, Shawn and I have a question here. And I think one of your strengths for Baidu, which has been overlooked in your online community and Baidu Post Bar is the number three traffic contributor to your company. And what is your trend there and what do you see this part of the business continue to drive traffic and what are you committed to for your company? Thanks.

Robin Li

Yeah, the Post Bar online community is not a simple community. It's not a simple online community. It's really a community for search users. The way it works is whenever a user is asking a query, only he or she will see a number of results that's available on the Internet. But also, we have a dedicated message board to that query.

Users increasingly come to this kind of message board to discuss questions they have and share information. So, it actually functions as a supplement to our search result. And in that sense, we have been bridging a higher barrier to entry for our competitors in terms of search engine users. But, as you mentioned, the Post Bar community is tracking ever increasing percentage of our total traffic and users. And we would be open to explore an opportunity to better monetize that part of the traffic.

Operator

OPERATOR INSTRUCTIONS And our next question is a follow up question from the line of Ming Zhao of Susquehanna Financial Group. Please proceed.

Ming Zhao

Okay, thank you. I would like to ask you a question about the seasonality. Do you guys also experience same weakness in the first quarter? Also, in fourth quarter, I think your guidance implied about a high single digit quarter-on-quarter growth. Compared with third quarter, it's 20 plus growth. Is this a typical seasonality that will be in your business? Thank you.

Robin Li

Yes, it is. Our business is inherently seasonal. And Q1, during which Chinese New Year happens, yearly the slowest quarter, as I mentioned before, when we give the Q4 guidance, we actually looked back for the previous year and yearly that the growth rate for Q4 over Q3 is slower than the growth rate for Q3 over Q2 for each year.

Operator

And ladies and gentlemen, this does conclude the question and answer portion of today's conference call. I'd like to turn the presentation back over to the speakers for closing remarks.

Robin Li Chief Executive Officer

Once again, thank you for joining us today and please do not hesitate to contact us directly if you have any further questions.

Operator

Ladies and gentlemen, thank you for your participation in today's conference call. This does conclude your presentation and you may now disconnect. Have a great day.

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Source: Full Transcript of Baidu’s 3Q05 Conference Call - Q&A (BIDU)
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