Baidu Inc. (NASDAQ: BIDU) CEO Robin Li has high hopes for Phoenix Nest, his company's new advertising system. While many investors worried that Phoenix Nest, launched in April, would negatively impact revenue, Li thinks that the system will actually boost sales over the longer term.
In an interview with Dow Jones, Li confessed that revenue has suffered modestly since the launch of Phoenix Nest, primarily due to the fact that Baidu has been offering advertisers incentives to switch to the new system. However, he added, "Going forward, Phoenix Nest will have meaningful positive impact to our revenue."
In fact, it's hard to detect any short-term fallout from the system's launch. For the second quarter, Baidu reported revenue of $160.7 million, up 37% on a year-over-year basis. The results easily topped analysts' expectations for sales of $158 million. At the time of the report, the firm predicted third-quarter revenue of $184 million to $189 million, outpacing Wall Street's consensus estimate of $182 million.
Phoenix Nest is already being used by about 40% of Baidu's advertisers. The program is an improvement over the old system, because it can differentiate paid advertisements from authentic search results. Additionally, clients can more closely track how effective their ad spots are with visitors to the search engine.
If Baidu continues to boost revenues, it should help its stock extend its stellar uptrend. The shares have racked up a gain of 146.3% in 2009, and they're currently enjoying the stalwart support of their 10-week moving average. This trendline hasn't been breached on a weekly closing basis since Jan. 23.
Elizabeth Harrow is an analyst and financial writer in the research department at Schaeffer's Investment Research. She is featured in the video series Schaeffer's Daily Q&A on SchaeffersResearch.com.
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