Baidu Inc breezed past Wall Street financial targets in the fourth quarter as the No. 1 Internet search engine in China benefited from a sharp increase in advertising spending by its customers.

Shares of Baidu, a favorite pick of hedge funds, rose 7.5 percent to $116.90 following the earnings report on Monday. Options traders predicted before the results that the stock might break out of its recent five-month trading range.

Baidu, which has increased its focus on e-commerce and online video, grabbed more market share last year after rival Google Inc curtailed its operations following a high-profile fallout with Beijing over censorship.

Despite highlighting new investments, Baidu said growth should continue, forecasting revenue for the first quarter between $360.6 million and $371.2 million, ahead of the average analyst forecast of $354.2 million.

Baidu cited continued improvement in monetization for nearly doubling fourth-quarter revenue from the year-ago period.

Baidu still benefits from the lack of competition from Google, said Auriga USA analyst Tian Hou.

Baidu said its revenue per online marketing customer increased roughly 56 percent in the fourth quarter, while the company's number of online marketing customers grew nearly 24 percent year-over-year to about 276,000 customers.

Auriga's Hou noted that the competitive landscape will become more challenging in 2011 as Google revises its China strategy and as Alibaba Group's Taobao increasingly competes with Baidu for certain customers.

In December, a top Baidu executive told Reuters that he saw growth moderating in 2011 due to a higher comparison base and a lack of unique catalysts.

China is the world's largest Internet market with more than 450 million Web surfers. In the fourth quarter, its search market grew 66.8 percent over the previous year to 3.3 billion yuan ($500 million). Baidu had 73 percent of the market while Google had 24 percent, according to technology research firm iResearch.

Beijing-based Baidu's fourth-quarter net income rose to $175.9 million, or 50 cents a share, from $62.7 million, or $1.80 a share, a year ago, before a 10-for-1 stock split. That beat analysts' average forecast of EPS of 45 cents.

Baidu said its revenue per online marketing customer increased roughly 56 percent in the fourth quarter, while the company's number of online marketing customers grew nearly 24 percent year-over-year to about 276,000 customers.

Total revenue in the fourth quarter totaled $371.3 million compared with $184.7 million a year ago. Analysts, on average, had expected revenue of $360.3 million, according to Thomson Reuters I/B/E/S.

Shares in Baidu ended regular trading up 2 percent at $108.63 on Nasdaq.

(Reporting by Alexei Oreskovic and Melanie Lee; Editing by Gary Hill)

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