We think Baidu shares will continue to be volatile following its 4Q08 announcement because: 1) its 4Q08 results and 1Q09 guidance have both missed street consensus and thus will worsen investors¡¯ concerns over the company¡¯s earning capability in a down-cycle economy; 2) Baidu has already seen customers scaling back their ad spending for 1Q08. And given uncertainty involving when the economy can recover, there is still lack of visibility about when Baidu can recover its profitability to the same level as prior to last October when financial crisis began to take a toll on Chinese overall economy. 3) Following CCTV expose of the company¡¯s unlicensed medical provider clients in its News in 30 Minute, we think Baidu¡¯s public image has been damaged as reflected by very-often criticisms in the media compared to almost nil negative coverage prior to CCTV reports. The overall operating environment has become more difficult for Baidu as it will do its business in the face of more rigorous scrutiny of media and users. 4) Baidu is upgrading its ad system to Phoenix Nest which will shift the paid listings from the left-side to the right side of results pages. We understand that Baidu mangt will precede very prudently to impletment this new system but still there is the risk some customers will get away as the listings on the right side of results pages traditionally receive very little attention and click throughs from users. 5) From Dec. 11 2008, when Baidu revised down its 4Q08 guidance to Feb 18 2009, Baidu shares have risen 10.9%, compared to Sohu¡¯s 5.1% and Tencent¡¯s loss of 4.3%. We think Baidu current share price has factored in the assumed upside on the shift in adspending from offline to online, ep on P4P advertising platform like Baidu and google due to its better measurability and cost effectiveness. Although we still believe baidu¡¯s overall business model remains sound and the company¡¯s earning capability remain healthy in the long run, we remain cautious on the company¡¯s performance for the first two quarters in 2009. We believe if the company can achieve in-line top line for 1Q09 and gives better visibility about its advertising business in 2Q09, it will be a potential catalyst for its share prices.