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Baidu's Annus Horribilis Pays Off

I'm not a fan of cost cutting as a means to boost a company's bottom line. It's a lazy way to pad margins when executives can't drive sales.

But I am willing to make an exception for Baidu Inc. this past quarter. The Chinese search engine posted operating income that rose 47 percent to a record, beating estimates by 43 percent, despite revenue climbing only 14 percent.

The way Baidu managed this feat is encouraging. Sales, general and marketing expenses dropped 30 percent -- a fourth straight quarter in which that metric dropped by 26 percent or more. This was driven by a cut in promotional spending. In the cost of...