Wednesday, November 21, 2007

Baidu shares more than quadruple in debut

BIZCHINA / Li Yanhong

 Baidu shares more than quadruple in debut
Updated: 2005-08-06 13:32 Inc, the maker of China's leading Internet search engine,
mesmerized Wall Street Friday as its stock more than quadrupled - a
dazzling debut driven by the company's connections to Google Inc. as much
as its own tantalizing potential.

The Beijing-based company's shares closed at $122.54 on the Nasdaq Stock
Market, a 354 percent gain from its initial public offering price of $27.
That represented the biggest one-day gain since the final days of the when IPOs regularly soared.

No IPO has climbed as high on the first day of trading as Baidu's did
Friday since the shares of software maker Selectica Inc soared 371
percent during their March 2000 debut, according to
Selectica's shares closed unchanged Friday at $3.15 on the Nasdaq.

The rapid run-up gave Baidu a market value of $4 billion - a lofty
appraisal of a 5 1/2 year-old company that only recently became
profitable. Baidu earned $1.8 million on revenue of $13.6 million during
the first half of this year.

The company's management expects much bigger things as more of China's
vast population surf the Internet. More than 100 million of China's
residents currently surf the Web. Baidu has been able to pluck enough
visitors from that audience to emerge as the world's sixth-most
trafficked Web site.

"I am very confident in the future of Internet search in China," Baidu
Chairman Robin Li said during an interview Friday. "This is a very basic
need for every consumer in China. We are very fortunate to be in this

Googlemania played a major role in Friday's buying frenzy.

As the early search-engine leader in China's nascent Internet market,
Baidu is inspiring comparisons to Google Inc, which quickly evolved into
a cultural and financial phenomenon by becoming the Web's leading

Like Google, Baidu  traded under the ticker symbol BIDU  so far has
made most of its money from text-based ads that are tied to search
requests and generate a commission whenever the commercial links are
clicked on.

Drawn by Baidu's potential, Google even paid $5 million last year for
749,625 of the company's shares - a stake worth $92 million Friday.

Google's early ownership interest has convinced some investors that it
will eventually buy Baidu for a lucrative price, although there has been
nothing concrete to support that belief.

Memories of Google's IPO may have provided Baidu with its biggest lift.
Nearly a year ago, Google went public at $85 per share - a price that
many investors viewed as inflated but now looks like a bargain with the
company's shares closing at $292.35 Friday.

"This is a 'son-of-Google' investor mentality," said David Menlow,
president of IPO Financial, an industry newsletter. "Everyone remembers
they could have had Google at $85 and don't want to let it happen again."

Although Baidu's profits have been so puny so far, Menlow and another IPO
expert, Linda Killian, said the rapid run-up in the company's stock isn't
quite the same as the late 1990s mania that produced mind-boggling
valuations for unproven dot-coms that imploded into dot-bombs.

As the Internet becomes more ingrained in the everyday lives of the
Chinese, it's possible to envision Baidu duplicating the tremendous
growth that Google has enjoyed, Killian said. Google's market value now
hovers around $85 billion  something that would have seemed
unfathomable when Stanford University graduate students Larry Page and
Sergey Brin launched the company seven years ago.

"There are a handful of companies where you need to dream," said Killian,
a portfolio manager for an investment fund specializing in IPOs. "You
have to think, 'If everything were to go right for this company, what
could they achieve?' There are companies that could become the next
Microsoft or Google."

Baidu, pronounced "by-doo," is named after a 900-year-old love poem.

Li, who worked in Silicon Valley for a couple of years and received his
master's degree in computer science from University of New York at
Buffalo, formed the company with Eric Xu, who received a doctorate from
Texas A&M.

Although Xu no longer works at Baidu, he was alongside Li Friday to watch
the company's stock soar in its Wall Street debut. Li, 36, ended the day
with a personal stake worth $920 million, but he said he won't let the
sudden wealth affect him. He can't sell any of his stock for two years
under restrictions imposed as part of the IPO.

"My passion is search and changing the lives of ordinary people with
search," he said.

Baidu has awarded stock options to its 700 employees in China, giving
them a slice of the wealth created by the IPO. Most of the workers can
start holdings in six months. "We are going to try not to pay attention
to the stock (price)," Li said. "As long as we do our job, the stock
should take care of itself."

Baidu's IPO, completed late Thursday, raised $109.1 million - $86.6
million for the company, which sold 3.21 million American depositary
shares, and the remainder for company insiders who sold 831,706 shares.

The company's biggest shareholder is Silicon Valley venture-capital firm
Draper Fisher Jurvetson, whose stake is worth $1 billion.

While the Google mystique had a positive effect on Baidu Friday, the
world's most popular search engine could turn into a formidable threat as
it battles to become a bigger player in China. Yahoo Inc and Microsoft,
the makers of the next two most popular search engines in the United
States, also are eagerly anticipating China's Internet market.

"I don't believe money can buy the leadership position in China," Li
said. "Our job is to solidify and expand from here. As long as we do
that, we will be able to do well financially."

(For more biz stories, please visit Industry Updates)

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