Baidu Debuts

[HenryTo]

Definitely the hottest IPO this year so far:

http://finance.yahoo.com/q/ecn?s=BIDU

[HenryTo]

Stock is at $94 as I am typing this. The question is: Does this mark the top of the IPO market or does this only signal the beginning of another mania?
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Baidu.com more than doubles
IPO market sees biggest open in years

By Steve Gelsi, MarketWatch
Last Update: 12:44 PM ET Aug. 5, 2005

NEW YORK (MarketWatch) -- Shares of the Chinese Web-search-engine operator Baidu.com vaulted 200% in the IPO market's biggest splash in years as the initial public offering electrified Wall Street on Friday.

Capturing the same lightning that caused Google to nearly quadruple since its IPO last year, Baidu.com (BIDU: news, chart, profile) opened at $66, more than double its $27 price, and then traded as high as $80.

If the gains hold, it'll be the biggest first-day gain from an IPO in five years, according to IPO watchers.

"This is a pure play on what's seen as the best and fastest-growing industry," said Alex Motola, fund manager at the Thornburg Core Growth Fund (THCGX: news, chart, profile) .

The widely circulated rumor that Google had attempted to buy the firm fueled interest in the stock and "gave investors confidence in it," Motola said.

To find a comparable performance in the IPO market, it's necessary to go back to the dot-com hysteria of 2000.

InRange Technologies jumped 189% on Sept. 21, 2000. Active Power (ACPW: news, chart, profile) rocketed 210% in its debut on Aug. 9, 2000.

Part of the big debut-day move stems from the relatively small size of the Baidu.com deal. With only 4.04 million shares in the IPO and signs of interest from both retail and institutional investors, demand has been driving up the price throughout the process.

The Baidu moonshot overshadowed an IPO from oil-drilling specialist Dresser-Rand (DRC: news, chart, profile) , which weighed in at more than $500 million after the company added shares to its offering. See full story.

Baidu.com's price moves

Signs of a strong Baidu debut came when the company priced the offering above its already-increased range of $23 to $25 a share.

On Wednesday, Baidu.com lifted its estimated price range from an earlier level of $19 to $21 and increased the size of the IPO to 4.04 million shares from 3.6 million.

At its IPO price of $27 a share, the company raised $109 million. The deal's underwriters were Goldman Sachs, Credit Suisse First Boston and Piper Jaffray.

Often compared to the search firm Google, Baidu has only a small percentage of the revenue and net income that the Silicon Valley Internet firm did when it went public last year. See Net Sense.

Yet it holds a bigger market share in China, the world's most populous country -- and a country whose economy continues to expand at a fast clip.

At its offer price, Baidu boasted a market capitalization of $898 million, about 42 times its trailing net revenue of $21.6 million, according to Renaissance Capital, which runs the IPO Plus Fund (IPOSX: news, chart, profile) . And that was before the stock surged to $80.

Google (GOOG: news, chart, profile) is valued at a trailing revenue multiple of 19 times and Yahoo (YHOO: news, chart, profile) is valued at a multiple of 11 times.

While it carries a higher multiple, Baidu's growth has also been more rapid, with an estimated 185% increase in net revenue in its most recent quarter, double Google's growth rate and more than triple Yahoo's rate.

Google (GOOG: news, chart, profile) owns about 2.6% of the company.

"Despite a litany of longer-term risks, Baidu's comparison with Internet search phenom Google has generated enormous buzz around this offering," Renaissance Capital stated in its IPO of the Week column. See full column.

"For that reason, along with a small float and a valuation that many will view as attractive relative to Baidu's perceived growth prospects, Baidu's IPO debut is bound to be a success for those lucky few who can actually get shares at the offer price."

According to iResearch, the number of search users in China is projected to grow from 115 million in 2005 to 187 million in 2007, as cited in Baidu's IPO prospectus.

Total online marketing revenue in China was expected to amount to approximately $130 million in 2004, according to a study by IDC.

"The paid search market is expected to be the fastest growing segment of online marketing in the Asia Pacific region (excluding Japan) through 2007," Baidu.com said in its IPO document.

Robin Yanhong Li, 37, Baidu's co-founder and also its chairman and CEO, was formerly a staff engineer for Infoseek, a pioneer in the search-engine category.

Li received a bachelor's degree in information science from Peking University and a master's degree in computer science from the State University of New York at Buffalo.

In the three months ending June 30, Baidu's estimated revenue was $8.4 million, up 53% from the prior quarter, with net income of $1.5 million, up 384% from the previous quarter.


Steve Gelsi is a reporter for MarketWatch in New York.