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Baidu Needs To Search for Edge
2005-8-2 10:37:32     
Chinese search engine could become one of the hottest U.S. initial public offerings (IPO) this year in light of Wall Street's interest in China and online seach engines. But Baidu needs to find an edge over Google, which is expanding in China, to justify its high premiums.

The Beijing-based company's price to earnings ratio, based on an assumed pricing of US$20 and annualized earnings of the most recent quarter, is an astounding 528, as calculated by Francis Gaskins, an IPO expert with

Google Inc., which launched a blockbuster US$3 billion IPO last year, had a P/E ratio of 73 before it went public in August, based on its IPO price of US$85, Gaskins said. Google shares had surged to US$290.

The fact that Baidu is only selling US$75 million of shares means demand could well exceed supply when it debuts on Nasdaq on Aug. 4 under the proposed symbol "BIDU." Goldman Sachs and Credit Suisse First Boston are lead managers.

"Seventy five million dollars is almost nothing for an IPO," Gaskins said. "If you want to participate in China's search market, there is nobody else."

China, already the world's largest computer market, has become a key battlefield for all the major Web search players, including Google, Yahoo Inc., and Microsoft Corp.'s search offering.

Shanghai iResearch has estimated that China's Web search market was worth about US$50 million in 2004 and is forecast to expand to about US$200 million by 2006.

Adding allure to Baidu's IPO is Google's 2.6 percent stake in the company. There is speculation that Google might acquire Baidu to expand quickly in China, similar to what eBay Inc. did to Chinese online auction house Eachnet.

But if Google choses to go into China alone, that could present a a big risk for Baidu.

The Silicon Valley-based U.S. search giant has won a license to operate in China and bought a Web address there. Google is hiring staff with the aim of opening an office in the country this year.


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