Friday, August 05, 2005

Internet Search Engine Baidu Demonstrates Growing Global Economic Significance of China

From AlwaysOn: Gotta have growth

"Fear is a powerful motivator. And investors may fear that demand will only get stronger and that Friday's price will soon look like a bargain, much as Google's $300 price today makes its $85 IPO price tag back in August 2004 look cheap.

Already, based on multiples of expected sales, it appears that investors are assigning more value to Baidu than they were to Google (GOOG) - which, it should be noted, itself holds a 2.6% stake in Baidu -- as it went public last year."

"I'm 99% certain that Baidu, unlike Google, won't be valued at $90 billion in a year. But Baidu is a lot like Google in that it represents one of the very few hyper-growth opportunities in the most lucrative and fast-growing online business we've witnessed: paid search.
Moreover, it's paid search in a country that's just turning the corner toward becoming a consumption machine -- of both goods and ads.Let's face it: There haven't been many exciting growth opportunities in the U.S. of late. In fact, the dearth of good growth stories is probably why Google's market cap is nearing $100 billion. Where else can you find revenue and profit more than doubling consistently?"

"Now, whether Baidu -- a company that's expected to post $12 million in cash flow on $30 million in sales -- is worth a billion dollars is another story. When Google went public last year, it had a market valuation in the $30 billion range and had net income of $143 million on sales of $1.35 billion in the first half of 2004."

"How Baidu trades, however, may not be as relevant to historians as what this tiny company signifies: China's power and influence. Here's a young 5-year-old overseas company that generated $5 million in sales during the first three months of this year. Yet it's making one of biggest splashes in the U.S. market this year. When a tiny company can whip Americans investors into a frenzy, and be assigned a higher debut value than Google was, one has to wonder what happens when China sneezes."


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