baidu
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( DJ ) 08/05 12:31AM WSJE(8/5) Breakingviews: IPO Of Baidu Not A No-Brainer
(From THE WALL STREET JOURNAL EUROPE)
As pitches for initial public offerings go, Baidu.com's is dead simple. This
is "China's Google" -- the most popular Internet search engine in the most
populous country on Earth. The company is already profitable, and brokers
estimate that China's 100 million Internet users will increase in number by
25% annually. An attractive investment, surely?
Not necessarily, for a number of reasons.
First, the valuation being attached to Baidu is demanding, to say the least.
The group only earned a bit less than $1.5 million (1.2 million euros) in
2004. Assuming it roughly triples its revenue and doubles its costs this year,
as has been the trend for the past two years, it would earn $16 million. This
means Baidu will have a price-to-earnings ratio of 50 at the top end of the
indicated range for the IPO.
Second, Baidu isn't yet a Google. Google's sales were 85 times larger than
the Chinese group's when it went public last year. Baidu has a good strategic
position, but it is still early days for the Chinese search market. Yahoo,
Google and a host of Chinese companies are gunning to beat Baidu.
Third, Chinese law restricts ownership of media assets by foreigners.
Investors are actually buying shares in a Cayman Islands holding company,
which owns a Virgin Islands incorporated company, which has contractual
agreements with a Chinese company controlled by the two founders. And that's
not all. The holding company has a dual-share structure giving B shares 10
times the votes as A shares, so that insiders owning B shares will control the
company's destiny no matter how many A shares are sold to the public.
On top of this, insiders are selling down part of their holding in the IPO.
Before putting their own money into "China's Google," investors might ask
themselves why its founders think now is a good time to reduce their exposure.
(From THE WALL STREET JOURNAL EUROPE)
As pitches for initial public offerings go, Baidu.com's is dead simple. This
is "China's Google" -- the most popular Internet search engine in the most
populous country on Earth. The company is already profitable, and brokers
estimate that China's 100 million Internet users will increase in number by
25% annually. An attractive investment, surely?
Not necessarily, for a number of reasons.
First, the valuation being attached to Baidu is demanding, to say the least.
The group only earned a bit less than $1.5 million (1.2 million euros) in
2004. Assuming it roughly triples its revenue and doubles its costs this year,
as has been the trend for the past two years, it would earn $16 million. This
means Baidu will have a price-to-earnings ratio of 50 at the top end of the
indicated range for the IPO.
Second, Baidu isn't yet a Google. Google's sales were 85 times larger than
the Chinese group's when it went public last year. Baidu has a good strategic
position, but it is still early days for the Chinese search market. Yahoo,
Google and a host of Chinese companies are gunning to beat Baidu.
Third, Chinese law restricts ownership of media assets by foreigners.
Investors are actually buying shares in a Cayman Islands holding company,
which owns a Virgin Islands incorporated company, which has contractual
agreements with a Chinese company controlled by the two founders. And that's
not all. The holding company has a dual-share structure giving B shares 10
times the votes as A shares, so that insiders owning B shares will control the
company's destiny no matter how many A shares are sold to the public.
On top of this, insiders are selling down part of their holding in the IPO.
Before putting their own money into "China's Google," investors might ask
themselves why its founders think now is a good time to reduce their exposure.
Nice article.
Another NazCrack momo into super short squeeze.
I wonder how many traders ended their career with this stock today.
Correct me if I am wrong, but I don't believe shares are available to short on the first day of trading...
it's the new GOOG! Why not hit $200?