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China Search Engine Raises IPO Target

Posted on: Friday, 5 August 2005, 00:00 CDT

SAN FRANCISCO -- Baidu.com Inc., an online search engine maker vying to become the Google of China, priced its initial public offering at $27 per share late Thursday, cashing in on the high hopes riding on a startup with a large audience and puny profits.

The IPO raised a total of $109.1 million - $86.6 million for Beijing-based Baidu, which sold 3.21 million American depositary shares, and the remainder for company insiders who sold 831,706 shares.

The pricing sets the stage for one of China's early Internet icons to make its Wall Street debut Friday. The company's shares will trade on the Nasdaq Stock Market under the ticker symbol "BIDU" - an echo of its name's pronunciation, "by doo." The name was inspired by a 900-year-old love poem.

Baidu is tiny by U.S. standards. The company earned $1.8 million on revenue of $13.6 million during the first half this year. Investors are betting Baidu will grow rapidly as more of China's population becomes hooked on the Internet. At $27 per share, Baidu's market value is about $856 million.

IPO analyst Paul Bard expects Baidu's shares to rise even higher when Nasdaq trading begins because Baidu bisects two hot spots, Internet search engines and China. The relatively small number of shares issued in the IPO also is expected to drive up the price.

"Baidu is operating in the largest and fastest growing market in the world, so it has created a lot of intrigue and excitement about the company," said Bard, who tracks the market for IPOhome.com.

The enthusiasm prompted Baidu's investment bankers, led by Goldman Sachs, to raise the IPO price from an initial target range of $19 to $21 per share.

Launched 5 1/2 years ago by U.S.-educated engineers Robin Li and Eric Xu, Baidu has emerged as the second- most popular Web site in China and the country's most popular Internet search engine.

Baidu's early lead in Chinese-language online search has inspired comparisons to Google Inc., which has ridden the moneymaking prowess of its search engine to a market value of $85 billion less than a year after its ballyhooed IPO.

Google earned $712 million on revenue of $2.6 billion during the first half of this year, raising hopes that Baidu might some day enjoy similar success if it remains a go-to Web site in a country that accounts for one-fifth of the world's population.

Apparently, even Google likes Baidu's potential. The Mountain View-based company invested $5 million in Baidu last year, securing a 2.6 percent stake worth $20.2 million after Thursday's IPO.

Baidu's biggest shareholder also is from the United States, Draper Fisher Jurvetson, a Silicon Valley venture capital firm with a 28.1 percent stake worth $221 million at the IPO price.

Li, the company's 36-year-old chief executive, also hit the jackpot with Thursday's IPO. His 25.8 percent stake is worth $203 million.

Despite its investment in the company, Google represents a major threat to Baidu because the company is gearing up for a major push into China. Yahoo Inc. and Microsoft Corp., which rank second and third, respectively, behind Google in U.S. share of the search engine market, also have designs on China.

Like Google, Baidu 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 upon.

Although its business model mirrors Google, Baidu faces different challenges.

China's Communist government and its history of censorship poses one of the biggest potential stumbling blocks.

In 2002, the government shut down Baidu for a week and fined the company for producing search results with content that were considered "socially harmful," according to Securities and Exchange Commission documents.

Requests for MP3 music files account for 21 percent for Baidu's search requests, a frequency that has provoked two lawsuits for alleged copyright infringement.

Source: Associated Press/AP Online

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