Baidu shares skyrocket in market debut

Shares in Baidu.com - “China’s Google” - soared more than 350 per cent in New York on Friday, in one of the most spectacular stock market debuts since the dotcom mania of the late 1990s.

Baidu shares were offered at 540 times historical earnings per American Depositary Share, but by the close the price-to-earnings multiple had risen to 2,450. Google, which owns a 2.6 per cent stake in Baidu, trades at about 74 times earnings.

The company’s market capitalisation rose to almost $4bn, up from about $872m.

Baidu reported first-quarter revenues of about $5.2m and $13.4m during the whole of 2004, according to regulatory filings.

“The search market in China is truly in its infancy,” said Safa Rashtchy, internet analyst at Piper Jaffray, one of the banks that underwrote the initial public offering.

The willingness of consumers to buy online - which has supported the huge commercial success of Google and others in more developed markets - would take years to develop in China, he said, although he added: “The potential is of course huge over the long term.”

The shares were priced at $27 each late on Thursday but closed at $122.54 on Friday, up 353.9 per cent.

The pricing resulted in about $109m in proceeds for the five-year-old company, which is China’s first pure-play search engine to go public in the US. Its names comes from an ancient poem about a man seeking love.

The sharp rise in the first day of trading harked back to the height of the internet boom when underwriters were accused of underpricing shares ahead of IPOs. Google skirted the issue by opting to price its shares in an auction, as opposed to allowing underwriters to price its stock.

China is the world’s second largest internet market after the US and more than 100m Chinese now have internet access. The number is expected to surpass the 185m US users online in the next few years.

The Chinese market’s growth owes to ever-wider access to broadband in urban centres and internet cafes appearing even in remote towns.

In addition to raising the price range for the shares, Baidu also increased the number of shares on offer to 4.04m, or 12.5 per cent of its capital, from an initially planned 3.7m.

Goldman Sachs and CSFB were the lead underwriters for Baidu’s IPO.

Shares in Sina and Sohu, other Nasdaq-listed Chinese internet companies, were mixed. Sohu added 6 per cent to $19.24, while Sina was down 0.2 per cent at 28.96.

Another hot sector is online gaming, with China’s NetEase.com announcing a 146 per cent year-on-year increase in gaming revenues this week. Its shares rose 20 per cent on the news and analysts at PiperJaffray raised their revenue estimates to $200m for its 2005 fiscal year and $302m for 2006.

NetEase.com shares closed 3.4 per cent up at $75.86 on Friday.