A must-read comment on the Baidu IPO (BIDU)

| About: Baidu, Inc. (BIDU)

Here is a comment about the upcoming Baidu IPO from a reader of The China Stock Blog:

JR wrote:

....I ran some calculations here...
assuming 100% revenue growth year-over-year (about 20% sequentially)
for the next 7 quarters, and assuming that their net margin will get
closer to their 20% operating margin, we can expect about $60 million
in revenue and $10 million in net income for 2006. At $25 a share, that
would mean a forward PE over 70 !!! The rest of the Chinese online
companies have forward PEs of below 20 and they have a respectable
double-digit yoy growth.

I am not saying that at $25 BIDU is not fairly valued - the price is
the effect of the available supply and demand. I am saying that if
someone is going to buy at that price, they must buy it for the
momentum and the hype factor, not for a buy-and-hold investment, and
they must watch carefully for early signs of exhaustion of the trend to
get out in time. A longer term investment may be justified at much
lower PEs.

Not subscribed to The China Stock Blog? You can get updated headlines for free by adding The China Stock Blog to your My Yahoo page. Just log into your My Yahoo
page, then go to The China Stock Blog and click on the "+ My Yahoo"
button on the top right of your screen. You can do the same for other sites, such as The Internet Stock Blog, ETF Investor, and Sound Money Tips.