Baidu's $400 Target Reminiscent of Dot.com Valuation

Hmm, is this like Amazon.com (AMZN) $400 price target back in the day? Oh Henry Blodgett I miss you.

Baidu.com Shares Rise on Analyst Comment

• NEW YORK (AP) -- Shares of Chinese search engine operator Baidu.com Inc. reached an all-time high Tuesday after a JPMorgan analyst initiated coverage of the stock with an "Overweight" rating, saying shares will rise as Internet use in China increases and the company gains market share.
• In a client note, Dick Wei said Baidu shares should rise to $400 by the end of next year.
• The company has brand recognition and a history of offering products its users want, he said, which has made it one of the most visited Web sites in China.
• "We believe the continued traffic and market share gain demonstrate that management understands the Chinese users' needs," he said. "Over the next few years, we expect another 100 million people to use the internet in China."
• Wei also praised the company's search technology, and said Baidu has a good relationship with the Chinese government.

Takeaway: This is actually a pretty conservative call; only saying that there will be a 33% rise by year end 2008 (15 months). Heck a good Chinese stock does that in 1 day. Baidu you loser stock! That said, I am sure the lemming... err investors... in Baidu.com think this $400 should hit by next week.

I like Baidu. I really do. Just not at this valuation. There is rich and pricey. And then there is rich and pricey. Forget earnings per share which are off the map; even the price to sales is 60. Folks. That is dot com valuations. Sorry, I will sit this one out on the sideline. Maybe at $240 where its price sales would only be.... oh nevermind. If Baidu.com is $400, Google (GOOG) should be $800. (yes even with its slower growth and inability to win the hearts and minds of 1.3 Billion Chinese).

And this folks is how dot com valuations used to work... if overvalued as a fat hippo stock A was worth $XXX than not quite overvalued as a fat hippo stock B was certainly worth as much. And you can keep playing that game forever - until PE ratio 150 stock was cheap compared to PE ratio 180 stock. It's all relative.

Comments

[BillCust:]

Yeah, I hear you. Someone I know is almost broke now going against my advice not to short CPSL, heheh. The guy said a PE of 700 was bad. Well, I said, so were 100, 200, 400, and 600 - for a steel mill no less. He didn't get my drift unfortunately.

2007 Oct 03 12:39 PM

[mark1:]

it's growth that matters not PE -- your focus wrong is
pe could 200 to 400 stocks are forward thinking animals--
its the growth that matters -- it will go to 400
sooner then you think !!!

2007 Oct 03 07:55 PM

[User 110899:]

Hi, maybe you doesn't know what is going on in Chinese internet market. my comment won't talk much about "PE", it will be some background information.

No, not every Chinese loves Baidu. Google can handle Chinese content as good as Baidu, or better. If you think more Chinese have heard Baidu than Google, it is joke.
But Baidu will grow very fast. The following is why:

Actually some Chinese never use Baidu, because Google obviously gives better results, I can't call myself an search engine expert but here is what I know, as a normal user:
1 Baidu's ranking system is heavily affected by money, you pay more, you rand higher.
2 Baidu filter out some pages (this is actually its advantage).
3 Baidu is just an incomplete clone of google, searching, ad, nothing new.

Here is what Baidu has but google doesn't:
1
It has many community features, including wiki, dictionary etc.These are just clone of wikipedia etc, nothing special, well actually a big difference from wikipedia: the information on baidu is "managed"
2
In its core system, it has a built in content filter, so that they can remove any content which someone doesn't want

Google doesn't has this important "feature", thus will show this "illegal"(this doesn't mean adult, belive me Baidu has way more adult content) content, google has been banned for some times (I am not joking), but how can google.com add this "feature", if they add, their US users won't use google anymore! Finally google and the gov had a clever solution:They add something to the routers (using "content-filtering" features offered by American companies) then,
It is not rare to get illegal records from a normal search, but if the user click the record, the network connection will be closed, he can't use internet for a while, and if he tries again and again, even those pc near him will be blocked, it is very annoy. Baidu just removes them from database, so it doesn't has this problem.

So if a fan of google(there are many) want to find something on serious topic, like "programming", it is likely that he will use Google. But if he want entertainment,he may choose baidu.
Those who are not fan of google, will just use baidu to avoid this problem.
And some under educated people, never heard google, since baidu obvious appear much more frequently in "offical medias".

Baidu has big marketing advantage because of this (every resource are controlled by the gov), some clever guys even spread many internet gossips accusing google is hiding information from Chinese people. Althrough Baidu denies, I belive it is them.

Google China's new head (this guy is an ass hole, seriously. He is an ass hole even when he was in MS, but he has good "government relationship". I was very disappointed when I heard google hired this cheater, I would not call myself a google fan after that) started a new idea to build a "clean" google (google.cn) using the same techique used by Baidu.
But for google's loyal users, google.cn is worse than Baidu, it has nothing new over baidu. So I don't belive google can beat Baidu by google.cn, they are just copying Baidu, copying is not what google is good at.
Also that ass hole coined the assumed "Chinese name of google", it is a disaster, it sounds like a company who produces virus.

So what can we say. Does Baidu rock? well as long as they are good at something, they are. If nothing changes, they will make more money year by year.

Something similar happens to CNPC, this company is cursed by Chinese, very negative public image, its management is a disaster, but it still earns big money, it is THE biggest Asian company. The gov only allows 3 companies to control China's energy business, that is enough, they got rich by this.

I hope my comment can explain why baidu can "kick google's ass".

2007 Oct 04 09:28 AM

[TraderMark:]

Hi User,
I am not saying anything negative about Baidu.com operationally. The valuation is my contention. Its price to sales is >60. Sorry, but that's dot com valuations. This was a mid $100s stock last month. Again, I think they will be a huge company in time, but the market valuation in relation to size of company is out of whack. It is cheap on 2010 or 2011 size, not on 2007 or 2008 or heck 2009. Analysts begin making up wacky excuses to justify higher prices... thats how it worked in 99 and 00 with internet companies when there was no reasonable way to value on earnings or revenue - they started valuing stocks on mindshare or eyeballs or silly things like that or 10 year cash flow discounts. Does anyone really know the 10 year value? Many companies in 1997 that were going to dominate the internet world are out of business... even the "best" of the era Yahoo is getting eaten by Google. If you tried to value Yahoo in 1997 and say growth rate would grow by XX% each year and in 2007 you would be at ABC price you'd look foolish now. Again, analysts are now having to come out with outrageous ways to justify price increases - where was the $400 price target when the stock was $160 not 6 weeks ago? It would of sounded outrageous then, but a lot more courageous of a call. Now its just trying to justify a price.

2007 Oct 04 06:56 PM

[User 112534:]

ok, so heres the deal... its headed for 400 before december, its biggest news and growth is ahead of it. the right time to sell this stock will be just post the olympics perhaps two quarters past but no more. it will level off at that point 2009. but at that time it will have a 20plus billion valuation. you need more actionable commentsin this post.

2007 Oct 10 05:17 PM

[TraderMark:]

Actually noon today was a great time to sell it :)
It had about a 17% intraday reversal. If the market weakens I wouldn't be surprised to see mid $200s. I will be interested there, and then you can run it up to $400 :)
For now the market showed you today, many holders of Baidu don't believe in the valuation either as the minute some bad news came out they deserted the stock in droves.

2007 Oct 11 06:10 PM