A must-read comment on the Baidu IPO (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.

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