For a stock that is up 185% on the year and is a major player in China’s booming technology sector, some might think Baidu.com Inc. (NASDAQ:BIDU) is a risky play and the shares are overbought.
But China is the world’s second-largest Internet market after the United States, and Baidu is the leading Chinese language search engine.
Indeed, Baidu will likely trade ahead of “classic fundamentals,” according to Citigroup’s Jason Brueschke. However, the analyst says it is worthy of a much higher premium than its Internet peers in China due to better earnings growth prospects and the potential in China’s search market. He also thinks Baidu will boom through the Beijing 2008 Olympics and growth will remain robust through 2009.
Baidu’s announcement that it plans to enter the China’s e-commerce market in 2008 by setting up a consumer-to-consumer service, is an attempt to leverage its huge amount of traffic.
As eCommerce develops in China, there will be an unlocking of value in search engines there, Mr. Brueschke said in a note to clients. Consumers are expected to make the move to both identifying products and making transactions online.
He maintained his “buy” rating and US$250 price target on Baidu, which is well below where it currently trades.