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August 04, 2005

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

Posted by dymaxion at August 4, 2005 09:46 PM


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