Beijing Firm’s Stock Sale Echoes Dot-Com Boom
U.S. political opposition scuttled China’s takeover of a major American oil company this week. But money had no problem flowing in the other direction Friday as a Chinese Internet firm made its debut on Wall Street -- and scored the biggest one-day stock surge since 2000.
American investors opened their wallets for Beijing-based Internet search engine Baidu.com Inc. and drove the stock up from its initial sale price of $27 to $122.54 at the close of trading, for a 354% gain.
The rousing reception reportedly made instant millionaires of about 100 workers at the rapidly growing company, nicknamed “the Chinese Google,” and revived memories of the late-1990s dot-com boom, when new stocks routinely romped to massive gains.
“It’s like I’ve gone into a time capsule,” said Tom Taulli, an analyst who follows new share issues at investment bank Instream Partners in San Francisco. “What year is this?”
To investors, the stock offering united two of the world’s most alluring growth themes -- China’s economy and Internet commerce -- amid the rush by Chinese to use online services even in the face of government restrictions on Internet content.
The robust U.S. demand for Baidu.com’s stock also underlined what some Chinese say is a double standard: Although that country says it has welcomed U.S. investment, the recent attempt by Chinese oil giant CNOOC Ltd. to buy American energy firm Unocal Corp. was dropped after stoking a firestorm in Congress.
CNOOC on Tuesday pulled its $18.5-billion offer for Unocal, citing “regrettable and unjustifiable” U.S. political opposition, including assertions by some in Congress that a Chinese takeover of Unocal posed a threat to U.S. security.
On Friday, by contrast, Baidu.com co-founder Robin Yanhong Li was all smiles in New York as he rang the ceremonial closing bell for the electronic Nasdaq Stock Market, where his company’s shares began trading.
Baidu.com, the most-used Chinese-language search engine, raised $109 million from investors by selling 4.04 million shares at $27 apiece late Thursday.
On Friday morning the stock immediately rose to $66 in its first trade, then shot higher for the next few hours, reaching a peak of $151.21 before pulling back somewhat late in the day.
It was the wildest debut for any new stock since the tail end of the Internet mania five years ago, although the jump didn’t match up with the 500%-plus one-day gains of some dot-com shares in 1999 and 2000 -- just before that investment craze peaked and technology stocks began one of the most devastating market declines in history.
Even so, comparisons with the last speculative frenzy were inevitable for Baidu.com on Friday. At the end of the day the firm’s stock market value was $4 billion. That for a company with sales in 2004 of $13 million.
Baidu.com had been stirring investor buzz for weeks, but the intensity of the feeding frenzy for the shares caught analysts by surprise.
“Everyone knew Baidu would do well, but I don’t think anyone saw this coming,” Taulli said.
Despite its nickname, Baidu.com is far smaller than Google Inc., the U.S.-based Internet search leader, and generates a sliver of the revenue.
Like Google in China, Baidu.com also is subject to government censorship, raising risks for its long-term growth strategy, the company has warned in financial filings with U.S. market regulators.
Nonetheless, investors in the U.S. and elsewhere saw Baidu.com as a way to bet on rising Internet use in China, analysts said. It didn’t hurt that Google has more than tripled in value since it went public a year ago -- or that Google, although a rival to Baidu.com, also owns a 2.6% stake in the firm.
“There’s an overwhelming feeling in the marketplace that this was the second coming of Google, and people felt like they had to jump on it,” said analyst David Menlow, president of IPOFinancial.com in Millburn, N.J. “They said to themselves, ‘I could have bought Google at $85 and now it’s nearly $300.’ They’re smacking their heads and saying, ‘I could’ve had a V8.’ ”
Baidu, pronounced “buy-do” and translated as “hundreds of times,” was founded in January 2000 by Li and Eric Xu.
It has become the world’s largest Chinese Web index, with more than 300 million pages. Baidu’s search services include news, MP3 music files and digital images. The firm also operates 820,000 message boards.
China has 103 million Internet users, up 18% from a year ago, according to government data. Some analysts expect 400 million Chinese to be online in 10 years.
Baidu’s service has plenty of fans -- and also detractors.
“I use Baidu for Chinese searching and Google for English searching. They are different, but Google often breaks down,” said Wang Yanan, 17, a Beijing high school student.
“I never use Baidu,” said Cecil Gong, 23, who works at a Shanghai online gaming company. “Google is a pure search engine -- much cleaner, no advertising, no annoying tricks, more comprehensive. In a word, more professional.”
Li, 37, earned a master’s degree in computer science from the State University of New York at Buffalo and worked as an engineer for American technology company Infoseek in the late 1990s, before returning to China to start Baidu.com.
He took the firm’s name from an ancient Chinese poem about searching for one’s dream.
Li’s search for foreign investors to help bankroll his company made his 22% stake in Baidu.com worth $891 million on Friday.
Xu, who left the company in December, owns shares now worth $272 million, according to the company’s financial filings.
Li is said to be such a romantic that he has named meeting rooms in Baidu’s headquarters for Sung Dynasty poems. People who know him also say he is driven, decisive and stubborn.
“I tried several times to persuade him to build better relations with the media, but it seemed he felt it unnecessary to care much about what people said about him,” said his friend Fang Xingdong, chairman of China Laboratory, a software consulting firm in Beijing.
Li’s staff includes a number of U.S.-trained executives, including Chief Financial Officer Shawn Wang, who previously worked for accounting firm PricewaterhouseCoopers. Wang, 38, is well-connected politically in China as an advisor to the Ministry of Finance and a former advisor to the government’s Securities Regulatory Commission.
Hong Bo, an independent technology analyst in Beijing, said Baidu.com seized on an opportunity in 2002 when Google’s services were temporarily blocked by the government. Chinese Web users had to turn to local search engines, which gave Baidu.com the chance to establish its brand name, he said.
Baidu.com had 37% of the Chinese search market in the first quarter, the single largest slice, according to Isearch, an Internet research firm in Shanghai.
But Baidu.com also faces the challenge of operating an information business overseen by government censors. In the prospectus for its stock offering, the company said it was required in June 2002 to shut down its computer server for one week and pay a fine “because our search results contained certain content that the public security authorities considered socially harmful.”
The company warns in its prospectus that Internet-related law in China is “new and evolving,” posing risks to its growth.
Like Google, Baidu.com makes money from site advertising linked to search results.
Also like Google, Baidu.com already is profitable -- unlike so many of the dot-com start-up companies of the late 1990s. The firm said it earned $1.5 million last year.
Baidu.com said it had doubled its workforce to 700 employees this year, and an estimated 120 of them own equity stakes, a high percentage by Chinese corporate standards.
That, too, made for an echo of the U.S. dot-com mania, when thousands of young workers at start-up companies suddenly were rich beyond their wildest dreams -- at least on paper.
The initial rule at Baidu.com was that after working for four years an employee would get 3,000 stock options.
The company’s early recruiting slogan was, “Four years working equals 30 years working.”
In another echo, the Baidu.com’s stock offering also further enriched Silicon Valley venture capitalists that had backed the company, including Draper Fisher Jurvetson EPlanet Ventures. Its shares were worth $1 billion at Friday’s closing price.
Friedman reported from Los Angeles and Lee from Shanghai. Researcher Cao Jun in The Times’ Shanghai Bureau contributed to this report.
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IPO gainers
Baidu.com was a hot stock Friday, but it didn’t crack the Top 10 list of the biggest one-day gainers among initial public offerings. All of the hottest deals were during the last dot-com boom era.
*--* IPO Month/ first-day Year Company pctg. gain 12/99 VA Software 698% 11/99 Finmatica 692 11/98 Theglobe.com 606 9/99 Foundry Networks 525 2/00 WebMethods 508 7/00 Proxim 500 12/99 FreeMarkets 483 11/99 Cobalt Networks 482 1/99 MarketWatch.com 474 10/99 Akamai Tech. 458
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Source: Dealogic
Los Angeles Times
