Baidu.com Sinks 28% on Analyst Remarks

Baidu.com lost nearly a third of its market value Wednesday after two of the investment banks that managed the Chinese Internet search firm’s meteoric initial public offering said the stock price was overblown.

The shares plunged $32.27, or 28%, to $81.32.

U.S. Internet search leader Google Inc. also slumped Wednesday, before its secondary stock sale. The deal was priced after the close of regular trading.

For Baidu.com, the day’s sell-off was a harsh reversal of the frenzied buying that followed the company’s initial public offering Aug. 4. The shares, priced at $27 in the IPO, soared to $122.54 when trading opened Aug. 5.

The stock drifted down in August, to $72.69 on Aug. 22. But the price rebounded in recent weeks, to $113.59 on Tuesday.

That was too much for investment banks Goldman Sachs and Piper Jaffray. In separate reports they both rated the stock “underperform.”

“Baidu’s current stock price has far exceeded even the most aggressive valuations and is distinctly ‘off the chart,’ in our view,” Piper analyst Safa Rashtchy wrote. He set a price target of $45 for the shares.

Piper Jaffray said Baidu had been trading at about 123 times estimated 2006 earnings before interest, tax, depreciation and amortization, compared with a range of 14 to 26 for its peer group.

“We believe this level of disparity is not sustainable and the stock is likely to correct this,” Rashtchy wrote.

Goldman Sachs said fair value for the stock was between $27 and $45.

The analysts’ ratings stand in stark contrast to the cheerleading from underwriting banks that followed IPOs during the late-1990s Internet boom.

They also contrast with rival brokerage Morgan Stanley’s views. The firm this week issued an 118-page report on Chinese Internet stocks, and rated Baidu.com “overweight,” the equivalent of a buy rating.

Google, meanwhile, raised $4.18 billion in its stock sale Wednesday. The proceeds are expected to be used for acquisitions and product development to fend off advances by Yahoo Inc. and Microsoft Corp.

Google sold 14.2 million shares at $295 each, the Mountain View, Calif.-based company said. It was the biggest follow-on share sale in the U.S. since at least 1995, according to David Menlow, who runs IPOFinancial.com.

The sale surpassed a $3.99-billion offering by Goldman Sachs Group Inc. in 2000.

Google fell $8.68 to $303.