Top Chinese Online Search Firm, Baidu, Prepares for IPO

RED HERRING indicated in an article that Baidu, the leading online search engine in China is preparing for an IPO on the Nasdaq market this fall. The company has reportedly retained the services of Goldman Sachs and has entered a silent period. The article states that Baidu is seeking a $1B market cap but Goldman Sachs thinks the true valuation is much less. Who can blame management for seeking top dollar given the recent success of Google’s IPO. According to iResearch, Baidu has a 44.7% share of the online search space in China and Google has a 30.1% share. Yahoo! is also a major player in the market with its purchase of 3721.com. Together, the three firms account for 85% of online searches in China. Sohu.com also promises to become a major player in the market and has recently updated its search services. Baidu is reportedly profitable (we will see when the filing comes out) and supposedly charges the equivalent of $0.04 cents per click on its paid search model which accounts for 70% of total revenues. The remaining 30% is split 15-20% for non-query-sensitive text links with enterprise search accounting for the balance. No doubt in my opinion that this IPO will ignite a frenzy when and if it is announced likely enticing other private Chinese Internet firms to IPO. Time will tell but many structural issues remain in the Chinese market that are currently making many of their equities unattractive at the moment following extreme investor interest over the past years. Maybe Baidu can revive interest.