Baidu (BIDU), the largest search property in China, increased revenue by 103% to $35 million in the first quarter. Net rose 143% to $11 million. The percentage increases were terrrific, but, as they say in the old country, they were off a small base.
Baidu’s stock rose over 20% after hours, moving its market cap up to between $3 billion and $4 billion. That would put Baidu’s revenue to market cap at about 40x depending on whether its revenue holds at current levels for the rest of the year. Google’s (GOOG) comparable number is about 14x.
Now, this doesn’t make any sense. Google may not be growing as fast as Baidu, but is is fairly close, and off a much larger base. Google has no real competition in most countries, especially it home market. Baidu competes with Google and Yahoo! (YHOO) in China, and, its new market, Japan.China’s internet market is growing faster than the US and its number of users may get larger, but it is a region that is going to be subject to fierce online competition.
Both US-based companies, especially Google, have the financial and technological resources to work Baidu’s market share down in China and hinder its growth. Google has recently announced its plans to increase its business on the mainland. Google has 21.7 percent of China’s search market, well behind industry leader Baidu.com Inc., which has 55 percent, according to market data company iResearch Inc.
Is Baidu too expensive? Almost certainly, and the fact is that the stock should probably trade for half of its current price.
Douglas A. McIntyre can be reached at [email protected]. He does not own securities in companies that he writes about.
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