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September 14, 2005
More voodoo from Baidu, Wed., September 14, 2005, 5:46 PM
Some traders will never learn. How many times do they need to be warned?
Do traders really enjoy the art of buying stock at $110 and $120, only to see it collapse to $81.32 a day or two later?
So today was not a case of pump and dump". It appears some responsible people at Goldman Sachs and Piper Jaffray stopped this BIDU farce in mid-stream, i.e., before more dumping. This time there was an immediate $20 gap to the downside, so the insiders had no time to get out.
Baidu.com slammed on valuation
NEW YORK (MarketWatch) " Sept. 14, 2005, By Mark Cotton
"Shares of Baidu.com Inc. tumbled almost 30 pct Wednesday as concern about the Chinese Internet search engine's soaring valuation prompted analysts at Goldman Sachs and Piper Jaffray to start coverage with under-perform ratings. U.S.-listed shares of Baidu.com closed down $32.27, or 28.4%, at $81.32.
Both brokers, along with Credit Suisse First Boston, underwrote the company's initial public offering. Baidu.com shares started trading on August 5, with the company's stock shooting up nearly fivefold in its first session.
Goldman Sachs and Piper Jaffray said their ratings did not in any way reflect on the successful business model of the company, which has allowed Baidu.com to become the leading Internet search engine in China."But Baidu's current stock price has far exceeded even the most aggressive valuations and is distinctly 'off the chart' in our view," said Safa Rashtchy, analyst at Piper Jaffray. Rashtchy set a $45 price target on the stock -- a mark, the analyst says, that includes an aggressive valuation premium. Over at Goldman Sachs, analyst Anthony Noto values the stock at around $27, with the broker's most optimistic assessment offering up an implied value for the company of about $45, some 60% below current levels.
Nevertheless both analysts remain upbeat about the company's prospects.Noto's forecasting growth rates of 35% for revenue and 40% for earnings per share between 2006 and 2009. In 2006 alone, the Goldman Sachs analyst estimates Baidu.com will see earnings-per-share growth of 106% on a 71% jump in revenue. Noto bases his forecast on the company's solid results to date and on an exploding Chinese market. "By 2008, the number of Internet users in China should reach 252 million, surpassing that of the U.S. despite only representing 19% of the expected population at that time vs. 71% for the U.S," said Noto. "These strong secular growth trends provide a positive backdrop for Baidu."
For Rashtchy, Baidu.com will benefit from a rapidly growing sponsored-search market in China. The Piper Jaffray analyst said sponsored search currently represents a market of around $134 million but should approach $1 billion by 2010, driven by increasing query volume and higher advertiser participation and spending levels. "Search queries are growing at a very rapid rate, expected to double in 2005 and continue to grow fast, as increasing relevancy and higher user familiarity with search engines creates more usage," said Rashtchy. At the same time, said the analyst, the low cost of sponsored search and its effectiveness are attracting an increasing number of advertisers and allowing for "click charges" to go up. Disclosing its interest in Baidu.com, Piper Jaffray has received compensation for investment banking services from the company in the past 12 months. It was also making a market in the company's securities at the time its research report was published. Goldman Sachs makes a market in the company's securities. "
Now you know: Baidu could be the best company in the world, and its stock (BIDU) could be the worst. So, don't buy stories when you are thinking of trading stocks!
Posted by Posted by Bill Cara on September 14, 2005 05:46:12 PM | Category: Special Situation Equities