Baidu Baidu

1 Introduction

Baidu.com, the leading internet search engine in China, decided to go public on the NASDAQ Stock Market on August 5, 2005. The IPO of Baidu.com finally turned out to be one of the highest-profile debuts since the Internet bubble burst in 2000. Its stock price jumped 354 percent on the first day of trading and closed at $122.54, making the value of Baidu.com attain to $3.96 billion based on 32.3 million shares outstanding.

With strong enthusiasm for the stock in the market, the IPO of Baidu.com generated much debate in the investment community about the underlying value of the firm. Despite many arguments about this issue, in this report we will explore this issue again. The framework of our report is illustrated as follow:

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2 Industry Analysis

In this part, we will explore the industry from three aspects:

• Core competitive power of Baidu.com

• Market potential

• Competition

Through these analysis we intend to determine the following two key factors influencing the value of Baidu.com:

• Growth rate

• Risk

2.1 The Business Model of Baidu.com

Baidu.com is an internet search service provider in China. In 2005, it was the top search engine in China by traffic and ranked 5th globally. With an in-depth understanding of Chinese search market, Baidu.com developed a series of products that were specific to the local market. This can be the core competitive power of Baidu.com, which brought it a substantial online traffic. For an internet-based company, traffic is an important value driver, based on which the revenue can be created. To sustain a growing traffic, Baidu.com pioneered a multi-tier sales and distribution model, which provided the company with a substantial competitive edge in China’s developing paid search market.

Business Model of Baidu.com

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Revenue Composition of Baidu.com (in RMB million）

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Baidu.com had the most popular online search products in China and had developed a very...