Blue Sky for Baidu?

March 24, 2009

The dreams of Internet moonshot stocks have not disappeared amid the global economic slowdown.

Take Baidu, the No.1 Internet firm in China, which was bequeathed a lofty $432-a-share valuation by Deutsche Bank on Tuesday under a so-called “blue-sky scenario.”

That would be quite a bit above Baidu’s $186.50 opening price on Tuesday, but Deutsche Bank analyst Alan Hellawell points out in a note initiating coverage on Baidu that the stock has traded upwards of $380 in the past 52 weeks and that Baidu’s market cap still pales compared to Google’s.

While Baidu’s revenue recently took a hit after the company removed paid listings from unlicensed medical firms, Hellawell believes the headwinds pressuring the stock have now largely subsided.

Citing the spread of Internet usage among Chinese citizens, and the increasing popularity of online advertising by Chinese small and medium businesses, Hellawell reckons that Baidu could ride the same wave that once propelled Google’s stock to more than $700 a share.

“We expect Baidu to largely follow Google’s business model evolution and growth trajectory,” Hellawell said.

The $432 hypothetical valuation for Baidu’s stock assumes various best-case scenarios over the next three years, including a 48 percent growth in Chinese online advertisers instead of the 19 percent growth rate used in Deutsche Bank’s base scenario.

What does Deutsche Bank, which makes a market in Baidu shares, think Baidu is worth in normal  circumstances? Hellawell has a Buy rating and a 12-month price target of $211 for Baidu.

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BIDU is always a bubble to bust the fire jumpers, satisfying their dreams with their blood.

Even if Baidu share could reach $432 someday, BIDU tends to crash hard. Those who pushed most (buy on in peak) suffer most.

Just like San Lu, Baidu plays evil. Chinese gov would erase evil firms easily. A little while ago, San Lu was the best and largest baby milk power provider in China, now dissappeared.

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