Baidu.com Inc., the maker of China’s leading Internet search engine, mesmerized Wall Street Friday as its stock more than quadrupled — a dazzling debut driven by the company’s connections to Google Inc. as much as its own tantalizing potential.
The Beijing-based company’s shares closed at $122.54 on the Nasdaq Stock Market, a 354 percent gain from its initial public offering price of $27. That represented the biggest one-day gain since the final days of the dot-com when IPOs regularly soared.
No IPO has climbed as high on the first day of trading as Baidu’s did Friday since the shares of software maker Selectica Inc. soared 371 percent during their March 2000 debut, according to IPOhome.com. Selectica’s shares closed unchanged Friday at $3.15 on the Nasdaq.
The rapid run-up gave Baidu a market value of $4 billion — a lofty appraisal of a 5½ year-old company that only recently became profitable. Baidu earned $1.8 million on revenue of $13.6 million during the first half of this year.
The company’s management expects much bigger things as more of China’s vast population surf the Internet. More than 100 million of China’s residents currently surf the Web. Baidu has been able to pluck enough visitors from that audience to emerge as the world’s sixth-most trafficked Web site.
“I am very confident in the future of Internet search in China,” Baidu Chairman Robin Li said during an interview Friday. “This is a very basic need for every consumer in China. We are very fortunate to be in this space.”
Googlemania played a major role in Friday’s buying frenzy.
As the early search-engine leader in China’s nascent Internet market, Baidu is inspiring comparisons to Google Inc., which quickly evolved into a cultural and financial phenomenon by becoming the Web’s leading guidepost.
Like Google, Baidu — traded under the ticker symbol BIDU — so far has made most of its money from text-based ads that are tied to search requests and generate a commission whenever the commercial links are clicked on.
Drawn by Baidu’s potential, Google even paid $5 million last year for 749,625 of the company’s shares — a stake worth $92 million Friday.
Google’s early ownership interest has convinced some investors that it will eventually buy Baidu for a lucrative price, although there has been nothing concrete to support that belief.
Memories of Google’s IPO may have provided Baidu with its biggest lift. Nearly a year ago, Google went public at $85 per share — a price that many investors viewed as inflated but now looks like a bargain with the company’s shares closing at $292.35 Friday.
“This is a ‘son-of-Google’ investor mentality,” said David Menlow, president of IPO Financial, an industry newsletter. “Everyone remembers they could have had Google at $85 and don’t want to let it happen again.”
Although Baidu’s profits have been so puny so far, Menlow and another IPO expert, Linda Killian, said the rapid run-up in the company’s stock isn’t quite the same as the late 1990s mania that produced mind-boggling valuations for unproven dot-coms that imploded into dot-bombs.
As the Internet becomes more ingrained in the everyday lives of the Chinese, it’s possible to envision Baidu duplicating the tremendous growth that Google has enjoyed, Killian said. Google’s market value now hovers around $85 billion — something that would have seemed unfathomable when Stanford University graduate students Larry Page and Sergey Brin launched the company seven years ago.
“There are a handful of companies where you need to dream,” said Killian, a portfolio manager for an investment fund specializing in IPOs. “You have to think, ’If everything were to go right for this company, what could they achieve?’ There are companies that could become the next Microsoft or Google.”
Baidu, pronounced “by-doo,” is named after a 900-year-old love poem.
Li, who worked in Silicon Valley for a couple of years and received his master’s degree in computer science from University of New York at Buffalo, formed the company with Eric Xu, who received a doctorate from Texas A&M.
Although Xu no longer works at Baidu, he was alongside Li Friday to watch the company’s stock soar in its Wall Street debut. Li, 36, ended the day with a personal stake worth $920 million, but he said he won’t let the sudden wealth affect him. He can’t sell any of his stock for two years under restrictions imposed as part of the IPO.
“My passion is search and changing the lives of ordinary people with search,” he said.
Baidu has awarded stock options to its 700 employees in China, giving them a slice of the wealth created by the IPO. Most of the workers can start holdings in six months. “We are going to try not to pay attention to the stock (price),” Li said. “As long as we do our job, the stock should take care of itself.”
Baidu’s IPO, completed late Thursday, raised $109.1 million — $86.6 million for the company, which sold 3.21 million American depositary shares, and the remainder for company insiders who sold 831,706 shares.
The company’s biggest shareholder is Silicon Valley venture-capital firm Draper Fisher Jurvetson, whose stake is worth $1 billion.
While the Google mystique had a positive effect on Baidu Friday, the world’s most popular search engine could turn into a formidable threat as it battles to become a bigger player in China. Yahoo Inc. and Microsoft, the makers of the next two most popular search engines in the United States, also are eagerly anticipating China’s Internet market.
“I don’t believe money can buy the leadership position in China,” Li said. “Our job is to solidify and expand from here. As long as we do that, we will be able to do well financially.”