Another day, another 3 per cent on Baidu’s share price. The Chinese search engine is now deemed to be worth more than $12bn, which is double what the stock market thought it was worth as recently as August. Not to be left behind, portals like Sohu and Sina are on a run of their own, with gains respectively of 160 and 130 per cent this year.
For Baidu, if you’re keeping score, that puts the company on a multiple of more than 30 times next year’s revenues, and 94 times 2008 earnings.
With nearly a year to go until the Beijing Olympics, what’s the chance that this bubble will keep inflating at least that long? No surprise that the Olympics were on the lips of a senior Sohu executive when the company reported earnings today, and are contributing to a general belief that this rally is bullet-proof.
The long-run potential for the companies that end up dominating the Chinese internet sector may indeed be huge, but the US internet bubble showed how hard it is for investors to discount that back to a realistic valuation for today’s nascent internet giants – why should this be any different?
Of course, it doesn’t hurt Baidu’s cause if its market share is being inflated in unusual ways (see this report on how internet users who try to visit Google end up on Baidu.) As Sergey Brin groused last week: "Obviously that makes it very hard to do business, when your customers are redirected to a competitor."
