Chinese Google rocks stock market

Chinese search engine Baidu set a record on the Nasdaq stock market at the end of last week.

On the first day of public trading, the firm's shares skyrocketed to $125 from an initial valuation of $27. The 360 per cent increase is the biggest for a stock on its first trading day on Nasdaq in the past five years.

The jump in the company's valuation was caused largely by its associations with Google. Reports in recent weeks have suggested that the search giant was interested in acquiring its Chinese competitor, which undoubtedly attracted investors to Baidu's IPO. Google already owns a 2.6 per cent stake in the company.

Baidu has a close resemblance to Google. The Chinese portal has a similarly designed no-frills search page and makes its money from selling text-based advertising.

Baidu posted revenues of $13.4m in 2004 and generated income of $1.5m. It has a strong position in the Chinese search market, handling 37 per cent of all national search queries, ahead of Google's 23 per cent and Yahoo's 21 per cent.

The company also claims that it can achieve further growth in the future, as internet penetration in China is currently under 10 per cent.

However, Baidu's IPO filing with the Securities and Exchange Commission highlighted several points of caution.

Queries for pirated MP3 music files make up 21 per cent of the engine's requests, which has already provoked two copyright infringement lawsuits.

The tendency by the Chinese government to censor its citizens' access to the internet could be another area of concern.

Chinese law also restricts ownership of media companies by foreign entities. Investors owning Baidu shares will actually have invested in a holding company based in the Cayman Islands.