Now Wall Street has a new Chinese favorite. Baidu.com (BIDU), which operates China's most popular search engine and styles itself as a wanna-be rival to global powerhouse Google (GOOG ). The shares began trading on Nasdaq on Aug. 5 after the outfit raised $109 million in its IPO. According to Bloomberg, Baidu priced its shares at $27, well above the range of $23 to $25 that it had expected. At the end of its first trading day, the shares closed at $122.54 (a gain of more than 350%). Investors are betting the inflated price is justified since Baidu is in the best position to take advantage of a demand boom among Chinese Net surfers.

With such an explosive performance, Baidu's debut is very 1999. And just as the dot-coms that rocketed upward in those days of the Internet bubble quickly fell to earth, Baidu is getting a big short-term boost from investors who have fallen in love with a good story.

ROLE MODEL AND RIVAL. In Baidu's case, the cause for the exuberance is the booming Chinese Internet market. The country has over 100 million people online, making it the second-largest Internet market worldwide, behind only the U.S. And there's plenty of room for more growth. In the first half of 2005, the market expanded 18%. And the number of Net users is still tiny compared to the number of Chinese who use cell phones -- over 360 million. Many of those people use their cellular handsets to access the Net, providing Chinese dot-coms with an even bigger audience than just those who stick to PCs.

Baidu stands a good chance of winning big as all those Chinese Net surfers look for help navigating the Web. But amid the hype surrounding the Baidu IPO, it's worth remembering that the company is going to face a lot of obstacles, too.

The most obvious one is competition from Baidu's role model, Google. Ironically, Google is a minor shareholder in Baidu, having taken the stake last year. That investment might once have been meant as a stepping stone to a bigger Google stake in the Chinese concern, but now it seems that Google has other plans. A latecomer to China, it has finally opened a Chinese office and is trying to hire a top Microsoft (MSFT ) China executive to run its operations there. That plan might need a revamp, though, since Microsoft has filed a lawsuit in the U.S. to prevent Google from recruiting its former employee.

CROWDING THE MARKET. Google might be off to a slow start in China, but it clearly has the brand and the technology to leap ahead quickly. Even now, without trying very hard to build up its Chinese service, Google is one of the most popular search engines among Chinese Net surfers. Once Google gets its act together and makes a big push in China, which no doubt it will, Baidu will have its work cut out responding to the threat.

While Microsoft is trying to stymie Google in China, Bill Gates may turn out to be another big competitor to Baidu. MSN, the Microsoft portal, earlier this year launched a joint venture with an investment company in Shanghai that's run by Jiang Mianheng, the son of former Chinese President Jiang Zemin, and it probably won't be long before MSN becomes more aggressive in trying to lure away users from Baidu. Yahoo! (YHOO ) is a threat, too, thanks to its acquisition of a Chinese search engine in 2003.

Further crowding the market are the local portals. Companies like Sina.com, NetEase, and Sohu were among the first group of Chinese dot-coms to go public, listing on Nasdaq in 2000 just as the Internet bubble was bursting. They have thrived by selling services to users of cell phones, delivering content from Web sites via short messaging services. Because Beijing has been worried about the delivery of porn or spam via SMS, the portals have been looking for ways to diversify. Search is one option. For instance, Sohu has launched a new search engine called Sogou.com, and Sina launched a rival search tool in June.

SHAKE-UP AHEAD? Then there are the newcomers from the next wave of Chinese dot-coms. They include companies like Shanda that have grown by offering one type of service but are now expanding across the Net in all directions. For instance, Shenzhen-based Tencent is a Hong Kong-listed company that operates China's most popular instant-messaging service, which goes by the brand name of QQ.

Tencent is not sticking just to instant messaging, though. It wants to be the main home for China's Net surfers and has started offering Internet games and Web telephone service. It recently started selling online music. And Baidu investors should take note: Tencent in February announced a partnership with Google to offer the American company's search services to the Chinese outfit's users as part of its QQ instant messaging as well as the QQ.com portal and Tencent Traveler Internet browser. Talk about one-stop Web service.

Competition could heat up even more. Even newer companies are also looking to grab a piece of the online advertising market. Most notable are businesses such as Bokee and Blogcn -- blogging portals that are also competing for advertisers' attention (see BW, 8/8/05, "Blogs Under Its Thumb"). Maybe China can accommodate all of these would-be search powers. More likely, a shake-up is looming.

Baidu has successfully grabbed attention from Chinese users and foreign investors. But as the market gets more crowded, keeping them interested may prove to be quite challenging.

What price sanity? The question has taken a back seat for internet investors reliving the glory days of 2000. Shares in Baidu.com, the Chinese search engine, have jumped five-fold since Friday. The trading volumes underline retail investors' casino mentality. Baidu's free float is 4m shares. Yet over 35m have been traded, suggesting each has been flipped nine times.

The question of price and sanity is, however, troubling for the investment banks underwriting the IPO. Should they ignore the potential for such irrational behaviour and price an offering based on fundamentals, which sophisticated institutions will accept. Or should they seek an accurate market clearing price - as Google tried with its IPO auction - by allowing everybody to bid up front? Google left significant money on the table, with an 18 per cent first-day pop. Baidu left proportionately much more.

Baidu.com, the search engine known as the Chinese Google, debuted on the Nasdaq on Friday in a manner not seen since the heady days of the dotcom bubble.

The question of price and sanity is, however, troubling for investment banks underwriting an IPO. Should they ignore the potential for such behaviour and price an offering based on fundamentals, which sophisticated institutions will accept? That risks accusations of favouring specific clients in the allocation process. Or should they seek a price that reflects upfront bids from a broader range of investors - as Google attempted with its auction IPO?

Baidu shares were offered at 540 times historical earnings per share, but the price/earnings multiple had risen to 2,450 by the close. Google, which owns a 2.6 per cent stake in Baidu, trades at about 74 times earnings.

The company's market capitalisation rose to almost $4bn (￡2.3bn), up from about $872m.

Baidu reported first-quarter revenue of about $5.2m. Revenue in 2004 was 13.4m, according to regulatory filings.

"The search market in China is truly in its infancy," said Safa Rashtchy, internet analyst at Piper Jaffray, one of the banks that underwrote the initial public offering.

He said the willingness of consumers to buy online - which has supported the commercial success of internet companies including Google - would take years to develop in China, adding: "The potential is of course huge over the long term."

The shares were priced at $27 late on Thursday but closed at $122.54 yesterday, up 353.9 per cent.

The pricing resulted in about $109m in proceeds for the five-year-old company, which is China's first pure-play search engine to go public in the US.

In addition to raising the price range for the shares, Baidu also increased the number of shares on offer to 4.04m, or 12.5 per cent of its capital, from an initially planned 3.7m.

Shares in Sina and Sohu, other Nasdaq-listed Chinese internet companies, were mixed. Sohu added 6 per cent to $19.24, while Sina was down 0.2 per cent at $28.96.

Another hot sector is online gaming, with China's Net-Ease.com announcing a 146 per cent year-on-year increase in gaming revenues this week. Its shares rose 20 per cent on the news and analysts at PiperJaffray raised their revenue estimates to $200m for its 2005 fiscal year and $302m for 2006. NetEase shares gained 3.4 per cent at $75.86.

At the initial public offering price, Baidu's American depositary receipts were offered at 540 times historical earnings. Google, which owns a 2.6 per cent stake in Baidu, trades at about 74 times earnings.

Baidu.com Inc., the maker of China's leading Internet search engine, mesmerized Wall Street Friday as its stock more than quadrupled in its first day of trading, marking the biggest one-day gain of an initial public offering since the final days of the dot-com era.

The Beijing company's shares closed at $122.54 on the Nasdaq Stock Market, a 354 percent gain from its IPO price of $27.

The rapid run-up gave Baidu a market value of $4 billion -- a lofty appraisal of a 5 1/2 -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 begins to 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 Friday. "This is a very basic need for every consumer in China."

As the early search-engine leader in China's nascent Internet market, Baidu is inspiring comparisons to Google Inc. 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 the U.S. company will eventually buy Baidu for a lucrative price, although there has been nothing concrete to support that belief.

No IPO has climbed as high on the first day of trading 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.

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.

Baidu has awarded stock options to its 700 employees in China, giving them a slice of the wealth created by the IPO.

Although Chinese Web search engine Baidu.com Inc.'s initial public offering debut Friday overshadowed all other offerings, four other companies also began trading for the first time.

Shares of Dresser-Rand Group Inc., Advanced Life Sciences Holdings Inc. and AtriCure Inc. closed higher than their IPO prices, while Hoku Scientific Inc. fell.

Dresser-Rand, which makes and services equipment for the oil and gas industries, closed at $22.80, up 8.6 percent from its offer price of $21 a share. The Olean, N.Y., company, which specializes in compression equipment and steam turbines, sold 27 million shares at the high end of its expected range Thursday night.

Dresser-Rand's strong debut was notable because the company's offering was marked by some of the same attributes that were poorly received by investors earlier this year: It was owned by a private-equity firm for about a year, loaded with debt, and none of the proceeds from the offering will flow into the company's coffers.

In fact, the only benefit Dresser-Rand receives from the offering is that $50 million out of $567 million raised will be used to pay a small portion of debt; the remainder is being used to award its owner, First Reserve Corp., and some executives a dividend. New shareholders in the stock won't get any dividends.

AtriCure Inc, a West Chester, Ohio, company that makes medical devices to treat atrial fibrillation, closed at $14.08, up 17 percent from its offer price. The company priced 4 million shares at $12 each, at the low end of its expected range.

Although its device is used at 22 of the 25 highest-volume heart centers in the United States, AtriCure isn't profitable and its device generates revenue only from off-label uses because it hasn't yet received Food and Drug Administration approval for atrial-fibrillation treatment. Once it receives FDA approval for the treatment _ the company estimates that will come in 2008 and 2009 _ it can begin marketing the device aggressively.

"This is one where the key is that the surgical skills that are necessary for the application of AtriCure's system are much lower than the typical surgical skills required for open-heart surgery," said Steve Brozak, president and an analyst at WBB Securities LLC.

"It (atrial fibrillation) is a silent problem, but in the past, there was no satisfactory treatment. Now all of the sudden you have a vacuum being filled," Brozak said.

Advanced Life Sciences, a Woodridge, Ill.-based biopharmaceutical company, closed at $6 a share, up 20 percent from its offer price. The company sold 6.4 million shares at $5 a share, well below its original expected range of $11 to $13, and even below a revised range of $8 to $9. Advanced Life Sciences has an exclusive worldwide license from Abbott Laboratories to develop and commercialize cethromycin and ABT-210, part of a new class of antibiotics. It also has a joint venture with Sarawak MediChem Pharmaceuticals to develop Calanolide A, a potential treatment for HIV.

The company, which has never been profitable, received a so-called going-concern statement from its auditors, an indication that the company may not be able to continue its operations due to financial constraints.

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 5 1/2 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.

The IPO raised a total of $109.1 million _ $86.6 million for Beijing-based Baidu, which sold 3.21 million American depositary shares, and the remainder for company insiders who sold 831,706 shares.

The pricing sets the stage for one of China's early Internet icons to make its Wall Street debut Friday. The company's shares will trade on the Nasdaq Stock Market under the ticker symbol "BIDU" _ an echo of its name's pronunciation, "by doo." The name was inspired by a 900-year-old love poem.

Baidu is tiny by U.S. standards. The company earned $1.8 million on revenue of $13.6 million during the first half this year. Investors are betting Baidu will grow rapidly as more of China's population becomes hooked on the Internet. At $27 per share, Baidu's market value is about $856 million.

IPO analyst Paul Bard expects Baidu's shares to rise even higher when Nasdaq trading begins because Baidu bisects two hot spots, Internet search engines and China. The relatively small number of shares issued in the IPO also is expected to drive up the price.

"Baidu is operating in the largest and fastest growing market in the world, so it has created a lot of intrigue and excitement about the company," said Bard, who tracks the market for IPOhome.com.

The enthusiasm prompted Baidu's investment bankers, led by Goldman Sachs, to raise the IPO price from an initial target range of $19 to $21 per share.

Launched 5 1/2 years ago by U.S.-educated engineers Robin Li and Eric Xu, Baidu has emerged as the second- most popular Web site in China and the country's most popular Internet search engine.

Baidu's early lead in Chinese-language online search has inspired comparisons to Google Inc., which has ridden the moneymaking prowess of its search engine to a market value of $85 billion less than a year after its ballyhooed IPO.

Google earned $712 million on revenue of $2.6 billion during the first half of this year, raising hopes that Baidu might some day enjoy similar success if it remains a go-to Web site in a country that accounts for one-fifth of the world's population.

Apparently, even Google likes Baidu's potential. The Mountain View-based company invested $5 million in Baidu last year, securing a 2.6 percent stake worth $20.2 million after Thursday's IPO.

Baidu's biggest shareholder also is from the United States, Draper Fisher Jurvetson, a Silicon Valley venture capital firm with a 28.1 percent stake worth $221 million at the IPO price.

Li, the company's 36-year-old chief executive, also hit the jackpot with Thursday's IPO. His 25.8 percent stake is worth $203 million.

Despite its investment in the company, Google represents a major threat to Baidu because the company is gearing up for a major push into China. Yahoo Inc. and Microsoft Corp., which rank second and third, respectively, behind Google in U.S. share of the search engine market, also have designs on China.

Like Google, Baidu 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 upon.

Although its business model mirrors Google, Baidu faces different challenges.

China's Communist government and its history of censorship poses one of the biggest potential stumbling blocks.

In 2002, the government shut down Baidu for a week and fined the company for producing search results with content that were considered "socially harmful," according to Securities and Exchange Commission documents.

Now the startup founded by two Chinese veterans of American tech firms is preparing to follow Google's example with an initial public offering in the United States, hoping to raise $45 million. A date for the offering has not been announced.

Baidu.com is in the front ranks of an emerging group of Chinese companies that are trying to create Internet services uniquely suited to their country's ideogram-based language and the political restrictions of its communist government.

"Here's a homegrown company that has created what really is a very strong search product," said David Wolf, managing director of Wolf Group Asia, a Beijing-based consulting firm.

Baidu.com was founded in 2000 by Robin Li, who earned a master's degree in computer science from the State University of New York at Buffalo and worked for U.S. search engine firm Infoseek, and Eric Xu, a Ph.D. from Texas A&M and a veteran of American biotech firms. Xu is no longer with Baidu.com.

The name _ pronounced "by doo" _ means "one hundred times." It comes from a Song dynasty poem and refers to a man ardently searching for his lover in a festival crowd.

It didn't take Google long to see the firm's potential. It bought 2.6 percent of Baidu.com last year in a move that outsiders thought might lead to the American search engine taking over the tiny Chinese startup. But Baidu.com has stayed independent.

Google's influence shows, though, in Baidu.com's spare white Web site that is nearly identical to its investor's.

By contrast, competitor 3721.com _ bought in 2003 by U.S.-based Yahoo! _ is a busier, colorful site with animated graphics.

Other early backers include U.S.-based venture capital firms with a reputation for spotting promising newcomers: Draper Fisher Jurvetson _ Baidu.com's biggest shareholder, with a 28 percent stake _ and the investment arm of International Data Group.

Baidu.com's IPO is modest beside the $1.2 billion that Google raised through its public offering last August. But its tentative price for the block of shares being offered values the whole Chinese company at $650 million.

Little known abroad, 5-year-old Baidu.com says it already is the world's sixth most-visited Internet site, thanks to a strong following from China's 100 million-plus Web surfers.

A receptionist works behind the logo for Baidu.com, a Chinese language search engine, at the company's office in Beijing Thursday, July 28, 2005. The startup hopes to become the Chinese-language equivalent of Internet search giant Google Inc., and plans an initial public offering in the United States, hoping to raise US$45 million (euro35 million). (AP Photo/Ng Han Guan) (Ng Han Guan - AP) 

Now the startup founded by two Chinese veterans of American tech firms is preparing to follow Google's example with an initial public offering in the United States, hoping to raise $45 million.

Baidu.com is in the front ranks of an emerging group of Chinese companies that are trying to create Internet services uniquely suited to their country's ideogram-based language and the political restrictions of its communist government

"Here's a homegrown company that has created what really is a very strong search product," said David Wolf, managing director of Wolf Group Asia, a Beijing consulting firm.

Baidu.com was founded in 2000 by Robin Li, who earned a master's degree in computer science from the State University of New York at Buffalo and worked for U.S. search engine firm Infoseek, and Eric Xu, a Ph.D. from Texas A&M and a veteran of American biotech firms. Xu later left the company.

The name _ pronounced "by doo" _ means "one hundred times." It comes from a Song dynasty poem and refers to a man ardently searching for his lover in a festival crowd.

Google bought 2.6 percent of Baidu.com last year in a move that outsiders thought might lead to the American giant taking over the tiny Chinese startup. But Baidu.com has stayed independent.

Google's influence shows, though, in Baidu.com's spare white site that is nearly identical to the American firm's.

By contrast, competitor 3721.com _ bought in 2003 by U.S.-based Yahoo! _ is a busier, colorful site with animated graphics.

Other early backers were U.S.-based venture capital firms including Draper Fisher Jurvetson and the investment arm of International Data Group. Draper Fisher is Baidu.com's biggest single shareholder, with a 28 percent stake.