Is "Baidu" Chinese for "Google?"

It's almost the one-year anniversary of Google's (Nasdaq: GOOG  ) IPO, and of course, there are many happy shareholders. Investors taking part in the firm's online Dutch auction snagged their shares at a mere $85 a piece.

But at $291.78 per share, even diehard Google fans are starting to wonder whether the big gains are over. What's a Google investor to do?

The next move might be Baidu, which filed to go public yesterday. The company will list on Nasdaq (Nasdaq: NDAQ  ) with the ticker symbol BIDU.

According to Baidu's prospectus, it is "the leading Chinese-language Internet search provider." In Web traffic, it ranks No. 2 in China and No. 6 in the world. Much like Google, Baidu has built its traffic mostly through word-of-mouth and the so-called Baidu Union. Over 76,000 third-party websites have posted Baidu's search box on their pages; if their users search Baidu via that box, and click on ads in the process, Baidu Union members get a piece of the resulting profits.

So far, Baidu has indexed 690 million web pages, 80 million image files, and 10 million multimedia files. The site also features news, message boards, and other content.

Because of the complexities of the Chinese language, Baidu's search technologies are quite sophisticated. The company has developed special language-processing technologies to allow for relevant search results.

Baidu's business model allows advertisers to bid on keyword-search results. It's working quite well; the company has posted solid growth. In 2004, Baidu posted revenues of $13.4 million. For the first quarter of 2005, revenues were $5.2 million.

Revenues come from advertisers, who pay Baidu for each time a user clicks one of its ads, and the company's custom marketing services (campaign development, graphic design, etc.). Baidu also relies on an extensive network of distributors through whom business customers can place ads. With broadband and credit card services still nascent in China, this network is essential to Baidu's success.

The company's growth will likely continue. Based on studies by iResearch, the number of search queries per day in China reached 188 million in 2004. The studies estimate that number will grow at a compounded annual rate of 49.8% from 2005 to 2007.

Interestingly enough, last year Google invested in Baidu, acquiring roughly 2.6% of the company's equity. Within the past few weeks, Google's CEO has visited China and met with Baidu. Of course, this resulted in speculation that Google was making a bid for the company.

So far, it looks like Baidu wants to remain independent. But expect the buzz to get louder as Baidu's initial offering approaches. The ho-hum IPO market is about to get more exciting.

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Fool contributor Tom Taulli does not own shares of any company mentioned in this article.


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