Back in the 1990s, an IPO that surged more than 100% on its first day was considered, well, ho-hum. There was even a name for it: moonshot.
Last week, we got some of the old-time-IPO magic again with the debut of the Chinese search engine Baidu
True, just about every analyst thought this would be a hot one. But not many imagined it would be this spectacular.
No doubt, traders made a lot of money last Friday (and it looks like they are churning things again today). With only 4.06 million Baidu shares on the open market, it does not take a lot to move the stock. But the stock could easily fall as traders take their winnings off the table. After all, Baidu opened at $66 and posted 375% gains.
In a recent piece for The Motley Fool, I analyzed the fundamentals of Baidu. It is a pioneer in Chinese search, understands how to deal with the intricacies of Chinese advertisers, and has cutting-edge technology (after all, the Chinese language is complex).
But the fact remains: Baidu is a tiny company -- especially in light of its mega market cap of $3.92 billion. Last year, Baidu posted $13.4 million in revenues and a profit of $300,000.
Interestingly enough, Baidu's leadership position is not clear. I investigated Websidestory
And to an extent, this has the power to put a strain on Baidu's model, as the emergence of Microsoft
Also, if you look back at the dot-com boom, many of the one-day megaperformers proved to be terrible investments. Heard of any of the following (the top five IPOs of all time): VA Software, Theglobe.com, Foundry Networks, webMethods, and FreeMarkets?
One of the biggest beneficiaries of the Baidu IPO is, ironically enough, Google, which owns 2.6% of the company. That's worth about $101 million.
But, for investors, a way to play Baidu may be to buy one of its lead underwriters, Goldman Sachs
Fool contributor Tom Taulli does not own shares mentioned in this article.