The Chinese search engine service provider Baidu.com Inc has priced its American depository share (ADS) on the NASDAQ stock market at between US$19 and US$21, amid worries about the challenges faced by the Beijing-based firm.

Baidu said in an announcement to the US Securities and Exchange Commission yesterday that it will sell 2.61 million shares and its shareholders will sell 1.1 million in Baidu's initial public offering at a price between US$19 and US$21.

The underwriters, Goldman Sachs (Asia) L.L.C., Credit Suisse First Boston, and Piper Jaffray, also have an option to sell an additional 512,000 shares.

The Chinese firm, known as China's Google, will raise as much as US$88 million from the sales, 10 percent higher than the US$80 million in a previous filing on July 12. The net proceeds will be between US$45 million and US$52.9 million, depending on how many shares are sold. This is based on a price of US$20 per ADS.

Baidu said it will use the proceeds to develop or buy new technology and products, and for general corporate purposes.

However, analysts point out that Baidu's price may be too high, which could influence investors' enthusiasm for the shares.

One Internet securities analyst in Shanghai, who preferred not to be named, said price/earnings ratio for Baidu was about 200, based on its US$1.45 million net profits in 2004. Even if its profits reach US$15 million due to economies of scale, the price/earnings ratio will still be over 40. Many Chinese Internet stocks have a price/earnings ratio of 20.

"Although Baidu compares itself to Google, and has received Google investment, the ratio is so high that some investors will be discouraged," said he.

At the same time, Baidu also faces increasing challenges from competitors, including Google, Yahoo! China, NASDAQ-listed Chinese firms Sohu.com and Sina Corp, as well as Zhongsou.com.

Google appointed Kai-fu Lee, a former Microsoft corporate vice-president, as head of its Chinese operation and of a Google China Research and Development Centre.

(China Daily July 22, 2005)