Was Baidu’s Hong Kong debut a flop?

• Baidu Inc (HK: 9888) share price opens just 0.8% higher than the offer price
• Baidu Inc (Nasdaq: BIDU) rose to US$266.13 per share in New York
• The subdued showing came as investors grew wary of Chinese tech stocks, analysts said
• Founder Robin Li said the Hong Kong listing was to hedge against risks in the US
• Trade today’s most popular stocks with an IG account

Baidu Hong Kong listing: Tepid first day

On Tuesday (23 March 2021) morning, shares of the Chinese internet colossus opened at HK$254 in its trading debut on the Hong Kong Stock Exchange.

That is a modest 0.8% increase from the offer price of HK$252 under Baidu’s secondary listing in the city.

As of 11:59 SGT, it was trading at HK$252.60, up 0.2% from the offer price but down 0.6% from the opening price. Volume traded was 9.3 million shares.

Meanwhile, Baidu’s US-listed stock finished 3.4% higher at US$266.13 on Monday in New York.

For the Nasdaq-listed BIDU stock, 32 analysts recommended ‘buy’, six rated it ‘hold’ and three had ‘sell’ calls. Their average target price was US$344.46, Bloomberg data showed.

'Homecoming' rush

The public offering was 112 times oversubscribed by retail investors, while the institutional book was covered 10 times. It raised about US$3.1 billion, and the proceeds will go into investment in technology and Baidu’s mobile ecosystem, among other things.

The search engine leader is the latest US-listed mainland China business to complete a secondary listing in the Asian financial hub. Xinhua reported that over 10 such firms have joined this ‘homecoming’ trend, including e-commerce giant JD.com.

Reuters noted that Baidu’s tepid Hong Kong debut came after video site Bilibili finalised its secondary listing to raise US$2.6 billion, below the initial target.

Analysts also said the subdued performance was due to investors becoming increasingly wary towards Chinese technology stocks, Reuters reported.

Pivoting beyond search and advertising

Baidu founder Robin Li said in a Bloomberg interview that the Hong Kong listing was a hedge against the potential risks of trading in the US, though it also ‘lets the Chinese investors really share in Baidu’s growth story’.

The share sale has given Baidu a temporary boost, but investors will probably focus more on search and content as the group’s biggest earnings driver in the medium term, Bloomberg reported.

Li said that eventually, the lion’s share of the group’s revenue should come from businesses other than search and advertising.

Bloomberg Intelligence analysts wrote: ‘Baidu’s attempts to commercialise its artificial intelligence initiatives are positive. Investors now have better visibility of returns, after years of heavy investment.’

‘However incremental revenue generated from these endeavors may have to be reinvested to drive growth, and the profitability of these businesses could stay low until sufficient scale is achieved. Hence Baidu is likely to continue relying on its core search business in the near-term,’ the analysts added.

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