Overnight, the media speculated that a share drop in shares of Chinese search engine Baidu (NASDAQ: BIDU) might be a signal of a top in internet stocks. The shares, which were trading close to $360 in the morning, dropped quickly to just above $302. A number of other Nasdaq tech issues followed Baidu down.
Reuters speculated that the drop in Baidu "fueled concerns that the recent tech rally may be coming to an abrupt end." After all was said and done, the Nasdaq had been pulled down 1.4%. As one trader told the news service: "You are seeing the classic bubble being burst in the best-performing momentum names such as Baidu.com, Apple and RIM."
But, perhaps Wall Street should pause and reflect. Baidu is not like other tech stocks and to make the parallel that many have would be a significant mistake.
Before yesterday's dip, Baidu shares were up 300% over the last year. The company had revenue of a little over $50 million in the last quarter, the equivalent of a rounding error in earnings at Google (NASDAQ: GOOG). The Chinese company's stock trades at a mind-bending 70x sales. The comparable number for Google is 15x.
Make no mistake. The drop in Baidu's stock is because the shares are insanely expensive. And, it bears no relationship to the balance of the tech market.
Douglas A. McIntyre is a partner at 24/7 Wall St.
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