September 14, 2005
Underwriters Downgrade Baidu.com
Shares of Baidu.com (NASD: BIDU) plunged more than 20% this morning when Goldman Sachs and Piper Jaffray rated the stock an "underperform." This is interesting because both Goldman and Piper were involved in the underwriting of the "Chinese Google."
An analyst from Piper said that the valuations are "off the chart" and set a price target of $45. Considering that the stock closed trading on Tuesday at $113.59 a share. The analyst from Goldman had the same view on Baidu.com, yet his valuation model only valued the stock at $27 a share.
Typically, the investment banks, which participate in the IPO, have always kept their ratings of stocks they helped IPO at no less than a neutral rating, because it helps obtain new business. But, Goldman and Piper have shown that fuller, more accurate disclosure might be in the future of investment banks, which rate stocks. The downgrade is evidenced that Spitzer's enforcement efforts against the analysts have borne serious fruit.
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