Baidu's AI Focus Expected To Drive Stable Margins And Revenue Boost, Analyst Foresees Growth

Goldman Sachs analyst Lincoln Kong reiterated a Buy rating on Baidu, Inc BIDU with a price target of $174.

Also Read: Baidu Q3: 6% Topline Growth, Prioritizing AI Investments, ERNIE 4.0 Launch & More

During his China Internet trip, Kong hosted investors with Baidu's Investor Relations team in Beijing on November 29. 

Given the incremental AI investment and Baidu's ongoing cost discipline, investors focus on the 4Q23 ad and cloud outlook, long-term AI monetization roadmap, and margin trend. 

The analyst noted that the ad business is on track for high-single-digits year-on-year recovery in 4Q23, with AI incremental revenue of RMB hundreds of million in 4Q to cushion the moderating e-commerce ads in 3Q and 4Q. 

AI-enhanced advertising system has rapidly onboarded merchants and increased 20%+ conversion/ROI in a few company cases. 

Cloud service will recover double-digit revenue growth in 4Q23 from the re-base of the smart transportation vertical, with sustained profitability improvement. 

MaaS monetization remains in the early phase, but management notes clients are incrementally more willing to use Baidu's AI native applications, with some of their in-house AI native apps established upon Baidu MaaS, with revenue growing from a low base. 

The core margin will remain stable in 2024 through cost discipline in core business despite the steady pace of incremental AI investment.

Kong projects Q4 revenue and net profit of RMB35.65 billion and RMB6.44 billion, respectively.

Price Action: BIDU shares traded lower by 1.18% at $118.22 on the last check Wednesday.