Analysts Weigh Baidu's Position Amidst Geopolitical Pressures and Technological Advancements

Benchmark analyst Fawne Jiang reiterated Baidu Inc BIDU with a Buy and a $210 price target.

BIDU delivered solid 2Q results thanks to post reopening recovery. While macro uncertainty creates variables in its ad growth outlook for the second half of FY23 and FY24, Jiang believes mobility-driven verticals and BIDU’s large SME advertisers are still on a gradual recovery trajectory apart from the base factors. 

The analyst is excited about the transformative opportunities that foundation models could bring to 2C and 2B commercialization. 

Due to its significant exposure to offline mobility-driven industries, Jiang views BIDU as an essential ad beneficiary. 

Despite a soft macroeconomic environment, the company suggested healthy ad growth in 3Q apart from the base factors. On the cloud side, the company saw a growth headwind in 2Q due to muted growth from the smart transportation vertical and its ongoing efficiency optimization. Cloud posted a positive adjusted profit in the second consecutive quarter. Amidst resilient and healthy growth trends in other verticals (manufacturing, utility, financials), The analysts anticipate reaccelerated cloud growth in the second half of FY23. 

Jiang believes the technology could provide an opportunity to reimagine many of BIDU’s products and services. 

Increasing user engagement should open up incremental commercialization opportunities on ad or fee-based services. Similarly, the technology could substantially expand the TAM of cloud service incorporating ERNIE and ERNIE bot. 

BIDU is undoubtedly well positioned, leveraging its established technology infrastructure (full stack of service offerings) and visible commercial products. This offers strong optionality on the long-term valuation creation and, consequently, the incremental upside to BIDU stock. 

Jiang lowered his FY23 revenue estimates moderately to RMB137 billion (vs. RMB138 billion prior), reflecting a slower-than-expected cloud growth in the near quarters. 

However, he left his FY24 revenue estimates unchanged at RMB150 billion. With effective cost management and improving margin outlook, he raised his FY23 and FY24 adjusted EPS estimates to $11.16 and $11.99.

Mizuho analyst James Lee reiterated Baidu with a Buy and a $170 price target.

Core operating income was ahead of consensus due to ad recovery upside and improving cloud profitability. Lee continues to expect a rebound in both. 

On Generative-AI, the product sets are ready with enterprise clients running early testing as the industry awaits government review before commercial launch. 

The analyst believes the process is short-term and consistent with existing policies and remains confident in Baidu’s position in Gen-AI given its first-to-market advantage. 

Although Baidu has a mix of attractive assets, the stock trades at depressed levels and likely requires improving geopolitical and macro conditions for multiple expansions. 

Lee estimates revenue of RMB137 billion in FY23 and RMB148.9 billion in FY24.

Citigroup analyst Alicia Yap maintained Baidu with a Buy and raised the price target from $181 to $182.

Price Action: BIDU shares traded higher by 2.39% at $131.48 on the last check Wednesday.