Baidu's Robotaxi Has been Getting Closer To Scalable Adoption With Unit Economics Breakeven In Sight: Goldman Sachs

Goldman Sachs analyst Lincoln Kong maintained a Buy rating on Baidu, Inc BIDU with a price target of $129.

Kong rerated the stock after hosting an NDR meeting with Baidu’s head of investor relations on August 23.

The analyst flagged near-term ad revenue growth as being under pressure due to the ongoing artificial intelligence search renovation initiatives for a better user experience.

The AI-cloud revenue is accelerating, with Artificial Intelligence Global Company (AIGC) related contributions taking up a larger portion.

Autonomous driving is making notable progress in narrowing losses, and the margin is likely to remain stable with the stock buyback pace to speed up.

Also Read: China’s Baidu Q2 Earnings: AI Cloud Expansion, Driverless Tech Breakthroughs, And Baidu Search Overhaul

Kong highlighted the company’s expectation of near-term pressure on advertising growth given its voluntary renovation of AI search, which has yet to be monetized.

The analyst said that Baidu has been reinventing its traditional search using AI capability to enhance user experience, with 18% of research results including AI-generated content, ramping up from 11% in mid-May.

Currently, more than 16,000 advertisers own their Ernie Agents, and Baidu sees an average 20%-30% sales conversion improvement among them, Kong added.

The AI cloud has been improving in the second quarter of 2024, backed by smart transportation and contribution from AIGC-related revenue, and Kong expects it to continue accelerating.

Robotaxi has been getting closer to scalable adoption, and Baidu expects to see a breakeven in unit economics (UE).

Disciplined cost and operating expenditure control will likely help maintain a relatively stable margin, alongside increasing healthy cloud business and narrowing loss from autonomous driving, Kond said.

Kong projected a third-quarter revenue of 33.95 billion Chinese Yuan.

Price Action: BIDU stock traded higher by 1.03% at $86.58 at the last check on Monday.

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