On Friday, CLSA adjusted its outlook on Baidu (NASDAQ:BIDU), reducing the price target to $120 from the previous $145, while still maintaining an Outperform rating on the stock. The firm noted that Baidu has been facing challenges due to macroeconomic conditions and the transition to AI Search in the third quarter of 2024.
Baidu's core revenue is projected to decline by 1% year-over-year (YoY) to Rmb26.3 billion, and adjusted EBIT (earnings before interest and taxes) is expected to decrease by 3% to Rmb6.5 billion. The company's online marketing revenue took a sharper hit, dropping an estimated 4.5% YoY. This decline is attributed to AI search accounting for a larger share of total search results, which has not yet been fully monetized.
Despite the setbacks in online marketing, Baidu's cloud revenue is anticipated to have grown by 12% YoY. This growth, however, was not uniform across all cloud services. While the personal cloud segment experienced disruptions due to managerial changes, enterprise cloud services are expected to have seen robust growth, driven by demand for Generation-Artificial Intelligence (Gen-AI) technologies.
Looking ahead to the fourth quarter of 2024, CLSA forecasts Baidu's core revenue and adjusted EBIT to remain relatively flat YoY. The firm anticipates a 3% YoY decline in marketing revenue during this period. In light of these projections, CLSA has revised its adjusted net profit estimates for Baidu downward by 3% for 2024 and by 8% for 2025, leading to the new price target of $120. The Outperform rating suggests that CLSA still sees potential in Baidu's stock performance despite the recent challenges.
In other recent news, Baidu reported an 8% year-over-year growth in non-GAAP operating profit and a total revenue from Baidu Core of RMB 26.7 billion in its Q2 2024 earnings report. The company's AI Cloud business is projected to maintain its double-digit growth trajectory, expected to increase by 16% in the third quarter.
However, US Tiger Securities adjusted third-quarter revenue estimates downwards for Baidu due to a weaker macroeconomic environment in China. Jefferies, Loop Capital, and Citi have maintained their Buy ratings for Baidu, despite adjusting their price targets.
In contrast, HSBC (LON:HSBA) downgraded Baidu's stock from Buy to Hold, citing updated beta and currency estimates, increased competition, and a weaker advertising outlook. Additionally, Baidu has undergone recent management changes, seen as potentially beneficial for long-term growth. These are the recent developments for Baidu.
InvestingPro Insights
Despite the recent downgrade by CLSA, Baidu's financial metrics from InvestingPro reveal some interesting aspects that investors should consider. The company's P/E ratio of 11.02 and P/E (Adjusted) of 11.71 for the last twelve months as of Q2 2024 suggest that the stock may be undervalued relative to its earnings. This is further supported by a Price to Book ratio of 0.93, indicating that Baidu is trading below its book value.
InvestingPro Tips highlight that Baidu's earnings per share have shown strong growth over the past year, which aligns with the company's reported EBITDA growth of 12.3% in the last twelve months. Additionally, analysts have recently revised their earnings expectations upwards for the company, which could be seen as a positive signal despite the challenges noted in the CLSA report.
It's worth noting that Baidu's revenue growth has slowed, with a modest 3.08% increase over the last twelve months, and a slight decline of 0.37% in the most recent quarter. However, the company maintains a healthy gross profit margin of 51.5% and an operating income margin of 17.13%, suggesting efficient operations despite market pressures.
For investors seeking a more comprehensive analysis, InvestingPro offers additional tips and insights. Currently, there are 14 more InvestingPro Tips available for Baidu, providing a deeper understanding of the company's financial health and market position.
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