On Thursday, Tiger Securities adjusted its stance on NASDAQ:BIDU, the stock of Chinese tech giant Baidu, by lowering the price target from $135.00 to $120.00. Despite this reduction, the firm maintains a Buy rating on Baidu shares. The revision follows Baidu's third-quarter financial results, which aligned with revenue expectations but surpassed profit forecasts.
The report from Tiger Securities highlighted a year-over-year decline of 5% in Baidu Core advertising revenue, a deceleration of 3 percentage points from the second quarter. This downturn is attributed to the ongoing weak macroeconomic environment and a shift towards more AI-generated search results, which currently do not generate revenue. Notably, 20% of Baidu's search result pages now feature AI-generated content, an increase from 18% in August, engaging users with longer platform interaction times and higher return rates the following day.
Despite the pressures on advertising revenue, which may see a sharper decline in the fourth quarter compared to the third, there are positive developments in Baidu's Cloud business. The Cloud segment grew 11% year-over-year in the third quarter, albeit at a slower pace than the previous quarter. This growth was propelled by AI-related revenue, which now represents nearly 11% of the total cloud revenue. Baidu's AI Cloud has also maintained its non-GAAP EBIT profitability in the third quarter.
Looking ahead, Tiger Securities anticipates that Baidu's AI Cloud revenue growth will pick up in the fourth quarter. The firm also expects a revenue growth re-acceleration beyond the first quarter of 2025, as the company faces easier comparisons, anticipates improved macroeconomic conditions following government stimulus policies, and plans to enhance monetization of AI search and ERNIE Agent technologies.
In response to the recent decline in share price, Baidu has repurchased $161 million of its shares since early in the third quarter and is likely to accelerate its buyback program in the fourth quarter.
In other recent news, Baidu Inc (NASDAQ:BIDU). reported a slight decline in its total revenues for the third quarter of 2024, amounting to RMB33.6 billion. This includes a 4% drop in online marketing revenue while the company's core revenue remained stable at RMB26.5 billion. However, Baidu's AI Cloud revenue grew by 11% to RMB4.9 billion, with Gen AI-related revenue increasing its contribution to the segment.
The company's AI-first strategy remains a key focus, with significant advancements in AI-driven product transformation and autonomous driving technology. This is evident in the over 20% of search results featuring AI-generated content and the 8 million total rides reached by Baidu's autonomous driving service, Apollo Go.
Despite near-term economic headwinds, Baidu anticipates improvements in its advertising business in 2025 and continues its share buyback program. The company is also maintaining its commitment to investments in AI and technology innovation. These recent developments highlight Baidu's ongoing commitment to AI and technology as it navigates a challenging macroeconomic environment.
InvestingPro Insights
Baidu's financial metrics and market performance offer additional context to Tiger Securities' analysis. With a market capitalization of $30.42 billion, Baidu trades at a P/E ratio of 11.02, significantly below the industry average, suggesting potential undervaluation. This aligns with Tiger Securities' maintained Buy rating, despite the lowered price target.
InvestingPro data shows Baidu's revenue for the last twelve months as of Q2 2024 at $18.55 billion, with a modest growth of 3.08%. The company's gross profit margin stands strong at 51.5%, indicating efficient cost management despite challenging market conditions. These figures support the firm's ability to navigate the current macroeconomic headwinds mentioned in the article.
InvestingPro Tips highlight Baidu's attractive valuation, with the stock trading below its fair value according to analyst estimates. This corroborates Tiger Securities' optimistic outlook, especially considering the expected growth in AI Cloud revenue and potential market improvements.
For investors seeking a deeper understanding of Baidu's prospects, InvestingPro offers 15 additional tips, providing a comprehensive view of the company's financial health and market position.
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