Baidu (NASDAQ:BIDU) stock fell ~4% on Thursday after several analysts cut estimates and price targets ahead of the company’s Q3 results, noting weakness in China’s advertising market and project delays impacting the cloud business.
J.P. Morgan maintained its Overweight rating on Baidu (BIDU) but cut the price target on the stock to $185 from $200, noting near-term downside risk to the share price.
The analysts noted that Baidu’s stock price underperformed KraneShares CSI China Internet ETF (KWEB) by 8 ppts in the past month, as investors have turned more cautious on the cyclical impact on Baidu’s core ads from a weak macro in Q3.
They see near-term downside risk to the Chinese internet search giant’s stock price, as they think weak demand in China’s e-commerce sector in Q3’23 could lead to estimate cuts prior to the Q3 results, despite continuous recovery in offline verticals.
J.P. Morgan forecast Baidu’s total revenue of RMB34.1B, 4% below consensus and expects adjusted EPS to be RMB18.1, 6% ahead of consensus.
The analysts noted that, based on lackluster China retail sales data by NBS — online retail GMV grew by 8.8% Y/Y in Q3’23, compared to 17.2% in Q2’23 — they think consumer demand for e-commerce was softer than-anticipated in Q3’23, leading to weak advertiser demand among ecommerce operators.
In addition, they believe ads demand from franchise activities has declined due to current macro conditions. On the other hand, the analysts think that offline sectors (such as travel and healthcare) continue to show resiliency, due to longer national holidays, and low base last year.
The firm revised down Baidu’s Q3 core ads revenue to Rmb19.7B, flat Q/Q and up 5% Y/Y, with 2-year.
The analysts added that they have yet to see a clear recovery in local government demand for smart transportation projects, which is one of the key components of Baidu’s cloud revenue. In spite of strong performances in other key verticals and 2C business, they have taken a conservative view and revised down Q3/Q4 cloud revenue to RMB4.4B/RMB6.1B, implying a 3% Y/Y decline/12% Y/Y growth.
However, the analysts believe that near-term potential stock catalysts include — incremental stimulus policies that could lead to consumption recovery; and disclosure of AI-generative content product adoption and commercialization.
HSBC: HSBC’s analyst Charlene Liu, who has a Buy rating on Baidu (BIDU), also cut the price target on the stock to $160 from $168.
Liu said that a weaker macro environment could dim Baidu’s outlook for both advertising and cloud businesses.
Besides macro weakness, a rebuild of search app to incorporate generative AI functions can also hurt top-line in the near term, the analysts noted.
The analyst expect reduced revenue from smart transportation as government budget cuts could dampen Baidu’s cloud revenue growth.
Citi: Citi analyst Alicia Yap, having a (Buy) rating on Baidu, also reduced revenue and net profit estimates, citing slower recovery of ad sentiment from small- and medium-sized enterprises, and smart transportation project delays.
Baidu has a Strong Buy rating at Seeking Alpha’s Quant Rating system, which consistently beats the market. Meanwhile, the Seeking Alpha authors’ average rating is Buy and the average Wall Street analysts’ rating is more positive with a Strong Buy rating.