On Monday, Citi updated its outlook on Baidu (NASDAQ:BIDU) shares, reducing the price target to $155 from the previous $170, while still recommending a Buy rating for the company.
This change comes as the firm anticipates Baidu to report its second-quarter earnings around mid-August and has adjusted its estimates to account for a subdued macroeconomic environment, particularly impacting offline activities, which could in turn affect Baidu's core advertising revenues.
Citi has revised its forecast for Baidu's core advertising revenues in the second quarter of 2024, projecting a 2.4% year-over-year decrease to 19.1 billion yuan, which is a shift from the previously expected 1% growth.
The firm attributes this downward revision to lower-than-anticipated ad budget spending and ongoing tests and transitions in Baidu's search results involving generative-AI answers.
Due to the anticipated dip in advertising revenue, Citi has also adjusted its expectations for Baidu's core adjusted operating income, decreasing the estimate by 7% to 6.7 billion yuan.
Looking ahead to the third quarter of 2024, Citi suggests that weak macroeconomic conditions are likely to persist, potentially further affecting advertising expenditures. Consequently, the firm forecasts a 2% year-over-year decline in core advertising revenue to 19.3 billion yuan for the third quarter.
Despite the predicted challenges in the advertising segment, Citi remains optimistic about Baidu's AI Cloud revenues, expecting them to accelerate with an 18% year-over-year growth, thanks to easier comparisons.
Following the revision of these estimates, the sum-of-the-parts (SOTP) valuation for Baidu has been adjusted to the new $155 price target, while the Buy rating has been maintained, reflecting continued confidence in the company's overall prospects.
In other recent news, Baidu has seen several adjustments in share price targets by various investment firms. Jefferies lowered its price target to $174, while Loop Capital reduced it to $130 due to a strategic shift towards genAI search technology.
Susquehanna also reduced its price target to $135 despite maintaining a positive outlook on the company. Barclays held firm with a price target of $133, while UBS adjusted its target to $165. Both firms highlighted the potential growth from AI technology.
These recent developments come in the wake of Baidu's focus on AI and cloud growth. Jefferies anticipates Baidu's cloud segment to see year-over-year acceleration, with revenue growth driven by generative AI and GPU cloud services. UBS projects a 17.6% year-over-year growth in cloud revenue for 2024 and notes a significant increase in AI-related revenue.
In addition to AI and cloud services, Baidu's Robotaxi operations are expected to improve, as noted by Jefferies. The firm sees this as a significant growth area for the company.
Baidu's emphasis on AI and genAI search technology is a consistent theme across the board, with Loop Capital and Barclays also acknowledging the potential long-term growth from these technologies.
While Baidu faces challenges in the current macroeconomic landscape, analysts from Susquehanna and Loop Capital maintain a positive outlook on the company, citing the potential for long-term growth from AI technology. These recent developments reflect the evolving landscape for Baidu as it navigates through strategic shifts and market fluctuations.
InvestingPro Insights
As investors consider Citi's updated outlook on Baidu (NASDAQ:BIDU), it's essential to delve into the company's financial health and market performance. Baidu's market capitalization stands at a substantial $34.74 billion, reflecting its significant presence in the industry. The company's current P/E ratio of 14.56 indicates a potentially attractive valuation, especially when compared to the adjusted P/E ratio for the last twelve months as of Q1 2024, which is lower at 12.77. This suggests that the company's earnings relative to its share price might be more appealing than the industry average.
Moreover, Baidu's PEG ratio for the last twelve months as of Q1 2024 is 0.32, which can be an indicator of the stock's potential undervaluation considering future earnings growth. Furthermore, the company's solid revenue growth of 6.77% during the same period is a testament to its ability to increase sales amidst challenging economic conditions. With a gross profit margin of 51.71%, Baidu demonstrates strong profitability in its operations.
Investors looking for additional insights can find more "InvestingPro Tips" on Baidu's financial metrics and investment potential. For those interested in a deeper analysis, use coupon code PRONEWS24 to get up to 10% off a yearly Pro and a yearly or biyearly Pro+ subscription. There are 5 additional "InvestingPro Tips" available that can further guide investment decisions.
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