Analyst Note| Kai Wang, CFA |
We revise our 2022 estimates downwards for Baidu to reflect further short-term COVID-19-related headwinds but our long-term investment thesis remains intact and fair value estimate is unchanged at USD 183. We are taking down Baidu Core growth to negative 1% from 7% year-on-year for second-quarter 2022, due to greater headwinds to its advertising business. We expect revenues to normalize in the back half of the year and should recover at the pace of China’s GDP growth. We anticipate that cloud revenue will also be affected as COVID-19 has prevented Baidu’s salespeople from finalizing contracts with potential clients. However, for both lines of business we believe the impacts are only for the near term and this also does not alter long-term views on artificial intelligence, or AI, or autonomous driving. With recent declines to Baidu’s stock price reacting to headlines related to the Shanghai lockdown, we believe that anymore pullbacks in valuation could present an attractive entry point as long-term drivers and thesis both remain intact.