Ge Long Hui·2025-07-17 19:10Core Viewpoint - Baidu's ongoing AI transformation of its search products is expected to exert pressure on its core advertising revenue growth until 2025, although there are signs of marginal improvement in user data [1][2] Group 1: Advertising Revenue - Baidu's core advertising revenue is projected to decline by 16% year-on-year to 16.1 billion yuan in Q2 2025, following a 6.1% decline in Q1 2025, due to the rapid advancement of AI product transformation [2] - The company has launched several new search applications and features, including a major redesign of the search box into an "intelligent box" that accommodates over a thousand characters and integrates multiple AI applications [2] - User engagement is showing healthy marginal improvement, with Baidu APP's monthly active users (MAU) growing by 3.7%, 4.3%, and 4.4% year-on-year in April, May, and June 2025, respectively [2] Group 2: Cloud Business - Baidu's intelligent cloud revenue is expected to grow by 25.5% year-on-year to 6.4 billion yuan, benefiting from the increasing demand for AI training and inference in China and the deployment of private integrated machines [2] - The introduction of Deepseek is anticipated to enhance AI technology equity, further supporting the growth of Baidu's intelligent cloud revenue [2] Group 3: Profitability and Valuation - The non-GAAP operating profit for Baidu's core business in Q2 2025 is estimated to be 4.1 billion yuan, reflecting a 41% year-on-year decline, with a non-GAAP operating profit margin of 15.8%, down from 26.2% in Q2 2024 [2] - The company has revised its non-GAAP net profit forecasts for 2025, 2026, and 2027 down by 17.2%, 16.1%, and 14.8% to 20.9 billion, 24 billion, and 26.3 billion yuan, respectively, due to the slow recovery of high-margin advertising revenue [2] - Target prices for Baidu's stock have been adjusted to $91.5 for US shares and HK$89.9 for Hong Kong shares, corresponding to 10.8, 9.4, and 8.7 times the estimated non-GAAP PE for 2025, 2026, and 2027 [2]