BIDU(09888) 第一上海证券·2024-08-27 06:26Investment Rating - The report maintains a "Buy" rating for the company with a target price adjusted to HKD 107, representing a potential upside of 28% from the current price of HKD 83.5 [3][11]. Core Insights - The company's Q2 2024 performance exceeded market expectations primarily due to lower market forecasts and effective cost optimization, although it faces significant pressures in the second half of the year due to economic uncertainties and challenges in monetizing AI search capabilities [3][11]. - The advertising business is under pressure, with core online marketing revenue declining by 2% year-on-year to RMB 192 billion, influenced by a weak macroeconomic environment and increased competition [3][6]. - The AI cloud business showed strong growth, with revenue increasing by 14% year-on-year to RMB 51 billion, driven by incremental income from generative AI and foundational models [3][7]. Summary by Sections Financial Performance - For Q2 2024, total revenue was RMB 339 billion, slightly below market expectations, with a year-on-year decline of 0.4% and a quarter-on-quarter decline of 8% [5]. - Non-GAAP operating profit reached RMB 75 billion, reflecting a year-on-year increase of 2%, while non-GAAP net profit was RMB 74 billion, down 8% year-on-year but better than market expectations [5][8]. - The company reported a cash position of RMB 162 billion, with free cash flow of RMB 63 billion, indicating a solid financial standing [5][11]. Advertising Business - The core online marketing revenue was RMB 192 billion, down 2% year-on-year, attributed to a sluggish macroeconomic environment and slow recovery of offline vertical clients [3][6]. - Approximately 18% of search results in Q2 were generated by AI, up from 11% in May, although this has not yet been monetized effectively [3][6]. - The report anticipates that advertising revenue growth will face greater declines in Q3 2024 compared to Q2, with ongoing pressures expected throughout the year [3][6]. AI Cloud Business - The AI cloud revenue grew by 14% year-on-year, with generative AI contributing 9% of AI cloud revenue in Q2, up from 6.9% in Q1 [3][7]. - The company launched the Wenxin 4.0 Turbo model, enhancing its competitive edge and aiming for higher efficiency and scalability for AI clients [7][8]. - The autonomous driving service "Luobo Kuaipao" provided 899,000 rides in Q2, marking a 26% year-on-year increase, with plans for full self-driving services in Wuhan [7][8].