Investment Rating - The report maintains a "Buy" rating for Baidu Group [2][7] Core Views - Baidu's core advertising business is expected to face pressure due to AI search transformations, with a projected revenue decline of 16.3% year-on-year in Q2 2025 [7] - Baidu's Robotaxi service, "Luobo Kuaipao," is leading the global market, with a significant increase in order volume, up 75% year-on-year to 1.44 million in Q1 2025 [7] - The company's intelligent cloud business is experiencing rapid growth driven by the demand for generative AI and large language models, with Q1 2025 cloud service revenue expected to grow by 42% year-on-year [7] - The overall revenue forecast for 2025-2027 has been adjusted to reflect a decline of 5.2% in 2025, followed by growth of 4.4% and 4.8% in 2026 and 2027, respectively [7] - The target price for Baidu has been revised down to HKD 95.15 based on DCF valuation [7] Financial Projections - Revenue projections for Baidu are as follows: - 2024: 133,125 million CNY - 2025: 126,265 million CNY - 2026: 131,853 million CNY - 2027: 138,172 million CNY [2][12] - Net profit projections are: - 2024: 23,760 million CNY - 2025: 18,324 million CNY - 2026: 20,200 million CNY - 2027: 22,172 million CNY [2][12] - The P/E ratio is projected to be 10.9 in 2024, increasing to 14.1 in 2025, and then decreasing to 11.7 by 2027 [2][12] Business Segments - The core online marketing service revenue is expected to decline by 15.3% in 2025, while cloud service revenue is projected to grow by 22.2% [8] - The iQIYI segment is expected to see a slight revenue decline of 1.0% in 2025 [8] Valuation Metrics - The report provides a DCF valuation breakdown, indicating a total enterprise value of approximately 370.45 billion CNY, with equity value at 287.44 billion CNY [9][10]

Core Viewpoint - Morgan Stanley's previous expectation of a rebound in Baidu's core advertising business this year may be delayed, as the growth rate for core advertising in the second quarter is likely to further slow down [1] Advertising Business - Analysts, including Gary Yu, predict a 10% year-over-year decline in Baidu's advertising business for the second quarter, primarily due to the ongoing transformation towards AI advertising [1] - Confidence in the recovery path for the advertising business continues to weaken amid soft revenue and increased investments in AI and autonomous taxi services, which may pressure profit margins [1] Cloud Business - The cloud business is expected to maintain a growth rate of 20%-30%, but its scale remains limited compared to peers [1] Price Target Adjustment - The target price for Baidu's American Depositary Receipts has been lowered from $100 to $95 [1]

Core Viewpoint - Morgan Stanley's previous expectation of a rebound in Baidu's core advertising business this year may be delayed due to a potential further slowdown in core advertising growth in the second quarter [1] Summary by Category - **Company Performance** - Baidu's American Depositary Receipt (ADR) target price has been lowered from $100 to $95 [1]