ab 20 January 2026 Global Research First Read Baidu, Inc. 4Q25 preview: Core businesses in line; value unlocking in focus Core ads revenue decline narrowed QoQ; Kunlunxin remains key focus We expect Baidu to deliver an in-line quarter in 4Q25. We forecast Baidu's Core ads revenue YoY decline to narrow sequentially in 4Q25, as the impact from AI search transformation is partially offset by the ramp-up of AI-native marketing services (e.g., agents and digital humans). On Cloud, while the segment growth is lik ...

Investment Rating - The report maintains an "OUTPERFORM" rating for Baidu Group [2] Core Views - Baidu's operating cash flow is expected to remain positive in Q4, supported by prudent spending and the integration of AI tools in operations [4][13] - The listing of Kunlun Chip (KLX) is anticipated to unlock significant valuation for Baidu, with potential revenue comparable to Cambricon [5][14] - Apollo Go is set to accelerate its global expansion in 2026, which may further support Baidu's stock performance [15] Financial Summary - Baidu's revenue for FY25 is projected at RMB 128.7 billion, a decrease of 2.4% year-on-year, with a net profit of RMB 18.6 billion, down 31% [3][11] - The core business is expected to generate an adjusted operating profit of RMB 14.1 billion, corresponding to a margin of 13.8% [11] - For Q4, total core revenue is estimated at RMB 25.8 billion, reflecting a year-on-year decline of 6.9% but a quarter-on-quarter increase of 4.5% [12] Valuation and Recommendations - The report employs a Sum-of-the-Parts (SoTP) valuation method, estimating a total market cap of approximately HK$481.8 billion or a target price of HK$178, corresponding to a 24x PE for FY26 [6][14] - The valuation breakdown includes traditional search ads, AI cloud, AI SaaS, AI ads, and other segments, with significant contributions from the Robotaxi and Kunlun Chip businesses [6][15]

Baidu Inc. 4Q25 Preview Summary Company Overview - **Company**: Baidu Inc (BIDU.O) - **Industry**: China Internet and Other Services - **Market Cap**: US$51.804 billion - **Current Stock Price**: US$149.53 (as of January 16, 2026) - **Price Target**: Increased from US$130.00 to US$150.00 Key Financial Metrics - **Core Revenue**: Expected at Rmb26.1 billion, a decline of 5.6% YoY [1][14] - **Operating Profit (OP)**: Expected at Rmb2.8 billion, down 40.5% YoY [1][4] - **Online Marketing Revenue**: Anticipated decline of 16% YoY [2][11] - **Non-Marketing Revenue**: Expected growth of 13.3% YoY [14] - **AI Cloud Revenue**: Projected to grow 5% YoY, significantly slower than 21% in 3Q25 [3][11] Core Insights - **Advertising Revenue**: Online ads revenue is expected to decline by 16%, an improvement from a 19% decline in 3Q25. AI-generated content is becoming more prevalent, with over 70% of mobile search result pages now featuring it, although monetization remains limited [2][11]. - **AI Cloud Performance**: The slower growth in AI cloud revenue is attributed to a high base from the previous year and slower growth in personal cloud services, which account for approximately 30% of AI cloud revenue [3][11]. - **Operational Efficiency**: Non-GAAP operating profit is expected to improve quarter-over-quarter due to efficiency enhancements and depreciation gains, with further savings anticipated from organizational restructuring [4][11]. Upcoming Events - **Dividend Announcement**: Potential announcement alongside 4Q results and renewal/expansion of the buyback program (previously US$5 billion) [5][11]. - **Kunlunxin Listing**: Anticipated Hong Kong listing within six months [5][11]. - **Robotaxi Value Unlocking**: Apollo Go has received fully driverless licenses in Dubai and Abu Dhabi, indicating progress in autonomous vehicle initiatives [5][11]. Valuation and Market Position - **Valuation Methodology**: The new price target of US$150 is based on a sum-of-the-parts approach, including a DCF model with an 11% discount rate and a 3% terminal growth rate [16][22]. - **Comparison with Peers**: Trading at a 2026 estimated P/E of 18x, compared to 17-18x for Tencent and Alibaba [6][11]. Risks and Considerations - **Market Environment**: A weak macroeconomic environment and risks associated with AI disruption may hinder the recovery of search ads [22][40]. - **AI Monetization**: The monetization of AI technologies is still in its early stages and has not yet shown significant financial impact [27][40]. Summary of Financial Estimates - **Total Revenue**: Expected to decline to Rmb128.959 billion in 2025, with a slight recovery projected in subsequent years [19][21]. - **Net Income**: Anticipated to be Rmb6.136 billion in 2025, with a gradual increase in the following years [19][21]. - **Operating Margins**: Expected to improve slightly but remain under pressure due to declining revenues [19][21]. This summary encapsulates the key points from the earnings preview for Baidu Inc., highlighting the company's financial expectations, operational strategies, and market outlook.

Summary of the Conference Call on China's Internet and AI Industry Outlook for 2026 Industry Overview - The focus is on the **China Internet** industry, particularly the **AI sector** and its growth prospects in 2026, influenced by both supply and demand factors [1][2]. Key Insights AI Growth Prospects - **Supply Improvements**: Anticipated import of Nvidia H200 chips for training and expansion of domestic chip production capacity for inferencing are expected to enhance AI capabilities [2][4]. - **Demand Surge**: A breakthrough in agentic capabilities is projected to drive a significant increase in consumer (2C) adoption. Positive signals from the latest China CIO Surveys indicate a first-time uptick in enterprise (2B) spending since the second half of 2021 [2][4]. Overseas Expansion - As the domestic market faces deflationary pressures and rising competition, overseas expansion is becoming crucial. Various segments such as gaming (Tencent, NetEase), cross-border e-commerce (PDD, Alibaba), and cloud services (Alibaba, Tencent) are highlighted as key areas for growth [3][4]. - It is estimated that overseas markets contributed over **10%** of revenue for Chinese internet companies in 2025, with expectations for further growth in the next 2-3 years [3][4]. Risks and Challenges - The macroeconomic climate, competition, regulatory changes, and geopolitical tensions are identified as significant risks. A decline in consumption since Q4 2025 is impacting industry revenue growth across e-commerce, local services, and advertising [4]. - Competition in food delivery and quick commerce remains intense, particularly following the State Council's anti-involution investigation. ByteDance's continued disruption across various sectors is also noted [4]. Investment Recommendations Overweight (OW) Recommendations - **Tencent**: Identified as a top pick due to resilient core businesses and strong 2C AI applications [5]. - **Alibaba (BABA)**: Considered the best AI enabler with cloud services as a key growth catalyst [5]. - **PDD**: Valued for its attractive pricing and potential breakeven of Temu in 2026 [5]. - **TME**: Noted for its resilient business model and potential upside from the proposed Ximalaya acquisition [5]. Underweight (UW) / Equal Weight (EW) Recommendations - **JD (UW)**: Facing operational de-leverage and high investments in new businesses [5]. - **BILI (EW)**: Low visibility in gaming and high valuations are concerns [5]. - **Kuaishou (EW)**: Core business performance is lukewarm, with current valuations reflecting this [5]. - **BIDU (EW)**: While Kunlunxin is a near-term catalyst, core business challenges persist [5]. Additional Insights - The report emphasizes the importance of prudent capital expenditure in AI applications to mitigate bubble risks, suggesting a focus on applications that yield better returns on invested capital (ROIC) [2][4]. - The overall industry view remains attractive, with a strong emphasis on the potential for growth in AI and overseas markets despite existing challenges [7]. This summary encapsulates the key points from the conference call, providing a comprehensive overview of the current state and future outlook of the China Internet and AI industry.

Core Insights - The U.S. is competing with China in the innovation and development of autonomous vehicles, emphasizing the need for a national standard in this sector [2] - The House Energy and Commerce Committee is advocating for easing regulations on self-driving cars, aligning with the Transportation Secretary's plans to amend the Federal Motor Vehicle Safety Standards [3] - Lawmakers are focusing on vehicle affordability and safety features, with discussions on how these features impact costs [4] Industry Developments - Waymo and Apollo Go are leading players in the autonomous vehicle market, with both companies targeting global expansions and partnerships for testing their technologies [5] - Nvidia has introduced its Alpamayo technology, which aims to revolutionize self-driving through a Vision-Language-Action approach, described as a significant advancement in physical AI and autonomous driving [6]

Group 1 - The core point of the article is the inauguration of Baidu's first overseas Apollo Go autonomous driving operation control center in Dubai, which aims to support the development of smart transportation in the region [1] Group 2 - The control center will be responsible for fleet management, charging, software updates, and safety testing [1] - This initiative marks Baidu's expansion beyond China, indicating its commitment to international growth in the autonomous driving sector [1]

Industry Overview - The auto industry is undergoing a transformation with electric vehicles (EVs) and autonomous vehicles (AVs) reshaping the future of mobility, driven by advances in battery technology and a growing charging network [1] - The adoption of EVs varies by region, with the U.S. facing temporary obstacles due to policy changes, while China leads the transition supported by competitive pricing and government backing [3] - Global EV sales are projected to reach nearly 90 million units by 2040, accounting for 27.5% of total sales in 2026, 43.2% by 2030, and over 83% by 2040 [4] Competitive Landscape - Tesla has historically led the EV market, but competition is intensifying with the emergence of Chinese automakers and new EV-only startups, providing consumers with more choices [2] - The autonomous vehicle market is valued at approximately $1.5 trillion in 2022 and is expected to exceed $13.6 trillion by 2030, growing at a compound annual growth rate of 32% from 2023 to 2030 [4] Key Companies - **Blue Bird Corporation (BLBD)**: A leading provider of low- and zero-emission school buses, with over 20,000 buses in operation. The company is expanding its services and is well-positioned to benefit from trends in clean transportation [8][10] - **WeRide Inc. (WRD)**: A leader in autonomous driving with a fleet of over 1,600 AVs, including robotaxis. The company is expanding its operations globally and commercializing various autonomous vehicle solutions [11][14] - **Workhorse Group Inc. (WKHS)**: Focused on electric commercial vehicles, the company has a strong sales pipeline and partnerships with major fleets. It aims to capture growth in the medium-duty truck market [15][17] - **Amazon (AMZN)**: Through its subsidiary Zoox, Amazon is entering the autonomous driving space with robotaxi services in Las Vegas and plans for expansion. Zoox's unique design positions it as a competitor in the robotaxi market [18][20]

Core Insights - Baidu's Apollo Go has received the first fully autonomous driving test license in Dubai, allowing operation of self-driving vehicles without safety drivers on designated public roads [1] - The company plans to launch commercial autonomous ride-hailing services in Dubai within the first quarter of this year, supported by a 2000 square meter autonomous operations center in the city center [1] - The Dubai Roads and Transport Authority (RTA) aims to evaluate system safety, reliability, and user experience through this testing, paving the way for large-scale commercialization [1] Company Developments - Baidu's Apollo Go is set to expand its fleet to over 1000 vehicles in collaboration with RTA [1] - The establishment of the operations center integrates smart roads, charging, maintenance, and scheduling systems [1] Industry Implications - This initiative marks a significant institutional breakthrough for Chinese autonomous driving technology in the Middle East market [1] - The move reflects the UAE's ongoing policy of openness in the field of smart transportation [1]

Industry Overview - The global autonomous vehicle market is projected to grow from approximately $106 billion in 2021 to over $2.3 trillion by 2030, indicating substantial growth opportunities in the robotaxi sector [1] Uber's Autonomous Vehicle Strategy - Uber adopts a partnership-focused approach to establish a presence in the robotaxi market, collaborating with third-party autonomous technology developers to avoid high R&D costs [2][3] - The company has signed multiple strategic partnerships to integrate advanced autonomous solutions into its platform, allowing it to remain active in the robotaxi ecosystem without significant capital investments [3] - Uber's dominant position in the global ride-hailing market, supported by a vast network of riders and drivers, positions it well to scale autonomous services quickly once technology is commercially ready [4] - The company is focusing on suburban and lower-density regions to generate incremental demand for autonomous vehicles [5] Baidu's Position in the Robotaxi Market - Baidu is a significant player in the robotaxi sector, with operations primarily in China but gradually expanding globally [6][19] - The Apollo Go platform offers fully driverless robotaxi services in major Chinese cities and is expanding into international markets like Dubai and Switzerland [7][8] - Baidu has partnered with Uber to deploy driverless vehicles on Uber's platform in select Asian and Middle Eastern markets, combining Baidu's AI expertise with Uber's ride-hailing infrastructure [8] Financial Performance and Valuation - Baidu's earnings outlook for 2026 has seen a double-digit upward revision in the past 60 days, contrasting with a marginal upward revision for Uber [9][14] - Baidu's shares have outperformed Uber's, gaining over 82% compared to Uber's 32% increase over the past year [10] - Baidu trades at a forward price-to-sales ratio of 2.45X, while Uber's is 3.01X, indicating a more favorable valuation for Baidu [13] Conclusion - Baidu is positioned as a leader in the robotaxi market, supported by its advanced technology, operational scale, and strategic partnerships, making it a more attractive investment option compared to Uber [20][21]

Group 1: Waymo's Expansion and Operations - Waymo, backed by Alphabet Inc., is testing its Robotaxi service in London, with plans for expansion in the city [1][3] - A video showed a Waymo-branded Jaguar I-Pace electric vehicle on London streets, although it was not operating autonomously during the recording [2] - The company has reached 14 million paid Robotaxi rides in 2025, indicating significant growth in its service [3] Group 2: Challenges in Existing Operations - Waymo has faced disruptions in its San Francisco Robotaxi operations due to a PG&E Corp. substation outage, leading to a temporary pause in service [4] - The company also halted operations in the San Francisco Bay Area on Christmas Day due to severe weather warnings, including flash floods [4] Group 3: Competitive Landscape - Other companies, such as Uber and Lyft, are partnering with Baidu's Apollo Go to introduce self-driving taxis in the UK next year, indicating increasing competition in the market [5] - Tesla is also advancing its Full Self-Driving technology in Europe, showcasing the competitive dynamics in the autonomous vehicle sector [6]