Core views:

24Q2 preview. Baidu's total revenue is expected to reach 33.991 billion yuan in 24Q2, YoY +0%, and QoQ +8%. 24Q2 Baidu NongAAP's net profit is expected to be 7.933 billion yuan, YoY -1%, and QoQ +13%. Baidu Core 24Q2 revenue is expected to be 26.752 billion yuan, YoY +1%, and QoQ +12%. NongAAP's net profit is expected to be 6.089 billion yuan, YoY -21%, and QoQ -8%.

Under pressure from advertising, smart cloud revenue is growing steadily. Baidu Core advertising revenue for 24Q2 is estimated to be 19.1 billion yuan, YoY -3%, QoQ +12%, with a certain increase in the second quarter, putting pressure on overall advertising revenue growth. Combined with the company's strategy to increase AIGC's efforts to restructure search products in the short term, AIGC content in search results was not commercialized, which had a negative impact on advertising inventory in the short term. Considering AI's drive for cloud business, smart cloud revenue is expected to increase 15% to 5.2 billion yuan in 24Q2.

Baidu Robotaxi received attention and is committed to optimizing UE. Robotaxi was further promoted and penetrated in Wuhan. From UE's perspective, Robotaxi's two biggest costs are labor costs and hardware depreciation costs. Optimize labor costs by increasing the fully unmanned rate. The subsequent deployment of Baidu's sixth-generation unmanned vehicle, Apollo RT6, to the Wuhan fleet helped reduce hardware depreciation costs significantly.

Profit prediction and investment advice: Short-term advertising performance is under pressure, but as AIGC enhances product experience and contributes more commercial prospects in the direction of Robotaxi and smart cloud, the company's technical value will gain more recognition. We adjusted our 2024-25 revenue forecast to 136.5 billion yuan and 147.2 billion yuan, up 1% and 8% from the same period. The adjusted net profit for 2024-25 is expected to be 29.1 billion yuan and 31.8 billion yuan, respectively, up 1% and 9% year-on-year. According to the SOTP valuation method, the reasonable value of US stocks is 109 US dollars/ADS, and the reasonable value of Hong Kong stocks is 106 HKD/share, maintaining a “buy” rating.

Risk warning: Risks such as marketing business growth falling short of expectations, increased competition, and changes in the AI policy environment.