JPMorgan published a report indicating that it lowered the rating of Baidu (09888.HK) from 'overweight' to 'neutral', primarily due to uncertainty about the speed of macroeconomic recovery, which has led to a sharp decline in its earnings visibility, and there is also uncertainty regarding the negative impact of generative ai content deployment on monetization.

The bank also lowered its adjusted earnings per share forecast for Baidu for the fiscal year 2025 by 21%, 17% lower than market expectations, as it estimated a 7% reduction in the company’s core advertising revenue forecast, and downgraded its core operating profit margin forecast by 6 percentage points. Although the bank predicts that the weak growth of Baidu's core advertising revenue will bottom out in the first quarter of next year, followed by an accelerated recovery in the next few quarters, the speed of recovery remains unclear, and there are downside risks to market forecasts.

In addition, the bank considers that the deposits Baidu has in commercial banks and the wealth management products issued by commercial banks and other financial institutions mean that the company's net cash is equivalent to 84% of its market cap, implying that its price-to-earnings ratio for 2025 is only two times (excluding cash). Based on the company’s past capital return of 1 billion dollars to shareholders, the bank believes that Baidu's current stock price has limited downside potential. The target price is lowered from 125 yuan to 85 yuan. (jl/W)~