百度：Impact from proactive business adjustment likely in line with our expectation

Investment Rating - The report maintains a "BUY" rating for Baidu, with a target price of US$183.00 per ADS, indicating a potential upside of 96.5$93.15 [2][3]. Core Insights - Baidu's core business is expected to deliver revenue growth in line with expectations, albeit slightly slower than market consensus for 2Q24, primarily due to proactive business adjustments to integrate more GenAI-related results in search, which are currently under-monetized [2]. - The cloud segment is on a profitability expansion track, and the increasing penetration of fully driverless cars is anticipated to improve unit economics for the Robotaxi business [2]. - The proactive adjustments in the core business are expected to enhance user experience and long-term monetization prospects, despite a soft macroeconomic environment affecting overall advertising budgets [2]. Financial Forecast - For 2Q24, Baidu Core is estimated to have booked revenue of RMB26.3 billion, flat year-over-year but 2.7% lower than Bloomberg consensus, mainly due to advertising performance [2]. - The forecast for Baidu Core's advertising revenue is RMB19.0 billion, down 3.0% year-over-year, influenced by the integration of GenAI-related search results, softer economic growth, and intense industry competition [2]. - Non-GAAP operating profit for Baidu Core is expected to be RMB6.5 billion in 2Q24, translating to a non-GAAP operating profit margin of 24.7% [2]. Segment Performance - Baidu Cloud revenue is projected to grow by 14% year-over-year in 2Q24, up from 12% in 1Q24 and 5% in 2Q23, driven by the ramp-up of AI-related cloud revenue [2]. - The rides provided by fully driverless vehicles accounted for over 70% of the total for Robotaxi in April 2024, a significant increase from previous quarters, with expectations to reach 100% in the near future [2]. - The new-generation car RT6 is priced at RMB204.6k, significantly lower than the RT5, which is expected to reduce hardware depreciation costs post-deployment [2]. Valuation - The SOTP-based target price of US$183.0 per ADS translates into 17.1x 2024E PE on a non-GAAP basis, or 11.1x if excluding net cash [7]. - The valuation breakdown includes US$69.2 for Baidu Core, US$1.8 for Apollo ASD, US$32.2 for Baidu Cloud, US$64.6 of net cash, and US$15.2 for iQIYI and other investments [7].