Baidu Earnings: Ad Revenue Hurt by Weak Macro Conditions, as Expected; No Visibility as to Recovery

We keep our USD 157 (HKD 154) per share fair value estimates for Baidu after third-quarter revenue of CNY 33.6 billion was in line with expectations, but fell 3% year on year. Baidu Core advertising revenue fell 5% year on year, driven by further macroeconomic weakness in China, with lower ad demand reported from all sectors—real estate, franchising, and healthcare were the weakest. AI cloud revenue grew 11% year on year—as expected—but slower than its midteens growth in previous quarters. We estimate generative artificial intelligence revenue at CNY 540 million, up 20% sequentially and accounting for 11% of AI cloud revenue. Despite revenue decline, Baidu Core adjusted operating margin (excluding share-based expenses) was 310 basis points better than expected, offsetting its weak advertising results.