Baidu Preview: Cloud Revenue Likely Slow To Recover, Margin Expansion From Ad Recovery Still Intact

We are lowering our first-quarter 2023 revenue growth estimate to 4% year on year from our previous estimate of 6%, and lowering our second-quarter growth estimate to 10% from 11%, due to the slow recovery of the cloud business. First-quarter results are expected in mid-May. However, our fair value estimate is unchanged at USD 183 (HKD 180) as our long-term thesis remains intact—we expect ad revenue to recover and drive margin expansion in the second quarter to 21%. We anticipate ad revenue to outpace China’s GDP growth in 2023, and the top categories to remain healthcare, e-commerce, and travel. In addition, Baidu indicated that it is also starting to see strength from offline retailers this quarter, as it is growing faster than its e-commerce peers.