Baidu Earnings: Incremental AI Revenue Growth Offsets Weak Macroeconomic Outlook; Shares Cheap

We keep our fair value estimate for Baidu at $183 per share after fourth-quarter revenue of CNY 34.95 billion was in line with our estimates. However, its 15.6% operating margin was about 300 basis points less than consensus, due to lower operating leverage from lackluster advertising revenue growth and increased costs from its new artificial intelligence, or AI, products. Revenue growth was driven by advertising revenue increasing 6% year on year. However, cloud revenue outperformed our expectations, increasing 11% year on year for the quarter. Revenue from generative AI represented 4.8% of cloud revenue, and we believe it will incrementally grow in proportion in 2024 and beyond.