Baidu shares slide as Barclays downgrades on ad revenue outlook

Investing.com -- Baidu (NASDAQ:BIDU ) US-listed shares fell nearly 3% in premarket trading Friday after Barclays (LON:BARC ) analysts downgraded the stock to Equal Weight from Overweight and cut the price target from to $83 from $115.

The revision comes amid pressures from the Chinese internet giant’s growing focus on generative AI, which “exacerbates pressure” on advertising growth, Barclays analysts noted.

Baidu's Q3 advertising revenue saw a year-over-year decline of 4.6%, following a 2% decline in the second quarter. The company expects an even steeper decline in advertising revenue year-over-year for the fourth quarter.

The overall advertising environment in China remains weak, and Baidu's aggressive investment in genAI is contributing to financial pressures. Approximately 20% of Baidu's search queries now return genAI results, which are monetized at lower rates than traditional search queries, according to Barclays.

“The dilemma BIDU is faced with could either result in one of the greatest opportunities for BIDU or could pose one of the greatest threats to the company as genAI may disrupt competitive landscape in multiple tech and non-tech sectors,” analysts led by Jiong Shao said.

“As BIDU executes on its aggressive push in AI in the coming quarters, the decline in its ad revenues may persist, dragging margins down. We therefore move to the sidelines,” they added.

Barclays also pointed out several positives from the latest report, such as Baidu's cloud business growing over 10% in the third quarter, although the growth was slower than expected. Moreover, the company has maintained well-controlled operating expenses.

Looking ahead, the investment bank said it will closely monitor the pace of the decline in advertising revenues, the potential decrease in profit margins, and any loss of market share in search as competitors intensify their efforts in this area.

Source: Investing.com