Baidu Q2 preview: Ad revenue expected to remain under pressure

[Baidu Headquarters]
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Baidu is expected to report a decline in both its top and bottom lines during its second-quarter earnings, scheduled for August 20th, before the market opens.

The company is expected to report earnings of $1.86 per share [https://seekingalpha.com/symbol/BIDU/earnings/estimates], a 35.6% year-on-year decline, while revenue is likely to come around $4.59B, representing a nearly 2% drop compared to the same period a year ago.

Baidu's advertising business is likely to face headwinds in the second quarter, MarketWatch said, citing Citi analysts. They expect the transformation of AI to have a worse impact on the segment than previously expected. Ad revenue is projected to fall by 15.5% YY.

Additionally, SA’s The Alpha Analyst [https://seekingalpha.com/article/4814583-baidu-sluggish-core-masks-a-deep-value-opportunity] attributed the downturn to a soft advertising market in China after the post-COVID boom and a shift towards short-form content and social media alternatives, which has led to advertisers moving to platforms like Douyin/TikTok and WeChat.

Cloud revenue, on the other hand, continues to remain solid. Analysts at Daiwa see Baidu’s cloud revenue growth to maintain momentum, MarketWatch added, although they are less optimistic about project-based enterprise cloud revenue, given its nonrecurring nature compared to subscription-based services.

As per The Alpha Analyst, the growth in Baidu’s non-marketing revenue offsets the stagnancy in the former segment.

“Non-marketing revenues have grown by 40% YoY, primarily driven by a growth in AI Cloud revenues. The non-marketing segment accounts for 29% of overall revenues, significant enough to start impacting future overall topline growth. And it does seem that the segment has been able to grow into reasonable levels quietly when markets have been concentrating on the shrinking core ad revenues,” it said.

Investors are also likely to look out for the management’s commentaries on Baidu’s recently announced partnerships with Uber and Lyft.

Over the last 2 years, BIDU has beaten EPS and revenue estimates [https://seekingalpha.com/symbol/BIDU/earnings/eps-surprise-summary] 88% of the time. Over the last 3 months, EPS estimates have seen 1 upward revision [https://seekingalpha.com/symbol/BIDU/earnings/revisions] and 11 downward moves, while revenue estimates have seen 1 upward revision and 14 downward moves.

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