J.P. Morgan (JPM, Financials) downgraded Baidu (BIDU, Financials) to "neutral" from "overweight," citing reduced earnings visibility due to uncertainty surrounding the pace of macroeconomic recovery and the impact of generative artificial intelligence content on monetization.
Analysts in a research report claimed that while Baidu's main advertising income is expected to bottom out in the first quarter of 2025, following quarters show little increase. Still, the rate of recovery is unknown, and opinions on this vary with negative possibilities.
The comment underlined that in the third quarter of 2024 Baidu's main advertising income dropped by 4%. The researchers estimate that more than half of Baidu's monthly active users and twenty percent of search result pages have engaged with generative artificial intelligence material, which does not now bring in money. Citing poor advertising demand and Baidu's shift away from monetization, the research projected further decreases of 8% and 7% year-over-year in core revenue growth for the fourth quarter of 2024 and the first quarter of 2025 correspondingly.
Management's actions determine the timing and size of selling generative AI content; these are still uncertain, the analysts noted. They also pointed out that any attempt to profit from AI content might call for more user acquisition expenses, thereby perhaps lowering near-term profitability. Furthermore unknown is the overall advertising demand's recovery velocity.
