Lowering Baidu Near-Term Revenue but Seeing Signs of Recovery in 2023; FVE Remains USD 183

For Baidu, we lower our near-term revenue growth for the fourth quarter of 2022 to a 4% decline from our previous estimate of 0% year-on-year growth; and lowering first-quarter 2023 growth to 1% from 13% year on year, due to macroeconomic weakness in advertising spending so far in 2023. However, our fair value estimate is unchanged at USD 183 (HKD 180) as our long-term thesis remains intact and we expect margin expansion in the later half of 2023, driven by a recovery in ad revenues. We believe that ad spending has been slow prior to the Lunar New Year, which should lead to Baidu Core ad revenue declining 8% year on year in the fourth quarter and 1% in the first quarter of 2023. However, we are seeing signs of some recovery from 2023 Lunar New Year data, leading us to believe there will be normalization toward the back half of the year.