1、EQUITY:INTERNET&NEW MEDIABaidu BIDU.OQ BIDU USGlobal Markets Research16 July 20252Q25 preview:accelerated decline in search adsBaidus push into AI search taking a toll on its cash machine;maintain Neutral 2Q preview:search advertising falls victim to its AI search drive We forecast Baidu Core(exclud

2、ing iQiyi)s 2Q revenue likely dropped 3%y-y to CNY25.9bn,2%below the latest Street consensuses due to weaker ads revenue.Baidu has accelerated the offering of AI-generated content to its search users which currently has little monetization.Thus,the shifting of users time spent from its legacy search

3、 to AI search content has hit its search ads significantly we estimate its ads revenue likely fell 15%y-y in 2Q,lower than market expectation of-10%y-y.This migration of users from traditional search to AI search appears irreversible as the latter offers superior experience,while the monetization mo

4、dels for AI search are still premature.All of these suggest the challenges for Baidu may last longer than just for one-two quarters.Making things worse is that Baidu lacks the luxury of pacing this migration so as to manage its financial impact on a quarterly basis.Many of its AI search competitors

5、Bytedance(unlisted),Alibaba(BABA US,Buy)and Tencent(700 HK,Buy)are competing in this promising vertical.We think Baidu has no option but to drive its own AI search more aggressively to prevent its users from leaving its ecosystem.Hence,we forecast an accelerated decline of 18%in Baidu cores ads in 3

6、Q before moderating to-12%y-y in 4Q due to lower base.We estimate its ads revenue to drop 13%/5%in FY25/26F,6%/12%below the latest Bloomberg consensus.As search ads is Baidus key cash machine,the weakening search cash flow coupled with high AI investment likely weighs down on its margins.We project