Our SOTP-derived target price for Baidu shares of US$143 is based on:  

(1) Baidu Core (search only) P/E of 5x on 2026E non-GAAP estimated core search net profit of US$1.80bn (assuming 21.0% net margins).   

(2) We apply 4x (average of China SaaS peers) P/S to estimated AI, cloud and autonomous driving revenues of US$6.4bn. This yields a total valuation of US$26bn, which we believe is reasonable at this stage.   

(3) We include the 48% iQiyi (IQ) stake based on our target price valuation; the 7.1% stake in Trip.com based on conservatively applying a 25% discount to the market value; and a 50% discount to the net cash balance of (taking into effect some amount of share buyback budget).    

The US$143 target price implies 17x our consolidated 2026E non-GAAP EPADS, which we view as reasonable and reflects the loss-making autonomous driving business.

Downside risks that could impede the Baidu shares from reaching our target price include: 1) the search business recovers more slowly than expected and the ad budget loses share to competitors; 2) news feed ads face tougher competition from the incumbents; 3) a further slowdown in China’s economy (including from the coronavirus outbreak) affects overall advertising sentiment; and 4) regulatory actions lead to further adjustments in search results inventory.