EQUITY RESEARCH

COMPANY UPDATE

Jason Helfstein212-667-6433Jason.Helfstein@opco.com

Bo Pang212 667-7935pang.bo@opco.com

Jed Kelly, CFA212-667-8196Jed.Kelly@opco.com

Kevin Gallagher212 667-7598Kevin.Gallagher@opco.com

May 10, 2016

Stock Rating:

OUTPERFORM12-18 mo. Price Target $225.00BIDU - NASDAQ $169.49

3-5 Yr. EPS Gr. Rate 27%52-Wk Range $217.97-$100.00Shares Outstanding 347.0MFloat 270.3MMarket Capitalization $58,686.0MAvg. Daily Trading Volume 3,102,308Dividend/Div Yield NA/NMBook Value $39.00Fiscal Year Ends Dec2016E ROE 17.0 %LT Debt $5,238.0MPreferred $0.0MCommon Equity $13,393MConvertible Available No

EPSProForma Q1 Q2 Q3 Q4 Year Mult.

2014A 1.24 1.73 1.90 1.63 6.50 26.1x2015A 1.22 1.81 1.43 1.71 6.25 27.1x2016E 1.05A 1.53 1.57 2.05 6.20 27.3xPrior (E) -- 1.64 1.71 2.19 6.57 NM2017E -- -- -- -- 9.63 17.6xPrior (E) -- -- -- -- 10.33 NM2018E -- -- -- -- 12.94 13.1xPrior (E) -- -- -- -- 13.90 NMEPSGAAP Q1 Q2 Q3 Q4 Year Mult.

2014A 1.16 1.63 1.79 1.48 6.05 28.0x2015A 1.09 1.67 1.25 11.00 15.20 11.2x2016E 0.83A 1.37 1.40 1.87 5.52 30.7xPrior (E) -- 1.47 1.54 2.01 5.89 NM2017E -- -- -- -- 8.86 19.1xPrior (E) -- -- -- -- 9.55 NM2018E -- -- -- -- 12.04 14.1xPrior (E) -- -- -- -- 12.99 NM

Oppenheimer & Co Inc. 85 Broad Street, New York, NY 10004 Tel: 800-221-5588 Fax: 212-667-8229

For analyst certification and important disclosures, see the Disclosure Appendix.

Stock Price Performance Company DescriptionBaidu is a leading Chinese languageInternet search provider.

INTERNET

Baidu.com, Inc.Investigation Results Better than Expected; ReducingTarget from $240 to $225SUMMARYWe are lowering our price target to $225 from $240 following investigation resultsannounced by the Cyberspace Administrative of China (CAC) on Monday. Asrequired, BIDU will have to 1) stop advertising for businesses that are not meetingregulatory requirements, 2) rank search results more toward advertisers' reputation/reliability and 3) manage ad-load below 30% across all verticals, by May 31.Although we see moderate near-term headwinds to its search business from removingunqualified advertisers, BIDU's long-term investment thesis is largely intact, in ourview. Therefore, we are reducing '16/'17 revenue estimates by 2%/4% and lowering'16E/'17E EBITDA by 5%/7%, respectively, based on our ad-load checks and prior-analysis on BIDU's private hospital exposure. Maintain Outperform.

KEY POINTS

■ Investigation results better than expected. Earlier, CAC concluded theinvestigation against BIDU's recent wrongdoing in healthcare advertising andrequires BIDU to 1) remove unqualified health-related advertisers (vs. a fullsuspension on HC advertising), 2) base search results more on advertisers'reputation & reliability over bidding price and 3) limit paid-search results to below30% of total results per page, for all verticals.

■ BIDU responded to comply with cyber-purification requirements, infollowing aspects: 1) stop advertising for unqualified businesses (incl. all militaryaffiliated hospitals); 2) weigh advertisers' reputation/reliability over bidding price,for search results; 3) highlight "Sponsored Links" and manage ad-load below30%, across verticals; 4) assist government to improve the national HC ratingmechanism; and 5) set up Rmb1B reserve fund for consumer protection.

■ Moderate near- to medium-term impact. We estimate that overall, HC/privatehospitals account for below 20%/10% of BIDU's revenue, given that the top-5verticals are contributing ~50% of its revenue and that verticals such as propertiesand autos have been heavily commercialized. Additionally, we also see the 30%ad-load restriction nicely above BIDU's current level (Exhibit 1).

■ We expect such results to be long-term neutral to BIDU. It will be entitled tohelp reset industry rules to deliver better search quality, which should improve userexperiences and increase ROI for advertisers, over time. Initiatives in Locals/AIshould continue to drive monetization. By the conclusion of the CAC investigation,BIDU removed 2,518 unqualified health-care institutions and 126M false ads.

■ Estimate revisions & Target price. We are reducing '16E/'17E revenueestimates by 2%/4% and '16E/'17E EBITDA by 5%/7%, respectively, on Searchheadwinds. Reducing target to $225 from $240, primarily on lower assumedSearch value, now $198 per ADS vs. prior $212.

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5-YEAR PRICE PERFORMANCE

300

250

200

150

100

5020162015201420132012

BIDU

Source: Bloomberg

INVESTMENT THESIS

As the No.1 search engine in China, BIDU benefits from thesecular growth of the online advertising market in China. Wethink key drivers include increasing number of paid clicks,higher conversion rates, and higher cost-per-click (CPC). Thepenetration of smart-phones in China, especially in lower tiercities, provides another strong revenue stream for BIDU as itstarts to monetize mobile search separately. In addition, BIDU'sexpansion to location-based services (LBS) and online-to-offline(O2O), as well as its initiatives in the e-commerce/online video/mobile app store, could become potential growth drivers.

BASE CASE ASSUMPTION■ Transaction GMV grows at 78% CAGR '15E-'18E.■ Search revenue grows at 20% CAGR '15E-'18E.■ Gross revenue grows at 23% CAGR '15E-'18E.■ Non-GAAP EBITDA grows at 31% CAGR '15E-'18E.■ Non-GAAP EPS grows at 29% CAGR '15E-'18E.■ Note: all CAGR on constant currency basis.

CATALYSTS■ Sale of majority stakes in loss-making business, such as local and

video, will facilitate margin expansion and SOTP valuation.■ Consolidate O2O industry through partnering or integrating with

industry leaders.■ Synergies from CTRP/QUNR partnership might bring substantial

upside for growth and margin expansion.

UPSIDE SCENARIO■ Search continues to gain market share in the absence of social

media.■ Mobile search CPC continues to catch up and eventually surpass

PCs.■ Local GMV growth remains high, taking market shares and

generating higher margins.■ China consumption remains solid and drives economy growth.

DOWNSIDE SCENARIO■ If local initiatives do not generate scale or lose market share.■ Macro economy slowdown has a greater than expected impact on

search and consumption for other services.■ FB enters China and social media competes for ad spend.■ GOOG search receives approval to re-enter China market.■ Potential regulations could damage BIDU's leading position in

Search and its overall monetization upside.

PRICE TARGET CALCULATION

Our sum-of-the-parts (SOTP) valuation suggests Baidu's fair value at $225 per ADS (was $240), based on 1) $198 per ADS Searchvalue (was $212), or 6.8x/11.5x FY16E search revenue/EBITDA (were 7.1x/12.1x), vs. GOOG's 6.0x/12.2x but growing faster, 2) 80% ofiQiyi's ownership at $2.2B vs. $2.8B offer for 100%, 3) public CTRP stake of $5.4B and 4) ~70% of Takeout ownership at $1.8B. We areconservatively not giving credit to Nuomi in our SOTP.

KEY RISKS■ The online advertising market in China is highly competitive and undergoing significant changes.■ Risks surrounding ongoing initiatives could jeopardize future revenue growth.■ The company's aggressive spending plans may hurt profitability.■ The company may fail in acquisitions, as well as risks associated with overvalued acquisitions.■ Macroeconomic headwinds may have a significant impact on BIDU's business.■ Failure to meet or exceed quarterly earnings could drastically impact valuation multiples, as the stock trades at a high multiple.■ Unsuccessful development in Baidu's local advertising business.

Jason Helfstein: 212-667-6433

Baidu.com, Inc. BIDU (OUTPERFORM) - $225.00

3

We believe that the 30% ad-load restriction brings general concerns around BIDU’s

search growth and monetization capabilities, as most investors intuitively assume a

high commercialization rate for BIDU’s search results. To clarify, the 30% ad-load

restriction applies only to the search results labeled by “Sponsored Link,”

confirmed by management. Therefore, our checks across key verticals and

platforms suggest that this 30% ad-load restriction remains significantly above

BIDU’s current ad-load level (mid-teens on PC and mid-20% on mobile) and may

not cap its ad-load upside.

Check On Desktop

We checked BIDU’s ad-load on desktop for key verticals such as Auto, Residential

Property, eCommerce, Travel and Financials. All of them include either 2

Sponsored Links or none at all, of 10-15 total results on the first page (fewer

sponsored links in the following pages). This implies an ad-load level of only mid-

teens. Display ads on the right column are also rare, usually 1 or none, not to

mention that product listing ads & dynamic product ads are largely non-existent

outside of the Auto segment. In addition, we notice that Healthcare search results

are largely ad-free now.

Exhibit 1. BIDU Ad-load Checks

Note: ad-load on mobile app is similar to mobile websites. Source: Baidu Websites and Mobile Apps, Oppenheimer & Co. Inc.

Search "Kia Auto"

Only one sponsored link ontop of the page and another one at the end of the page;

This suggests Ad-load at 2 out of 12 total results, or 16.7%

Baidu.com, Inc.BIDU (OUTPERFORM) - $225.00

4

Check On Mobile App

Ad-load on mobile seemed slightly heavier than on desktop, averaging 3-4

sponsored links of 13-14 total results (at least 2-3 sponsored links on the following

pages). This implies that average ad-load ranges from 21%-29%, closer to the 30%

cap. However, we expect BIDU’s monetization upside on mobile to be further

driven by better personalization and Local initiatives, such as Local Express, Baidu

Connect, Nuomi and Ctrip/Qunar.

Exhibit 2: BIDU Ad-Load Check, Mobile

Note: ad-load on mobile app is similar to mobile websites.

Source: Baidu Websites and Mobile Apps, Oppenheimer & Co. Inc.

Search "Shenzhen Property Price"

Two sponsor links on top of the page and another one in the middle of the page;

This suggests Ad-load at 3 out of 13 total

results, or 23%

Baidu.com, Inc. BIDU (OUTPERFORM) - $225.00

5

Exhibit 2. BIDU DCF Assumptions and SOTP Valuation

Source: Company Reports, Oppenheimer & Co. Inc.

Discounted Cashflow Valuation (Terminal Perpetuity Method)

($ millions except per share data)

FY2015E FY2016E FY2017E FY2018E FY2019E FY2020E FY2021E FY2022E

Search Revenue $8,521 $10,116 $12,120 $14,302 $16,590 $18,913 $21,183 $23,301

y/y growth 25% 19% 20% 18% 16% 14% 12% 10%

Calculation of Adjusted EBITDA

Overall OPM % 20% 20% 26% 28% 30% 32% 34% 35%

Search OPM % 52% 51% 52% 52% 53% 54% 54% 54%

GAAP EBIT $4,427 $5,130 $6,303 $7,437 $8,793 $10,213 $11,439 $12,582

y/y growth 23% 16% 23% 18% 18% 16% 12% 10%

Less Taxes ($866) ($588) ($776) ($1,060) ($1,348) ($1,684) ($1,945) ($2,139)

Tax Rate 20% 11% 12% 14% 15% 16% 17% 17%

Unlevered Net Income $3,561 $4,542 $5,527 $6,377 $7,444 $8,529 $9,494 $10,443

Plus:

Share-based compensation $142 $151 $169 $189 $210 $233 $256 $282

Depreciation & amortization $561 $674 $809 $930 $1,069 $1,176 $1,294 $1,423

Less:

Change of working capital $657 $780 $934 $1,102 $1,279 $1,458 $1,633 $1,796

Capital Expenditures $671 $770 $892 $1,017 $1,139 $1,253 $1,353 $1,434

as % of search revenue 8% 8% 7% 7% 7% 7% 6% 6%

Free Cashflow $2,937 $3,817 $4,678 $5,377 $6,307 $7,228 $8,059 $8,919

y/y growth 21% 30% 23% 15% 17% 15% 11% 11%

Non-GAAP EBITDA $5,131 $5,955 $7,280 $8,556 $10,072 $11,622 $12,989 $14,287

margin 60% 59% 60% 60% 61% 61% 61% 61%

y/y growth 17% 16% 22% 18% 18% 15% 12% 10%

Assumptions SOTPs Valuation:

Valuation Date 5/9/2016 BIDU Search (100%) $68,559

Valuation Date Year 2016 CTRP (21.6%) $5,356

Fiscal Year End 12/31/2016 iQiyi (80%) $2,240

Days Remaining in Year 236 Takeout (60%-80%) $1,750

Fraction of First year cashflows used 65% Expected BIDU EV $77,905

Terminal Value Date 12/31/2022 Implied Price per share ($) $225

Terminal Value Discount Period 6.65 Last Price ($) $169

Perpetuity Growth Rate 3.0% Upside 33%

Discout Rate 13.5% P/E Multiple:

Net Cash 5,111 FY16 36x

Total Diluted ADS 347 FY17 23x

Discouted Terminal Value for Search $37,693

NPV of Search FCF $25,755

Target Value for Search $68,559

Target Price per share (search) $198

Implied Multiple:

FY16 EV/Sales 6.8x

FY16 EV/EBITDA 11.5x

Baidu.com, Inc.BIDU (OUTPERFORM) - $225.00

6

Exhibit 3. Estimate Changes

2Q16E 3Q16E 4Q16E

(in $M except EPS) Old New Delta Old New Delta Old New Delta

Total Gross Revenue $3,141 $3,048 -3% $3,374 $3,278 -3% $3,527 $3,428 -3%

y/y Growth 17% 14% 17% 13% 22% 19%

Net Revenue $2,933 $2,847 -3% $3,150 $3,061 -3% $3,294 $3,201 -3%

y/y Growth 18% 15% 17% 14% 22% 19%

Gross Profit $1,782 $1,720 -3% $1,902 $1,832 -4% $1,963 $1,897 -3%

Margin 56.7% 56.4% -30bps 56.4% 55.9% -49bps 55.6% 55.4% -29bps

y/y Growth 48% 43% 38% 33% 41% 37%

Non-GAAP Operating Income $708 $661 -7% $671 $610 -9% $868 $807 -7%

Margin 22.5% 21.7% -84bps 19.9% 18.6% -130bps 24.6% 23.5% -107bps

y/y Growth 20% 12% 50% 36% 45% 35%

Net Income $512 $476 -7% $537 $489 -9% $703 $656 -7%

Margin 16.3% 15.6% -68bps 15.9% 14.9% -99bps 19.9% 19.1% -79bps

y/y Growth -13% -19% 20% 9% -82% -83%

Non-GAAP Net Income $569 $534 -6% $596 $549 -8% $766 $719 -6%

Margin 18.1% 17.5% -63bps 17.7% 16.7% -94bps 21.7% 21.0% -75bps

y/y Growth 16% 8% 55% 39% 47% 36%

GAAP EPADS $1.47 $1.37 -7% $1.54 $1.40 -9% $2.01 $1.87 -7%

y/y Growth -12% -18% 23% 13% -82% -83%

Non-GAAP EPADS $1.64 $1.53 -6% $1.71 $1.57 -8% $2.19 $2.05 -6%

y/y Growth -11% -16% 20% 10% 28% 20%

Adjusted EBITDA $855 $809 -5% $822 $760 -8% $1,022 $960 -6%

Margin 27.2% 26.5% -70bps 24.4% 23.2% -118bps 29.0% 28.0% -95bps

y/y Growth 13% 7% 36% 26% 37% 29%

(in $M except EPS) Old New Delta Old New Delta

Total Gross Revenue $12,495 $12,207 -2% $16,161 $15,477 -4%

y/y Growth 19% 16% 29% 27%

Net Revenue $11,668 $11,399 -2% $15,091 $14,452 -4%

y/y Growth 19% 17% 29% 27%

Gross Profit $6,928 $6,731 -3% $8,993 $8,576 -5%

Margin 55.4% 55.1% -31bps 55.6% 55.4% -23bps

y/y Growth 42% 38% 30% 27%

Non-GAAP Operating Income $2,638 $2,469 -6% $4,011 $3,708 -8%

Margin 21.1% 20.2% -89bps 24.8% 24.0% -86bps

y/y Growth 31% 23% 52% 50%

Net Income $2,060 $1,930 -6% $3,347 $3,104 -7%

Margin 16.5% 15.8% -68bps 20.7% 20.1% -65bps

y/y Growth -61% -64% 62% 61%

Non-GAAP Net Income $2,298 $2,167 -6% $3,618 $3,374 -7%

Margin 18.4% 17.8% -64bps 22.4% 21.8% -59bps

y/y Growth 31% 21% 55% 53%

GAAP EPADS $5.89 $5.52 -6% $9.55 $8.86 -7%

y/y Growth -61% -64% 62% 61%

Non-GAAP EPADS $6.57 $6.20 -6% $10.33 $9.63 -7%

y/y Growth 5% -1% 57% 55%

Adjusted EBITDA $3,236 $3,066 -5% $4,655 $4,349 -7%

Margin 25.9% 25.1% -78bps 28.8% 28.1% -70bps

y/y Growth 23% 16% 11% 12%

Source: Oppenheimer & Co. Inc and Company Reports

FY16E FY17E

Baidu.com, Inc. BIDU (OUTPERFORM) - $225.00

7

BIDU Income Statement '15-'18E

(in millions RMB except for EPS) 2013 2014 1Q15 2Q15 3Q15 4Q15 2015 1Q16 2Q16E 3Q16E 4Q16E 2016E 2017E 2018E CAGR

Number of Advertisers 753,000 813,000 524,000 590,000 623,000 555,000 1,049,000 587,000 633,960 665,658 665,658 1,174,047 1,330,844 1,483,417 12%

Y/Y Growth (%) 26% 8% 17% 21% 21% 6% 29% 12% 7% 7% 20% 12% 13% 11%

Q/Q Growth 0% 13% 6% -11% 6% 8% 5% 0%

2-Yr % 24% 17% 13% 13% 16% 11% 18% 15% 14% 14% 13% 20% 13% 12%

Revenue per Advertiser 42,234 59,400 23,800 27,400 28,300 31,000 60,500 25,435 29,808 30,569 31,774 64,160 70,576 77,634 9%

Y/Y Growth 13% 41% 14% 13% 9% 17% 2% 7% 9% 8% 2% 6% 10% 10%

Q/Q Growth -10% 15% 3% 10% -18% 17% 3% 4%

2-Yr % 19% 27% 29% 32% 22% 22% 21% 10% 11% 9% 10% 4% 8% 10%

Revenue Breakdown:

Online Marketing Revenue (I + ii + iii) 31,802 48,487 12,519 16,227 17,680 17,610 64,037 14,931 18,897 20,349 21,151 75,327 93,926 115,164 22%

% of Gross Revenues 100% 99% 98% 98% 96% 94% 96% 94% 95% 96% 95% 95% 93% 92%

Y/Y Growth 43% 52% 33% 37% 32% 27% 32% 19% 16% 15% 20% 18% 25% 23%

Q/Q Growth -10% 30% 9% 0% -15% 27% 8% 4%

Other (iQiyi Subs and Takeout, net of subsidy) 142 565 206 348 703 1,088 2,345 890 918 956 1,128 3,892 6,673 9,670 60%

% of Gross Revenues 0% 1% 2% 2% 4% 6% 4% 6% 5% 4% 5% 5% 7% 8%

Y/Y Growth 135% 299% 74% 134% 659% 429% 315% 332% 164% 36% 4% 66% 71% 45%

Total Gross Revenues 31,944 49,052 12,725 16,575 18,383 18,699 66,382 15,821 19,815 21,305 22,279 79,219 100,599 124,833 23%

Y/Y Growth 43% 54% 34% 38% 36% 33% 35% 24% 20% 16% 19% 19% 27% 24%

Q/Q Growth -9% 30% 11% 2% -15% 25% 8% 5%

Gross Revenues - Pro forma 31,093 47,296 12,054 15,694 17,058 17,867 62,673 15,821 19,815 21,305 22,279 79,219 100,599 124,833 26%

Y/Y Growth 52% 32% 35% 31% 32% 33% 31% 26% 25% 25% 26% 27% 24%

Q/Q Growth -11% 30% 9% 5% -11% 25% 8% 5%

Business tax and surchanges (2,330) (3,598) (948) (1,176) (1,261) (1,260) (4,644) (1,048) (1,312) (1,411) (1,475) (5,246) (6,661) (8,266)

% of Net Revenue 8% 8% 8% 8% 7% 7% 8% 7% 7% 7% 7% 7% 7% 7%

Net Revenue 29,614 45,455 11,776 15,400 17,122 17,439 61,737 14,773 18,503 19,894 20,804 73,974 93,938 116,567 24%

Y/Y Growth 43% 53% 34% 39% 37% 34% 36% 25% 20% 16% 19% 20% 27% 24%

Gross Profit 20,472 30,167 7,399 10,072 10,904 10,549 38,924 8,257 11,183 11,908 12,332 43,680 55,745 69,602 21%

Gross Margin 64.1% 61.5% 58.1% 60.8% 59.3% 56.4% 58.6% 52.2% 56.4% 55.9% 55.4% 55.1% 55.4% 55.8%

Y/Y Growth 29% 47% 31% 35% 29% 22% 29% 12% 11% 9% 17% 12% 28% 25%

Operating Expenses:

SG&A (5,174) (10,382) (2,957) (3,890) (5,702) (4,528) (17,076) (3,946) (4,841) (5,818) (4,979) (19,584) (21,629) (24,342) 13%

Y/Y Growth 107% 101% 47% 81% 111% 28% 64% 33% 24% 2% 10% 15% 10% 13%

Q/Q Growth -16% 32% 47% -21% -13% 23% 20% -14%

% of Revenue 16.2% 21.2% 23.2% 23.5% 31.0% 24.2% 25.7% 24.9% 24.4% 27.3% 22.3% 24.7% 21.5% 19.5%

R&D (4,107) (6,981) (2,286) (2,713) (2,690) (2,487) (10,176) (2,101) (2,417) (2,514) (2,518) (9,550) (11,770) (14,231) 12%

Y/Y Growth 78% 70% 79% 56% 47% 16% 46% -8% -11% -7% 1% -6% 23% 21%

Q/Q Growth 7% 19% -1% -8% -16% 15% 4% 0%

% of Revenue 12.9% 14.2% 18.0% 16.4% 14.6% 13.3% 15.3% 13.3% 12.2% 11.8% 11.3% 12.1% 11.7% 11.4%

Total Operating Expenses (9,280) (17,363) (5,243) (6,603) (8,392) (7,015) (27,252) (6,047) (7,258) (8,332) (7,496) (29,133) (33,399) (38,573)

Y/Y Growth 93% 87% 59.6% 70% 85% 24% 57% 15% 10% -1% 7% 7% 15% 15%

Q/Q Growth -7% 26% 27% -16% -14% 20% 15% -10%

% of revenue 29% 35% 41% 40% 46% 38% 41% 38% 37% 39% 34% 37% 33% 31%

Operating Income 11,192 12,804 2,155 3,470 2,512 3,535 11,672 2,211 3,925 3,576 4,835 14,546 22,346 31,029 39%

Margin 35.0% 26.1% 16.9% 20.9% 13.7% 18.9% 17.6% 14.0% 19.8% 16.8% 21.7% 18.4% 22.2% 24.9%

Y/Y Growth 1% 14% -9% -2% -36% 20% -9% 3% 13% 42% 37% 25% 54% 39%

Non-GAAP Op Income 11,706 13,766 2,446 3,824 2,912 3,876 13,059 2,520 4,299 3,962 5,244 16,025 24,102 33,094 36%

Margin 36.6% 28.1% 19.2% 23.1% 15.8% 20.7% 19.7% 15.9% 21.7% 18.6% 23.5% 20.2% 24.0% 26.5%

Y/Y Growth 4% 18% -4% 1% -30% 18% -5% 3% 12% 36% 35% 23% 50% 37%

Total D&A 2,200 2,989 849 883 930 939 3,602 937 957 977 997 3,869 4,169 4,519

% of revenue 6.9% 6.1% 6.7% 5.3% 5.1% 5.0% 5.4% 5.9% 4.8% 4.6% 4.5% 4.9% 4.1% 3.6%

Total share-based compensation: 515 963 291 355 400 341 1,387 309 374 386 408 1,478 1,756 2,065

% of revenue 1.6% 2.0% 2.3% 2.1% 2.2% 1.8% 2.1% 2.0% 1.9% 1.8% 1.8% 1.9% 1.7% 1.7%

Adj. EBITDA 13,906 16,755 3,296 4,707 3,842 4,815 16,661 3,457 5,256 4,939 6,241 19,894 28,272 37,613 31%

Margin 44% 34% 26% 28% 21% 26% 25% 22% 27% 23% 28% 25% 28% 30%

Y/Y Growth 10% 20% 3% 5% -22% 17% -1% 5% 12% 29% 30% 19% 42% 33%

Total Other Income 993 1,671 454 544 540 24,697 26,235 443 83 543 689 1,757 2,875 3,428

Income before income tax 12,185 14,474 2,609 4,014 3,052 28,232 37,907 2,653 4,007 4,118 5,524 16,303 25,221 34,456 -3%

Provision for income taxes (1,829) (2,231) (541) (763) (591) (3,580) (5,474) (675) (922) (947) (1,271) (3,814) (5,044) (6,891)

Minority interest (163) (944) (381) (411) (380) (60) (1,232) (8) (8) (8) (8) (33) - -

Net Income 10,519 13,187 2,449 3,662 2,841 24,712 33,664 1,987 3,094 3,179 4,262 12,522 20,177 27,565 -6%

Margin 33% 27% 19% 22% 15% 132% 51% 13% 16% 15% 19% 16% 20% 22%

Y/Y Growth 1% 25% -3% 3% -27% 665% 155% -19% -16% 12% -83% -63% 61% 37%

Non-GAAP Net Income 11,034 14,150 2,740 4,017 3,241 3,839 13,838 2,359 3,468 3,566 4,670 14,063 21,933 29,630 29%

Margin 35% 29% 22% 24% 18% 21% 21% 15% 18% 17% 21% 18% 22% 24%

Y/Y Growth 3% 28% 1% 7% -21% 8% -2% -14% -14% 10% 22% 2% 56% 35%

GAAP EPADS Diluted 29.89 37.25 6.76 10.38 7.92 71.26 96.08 5.38 8.89 9.11 12.18 35.81 57.60 78.24 -7%

Y/Y Growth 0% 25% (6%) 3% (28%) 678% 158% (20%) (14%) 15% (83%) (63%) 61% 36%

Non-GAAP EPADS: 31.36 39.98 7.58 11.39 9.07 11.07 39.50 6.80 9.97 10.22 13.35 40.23 62.61 84.10 29%

Y/Y Growth 3% 27% (1%) 6% (22%) 9% (1%) (10%) (12%) 13% 21% 2% 56% 34%

Basic shares 350 352 351 351 349 346 349 346 346 347 348 347 349 351

Diluted shares 350 353 353 353 349 347 350 347 348 349 350 348 350 352

Forex 6.05 6.19 6.20 6.20 6.36 6.48 6.32 6.45 6.50 6.50 6.50 6.49 6.50 6.50

Effective tax rate 15% 15% 21% 19% 19% 13% 14% 25% 23% 23% 23% 23% 20% 20%

Source: Oppenheimer & Co. Inc and Company Reports

Baidu.com, Inc.BIDU (OUTPERFORM) - $225.00

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BIDU Income Statement '15-'18E

($'s in millions except EPS) 2012 2013 2014 1Q15 2Q15 3Q15 4Q15 2015 1Q16 2Q16E 3Q16E 4Q16E 2016E 2017E 2018E CAGR

Online Marketing Revenue 3,581 5,253 7,835 2,019 2,617 2,782 2,719 10,130 2,316 2,907 3,131 3,254 11,607 14,450 17,717 20%

Y/Y Growth 58% 47% 49% 34% 37% 27% 22% 29% 15% 11% 13% 20% 15% 24% 23%

% of Revenue 100% 100% 99% 98% 98% 96% 94% 96% 94% 95% 96% 95% 95% 93% 92%

Others 10 23 91 33 56 111 168 371 138 141 147 174 600 1,027 1,488 59%

Y/Y Growth 460% 141% 290% 75% 134% 633% 407% 306% 316% 152% 33% 3% 62% 71% 45%

% of Revenue 0% 0% 1% 2% 2% 4% 6% 4% 6% 5% 4% 5% 5% 7% 8%

Total Gross Revenues $3,591 $5,276 $7,927 $2,053 $2,673 $2,892 $2,887 $10,501 $2,454 $3,048 $3,278 $3,428 $12,207 $15,477 $19,205 22%

Y/Y Growth 58% 47% 50% 34% 38% 31% 27% 32% 20% 14% 13% 19% 16% 27% 24%

Q/Q Growth -9% 30% 8% 0% -15% 24% 8% 5%

Business tax and surchanges ($253) ($385) ($581) ($153) ($190) ($198) ($194) ($735) ($162) ($202) ($217) ($227) ($808) ($1,025) ($1,272)

% of Revenue 8% 8% 8% 8% 8% 7% 7% 8% 7% 7% 7% 7% 7% 7% 7%

Net Revenue $3,338 $4,892 $7,345 $1,900 $2,484 $2,694 $2,692 $9,766 $2,291 $2,847 $3,061 $3,201 $11,399 $14,452 $17,933 22%

Y/Y Growth 58% 47% 50% 34% 39% 32% 28% 33% 21% 15% 14% 19% 17% 27% 24%

Total Cost of Revenue ($785) ($1,510) ($2,470) ($706) ($859) ($979) ($1,064) ($3,609) ($1,010) ($1,126) ($1,229) ($1,303) ($4,668) ($5,876) ($7,225)

Gross Profit $2,553 $3,382 $4,875 $1,194 $1,625 $1,716 $1,629 $6,157 $1,281 $1,720 $1,832 $1,897 $6,731 $8,576 $10,708 20%

Gross Margin 71% 64% 61% 58% 61% 59% 56% 59% 52% 56% 56% 55% 55% 55% 56%

Operating Expenses:

SG&A (403) (855) (1,678) (477) (627) (897) (699) (2,701) (612) (745) (895) (766) (3,018) (3,328) (3,745) 12%

% of Revenue 11% 16% 21% 23% 23% 31% 24% 26% 25% 24% 27% 22% 25% 22% 20%

R&D (371) (678) (1,128) (369) (438) (423) (384) (1,610) (326) (372) (387) (387) (1,472) (1,811) (2,189) 11%

% of Revenue 10% 13% 14% 18% 16% 15% 13% 15% 13% 12% 12% 11% 12% 12% 11%

Total Operating Expenses ($774) ($1,533) ($2,806) ($846) ($1,065) ($1,320) ($1,083) ($4,311) ($938) ($1,117) ($1,282) ($1,153) ($4,489) ($5,138) ($5,934) 11%

% of revenue 22% 29% 35% 41% 40% 46% 38% 41% 38% 37% 39% 34% 37% 33% 31%

Operating Income $1,779 $1,849 $2,069 $348 $560 $395 $546 $1,846 $343 $604 $550 $744 $2,241 $3,438 $4,774 37%

Margin 50% 35% 26% 17% 21% 14% 19% 18% 14% 20% 17% 22% 18% 22% 25%

Y/Y Growth 50% 4% 12% -9% -2% -38% 15% -11% -1% 8% 39% 36% 21% 53% 39%

Total D&A 231 363 483 137 142 146 145 570 145 147 150 153 596 641 695

Total SBC 34 85 156 47 57 63 53 219 48 58 59 63 228 270 318

EBITDA 2,044 2,297 2,708 532 759 605 743 2,636 536 809 760 960 3,066 4,349 5,787 30%

Margin 57% 44% 34% 26% 28% 21% 26% 25% 22% 27% 23% 28% 25% 28% 30%

Y/Y Growth 50% 12% 18% 3% 5% -25% 12% -3% 1% 7% 26% 29% 16% 12% 7%

Total Other Income 147 164 270 73 88 85 3,813 4,150 69 13 83 106 271 442 527

Income before income tax $1,926 $2,013 $2,339 $421 $647 $480 $4,358 $5,997 $411 $616 $634 $850 $2,512 $3,880 $5,301 -4%

Provision for income taxes (253) (302) (361) (87) (123) (93) (553) (866) (105) (142) (146) (195) (588) (776) (1,060)

Effective tax rate 13% 15% 15% 21% 19% 19% 13% 14% 25% 23% 23% 23% 23% 20% 20%

Minority interest (10) (27) (152) (61) (66) (60) (9) (195) (1) (1) (1) (1) (5) - -

Net Income $1,683 $1,738 $2,131 $395 $591 $447 $3,815 $5,325 $308 $476 $489 $656 $1,930 $3,104 $4,241 -7%

Margin 47% 33% 27% 19% 22% 15% 132% 51% 13% 16% 15% 19% 16% 20% 22%

Y/Y Growth 62% 3% 23% -3% 3% -29% 633% 150% -22% -19% 9% -83% -64% 61% 37%

Non-GAAP Net Income $1,717 $1,823 $2,287 $442 $648 $510 $593 $2,189 $366 $534 $549 $719 $2,167 $3,374 $4,558 28%

Margin 48% 35% 29% 22% 24% 18% 21% 21% 15% 18% 17% 21% 18% 22% 24%

Y/Y Growth 65% 6% 25% 2% 7% -24% 3% -4% -17% -18% 8% 21% -1% 56% 35%

Basic GAAP EPADS $4.82 $4.89 $6.08 $1.09 $1.67 $1.27 $11.02 $15.35 $0.90 $1.37 $1.40 $1.87 $5.54 8.89$ 12.08$

Diluted GAAP EPADS: $4.81 $4.94 $6.02 $1.09 $1.67 $1.25 $11.00 $15.20 $0.83 $1.37 $1.40 $1.87 $5.52 8.86$ 12.04$ -7%

Y/Y Growth 62% 3% 22% -6% 3% -30% 645% 153% -23% -18% 13% -83% -64% 61% 36%

Non-GAAP EPADS (Diluted): $4.91 $5.18 $6.46 $1.22 $1.84 $1.43 $1.71 $6.25 $1.05 $1.53 $1.57 $2.05 $6.20 9.63$ 12.94$ 27%

Y/Y Growth 64% 6% 25% -1% 6% -25% 5% -3% -14% -16% 10% 20% -1% 55% 34%

Basic shares 349 350 352 351 351 349 346 349 346 346 347 348 347 349 351

Diluted shares 350 350 353 353 353 349 347 350 347 348 349 350 348 350 352 0%

Exchange Rate (RMB/USD) 6.21 6.05 6.19 6.20 6.20 6.36 6.48 6.32 6.45 6.50 6.50 6.50 6.49 6.50 6.50

Source: Company Reports and Oppenheimer est.

Baidu.com, Inc. BIDU (OUTPERFORM) - $225.00

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Stock prices of other companies mentioned in this report (as of 5/9/16):Qunar Cayman (QUNR-NASDAQ, $37.30, Not Covered)

Disclosure AppendixOppenheimer & Co. Inc. does and seeks to do business with companies covered in its research reports. As a result,investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report.Investors should consider this report as only a single factor in making their investment decision.

Analyst Certification - The author certifies that this research report accurately states his/her personal views about thesubject securities, which are reflected in the ratings as well as in the substance of this report. The author certifies that no partof his/her compensation was, is, or will be directly or indirectly related to the specific recommendations or views containedin this research report.Potential Conflicts of Interest:Equity research analysts employed by Oppenheimer & Co. Inc. are compensated from revenues generated by the firmincluding the Oppenheimer & Co. Inc. Investment Banking Department. Research analysts do not receive compensationbased upon revenues from specific investment banking transactions. Oppenheimer & Co. Inc. generally prohibits any researchanalyst and any member of his or her household from executing trades in the securities of a company that such researchanalyst covers. Additionally, Oppenheimer & Co. Inc. generally prohibits any research analyst from serving as an officer,director or advisory board member of a company that such analyst covers. In addition to 1% ownership positions in coveredcompanies that are required to be specifically disclosed in this report, Oppenheimer & Co. Inc. may have a long positionof less than 1% or a short position or deal as principal in the securities discussed herein, related securities or in options,futures or other derivative instruments based thereon. Recipients of this report are advised that any or all of the foregoingarrangements, as well as more specific disclosures set forth below, may at times give rise to potential conflicts of interest.

Important Disclosure Footnotes for Companies Mentioned in this Report that Are Covered byOppenheimer & Co. Inc:Stock Prices as of May 10, 2016Ctrip.com International Ltd. (CTRP - NASDAQ, $43.29, OUTPERFORM)Facebook, Inc. (FB - NASDAQ, $119.24, OUTPERFORM)Google, Inc. (GOOG - NASDAQ, $712.90, OUTPERFORM)

Baidu.com, Inc.BIDU (OUTPERFORM) - $225.00

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Baidu.com, Inc. BIDU (OUTPERFORM) - $225.00

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All price targets displayed in the chart above are for a 12- to- 18-month period. Prior to March 30, 2004, Oppenheimer & Co.Inc. used 6-, 12-, 12- to 18-, and 12- to 24-month price targets and ranges. For more information about target price histories,please write to Oppenheimer & Co. Inc., 85 Broad Street, New York, NY 10004, Attention: Equity Research Department,Business Manager.

Oppenheimer & Co. Inc. Rating System as of January 14th, 2008:

Outperform(O) - Stock expected to outperform the S&P 500 within the next 12-18 months.

Perform (P) - Stock expected to perform in line with the S&P 500 within the next 12-18 months.

Underperform (U) - Stock expected to underperform the S&P 500 within the next 12-18 months.

Not Rated (NR) - Oppenheimer & Co. Inc. does not maintain coverage of the stock or is restricted from doing so due to a potential conflictof interest.

Oppenheimer & Co. Inc. Rating System prior to January 14th, 2008:

Buy - anticipates appreciation of 10% or more within the next 12 months, and/or a total return of 10% including dividend payments, and/orthe ability of the shares to perform better than the leading stock market averages or stocks within its particular industry sector.

Neutral - anticipates that the shares will trade at or near their current price and generally in line with the leading market averages due to aperceived absence of strong dynamics that would cause volatility either to the upside or downside, and/or will perform less well than higherrated companies within its peer group. Our readers should be aware that when a rating change occurs to Neutral from Buy, aggressivetrading accounts might decide to liquidate their positions to employ the funds elsewhere.

Sell - anticipates that the shares will depreciate 10% or more in price within the next 12 months, due to fundamental weakness perceivedin the company or for valuation reasons, or are expected to perform significantly worse than equities within the peer group.

Baidu.com, Inc.BIDU (OUTPERFORM) - $225.00

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Distribution of Ratings/IB Services Firmwide

IB Serv/Past 12 Mos.

Rating Count Percent Count Percent

OUTPERFORM [O] 305 56.59 136 44.59

PERFORM [P] 232 43.04 68 29.31

UNDERPERFORM [U] 2 0.37 0 0.00

Although the investment recommendations within the three-tiered, relative stock rating system utilized by Oppenheimer & Co. Inc. do notcorrelate to buy, hold and sell recommendations, for the purposes of complying with FINRA rules, Oppenheimer & Co. Inc. has assignedbuy ratings to securities rated Outperform, hold ratings to securities rated Perform, and sell ratings to securities rated Underperform.

Company Specific DisclosuresOppenheimer & Co. Inc. makes a market in the securities of BIDU, CTRP, FB, GOOG and QUNR.

Oppenheimer & Co. Inc. expects to receive or intends to seek compensation for investment banking services in the next 3months from FB.

Additional Information Available

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Baidu.com, Inc. BIDU (OUTPERFORM) - $225.00

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Baidu.com, Inc.BIDU (OUTPERFORM) - $225.00