1Q16 preview; steady as she goes.

　　Baidu announces March quarter results this Friday morning, HK time. Ourchannel checks suggest normal demand. We do note that the travel vertical(ex–CTRP/QUNR) and cosmetics may deliver surprisingly strong growth. Weexpect 1Q total revenue to grow 24.8% YoY to reach RMB15.9bn (vs. guidanceof RMB15.4-16.0bn), and non-GAAP net income to reach RMB2.4bn, largely inlinewith consensus. We believe that the O2O subsidy environment, importantto SGA assumptions, remained benign. We would also remind investors thatBaidu's weighting in the MSCI indices increases shortly.

　　Nuomi waives commissions on most sectors; pursuing new monetizationmodel.

　　Baidu Nuomi recently announced that it would waive commissions on mostsectors; including beauty, healthcare, parent, wedding, home decor and carmaintenance. Baidu claimed that the purpose of the commission relief is toalleviate its merchants’ cost burden. It is common to see 6-10% charge forsome O2O peers, and the rate can be as high as 12-20% for some lowfrequency categories such as wedding and photography. Baidu meanwhileclaims that it is pursuing a new monetization model with Nuomi by leveragingBaidu’s data technology (maybe through new VAS) instead of relying on purecommissions.

　　Corporate action around Nuomi and Waimai remains a possibility.

　　Given that Baidu has announced series of corporate activities in the past fewmonths (CTRP/QUNR, iQiyi), we believe management continues to consideralternatives for Nuomi and Baidu Waimai. Nuomi has already achievedrelatively wide coverage; in 2015 it connected to over 1,500 cinemas in China(60% coverage in terms of cinema box receipts), and Nuomi in the pressclaimed that coverage will likely double in 2016. Baidu mgmt recently in apress interview reiterated its confidence in Baidu Waimai on the strength ofBaidu’s data technology. Baidu Waimai now covers 130+ cities in China.

　　Baidu Video spin-off.

　　Baidu a few days ago announced plans to spin off its Baidu Video business.

　　Baidu Video therefore becomes an independent entity. Baidu Video hascollected over 580m PGC videos and connects to over 300m mobile users.

　　Some over 50% of video views on Baidu Video are PGC content. We believethe spin-off should relieve cash burn for Baidu given that the unit can start toraise capital from external investors. Baidu Video just finished another fundraisingwith RMB1bn capital raised. According to Sina Tech, claimedvaluations ranged widely from RMB2.3bn to RMB3.1bn, vs recent iQiyi takeoutvalue of US$2.8bn.