Baidu, Inc. (BIDU) on Q1 2021 Results - Earnings Call Transcript
Operator: Hello, and thank you for standing by for Baidu’s First Quarter 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. After management’s prepared remarks, there will be a question-and-answer session. Today’s conference is being recorded. If you have any objections, you may disconnect at this time. I would now like to turn the meeting over to your host for today’s conference, Juan Lin, Baidu’s Director of Investor Relations. Juan Lin: Hello everyone and welcome to Baidu’s first quarter 2021 earnings conference call. Baidu’s earnings release was distributed earlier today and you can find a copy on our website, as well as on Newswire services. Robin Li: Hello everyone. We delivered strong results in the first quarter with Baidu Core revenue growing 34% year-over-year to RMB20.5 billion. Our business was strong across the board, particularly in our new AI business including Cloud, Smart Transportation, and Intelligent Driving. Non-advertising revenues within Baidu Core rose 70% year-over-year to RMB4.2 billion accounting for 21% of Baidu Core. China held the two session annual congressional gathering in early March and technology innovation was repeatedly mentioned. It was emphasized that never in the history of China has innovation been more important to the development of China. China’s pursuit of innovation through technology to boost long-term growth and productivity will further expand the use of AI. We have witnessed AI platforms or AI powered infrastructure enabling applications disrupting markets. For example, we entered the smart device market three years ago, despite two dominant market leaders with strong manufacturing and distribution capabilities. We leveraged the Baidu’s leading AI technology including national language processing and speech recognition to make DuerOS Smart Assistant understand humans better. This in turn has resulted in making Xiaodu smart display Number 1 in shipments globally. Herman Yu : Thank you, Robin. Hello everyone. Welcome to Baidu’s first quarter 2021 call. All monetary amounts used in my discussion are in RMB, unless stated otherwise. In March, we listed on the Hong Kong Stock Exchange under the Ticker number (9888) raising US$3.1 billion. Two weeks later, we were added to the Hong Kong - the Hang Seng Tech Index, the Composite Index and the China Enterprise Index. Operator: First question comes from the line of Alicia Yap from Citigroup. Please go ahead. Alicia Yap : Hi. Thank you. Good evening management. Robin and Herman, thanks for taking my questions. Congrats on the solid results and guidance. My questions is related to cloud – your AI Cloud business. So, wondering if management could share some of the operating metrics for example, the total numbers of the cloud customers and also the industry vertical that you are – major in. And then also, for example, like, how much or how big it is coming from the government or the big enterprise versus the smaller semi-merchants in terms of using your cloud business. And also, the current loss ratio that if you can share and how you envision your cloud business to grow into – in the coming quarters and years? Thank you. Robin Li: Hello. Hi Alicia. Alicia Yap : Hello. Robin Li: So, so – yes, you guys hear me okay? Alicia Yap : Yes. Herman Yu: Yes. So, the way we look at our cloud business – the way we look at our cloud business, as you know, in our AI Cloud there is several segments to our business. Number one is our infrastructure cloud where we have IaaS, where we have PaaS and where we have SaaS, right. In that segment, we have our key accounts and then we have our SMEs which are much smaller cloud providers. So, you have your typical key accounts and then we have SMEs, we have many, many customers there. In addition, we also have our customers for our smart transportation in that space. So, that will be the key cities the top tier cities that we are in China. We don’t have this exact number of prepared for you for just today, but you can think of our segment it’s mostly smart cities in mostly key accounts in our AI Cloud. Our top sectors are things like, Internet, media, financial services, and transportation. And when you look at how we are growing, I think, last quarter, we said we are growing 67% year-over-year. This quarter, we are growing little bit somewhere 55%, part of the reason is because, if you recall last year, COVID-19 started toward the end of January. So, we did – we had a pretty good base in Q1 because, typically, if you think about COVID-19 affected us a lot, but when you think about the beginning of the quarter, we had a higher base. So, the way I would look at it is, we think that we can continue to grow at the way we did last quarter, higher than what we have 55% this quarter. We think that we see in our pipeline that that we should be able to grow at a higher rate. Alicia Yap : Okay. Thank you, Herman. Operator: Thank you for the questions. Next question comes from the line of Piyush Mubayi of Goldman Sachs. Please go ahead. Piyush Mubayi : Hi, Robin, Herman. Thank you for taking my questions. When I look at the core, the core seems to have bounced back very nicely in both the first quarter as well as based on the guidance you are providing for the second quarter and the marketing revenue was up 27% I suspect in the second quarter based on the high end of the range at 33%. It would be a similar number. Could you just take us through some of the verticals where you are seeing spending come back very nicely and try to – so that we can try and see whether this is sustainable through the rest of the year with the clear emergence of a trend coming back very nicely. That’s the first question. And if I might slip in a second question, you talked about the TAM for ride-hailing, I wonder if you could just take us through what your strategy is and how deep you want to go? Thank you. Robin Li : I will ask Dou to answer your first question and I’ll take on the second one. Dou Shen : Okay. For the first one, actually we see pretty good performance for most with the top ad verticals actually, not just by a single one. Actually, talking about the performance of the ad revenue, I think it’s not only because of the low base of last year’s first quarter. I want to actually give the credit to the three building blocks we have been working on in the past three years. As Robin mentioned in the prepared remarks, Baijiahao and Smart Mini program and also the Managed Pages, they all grew quickly and these building blocks actually, they provided high quality content and also the services to the users, so that the users you know they can not only get new information before, but they can also get the service in the closed-loop experience. Now with that, the users, they can complete their tasks like book a flight or buy a book in one stop - step instead of talking away. So all these building blocks actually they contribute to the monetization capability we have built. Especially for Baidu AVP, so, we can see it actually grows even faster than the average 27% - it’s more than 30%. So, with that actually we are seeing pretty good performance for all the verticals on the way down the road. Robin Li : Yes. So for the TAM of Apollo, it’s huge. It’s very large, and right now, it’s growing very fast. If you recall, we started to invest in autonomous driving roughly eight years ago. Over the years, Apollo has morphed into a very comprehensive platform that supports all kinds of business models and directions that includes robotaxi, ride-hailing that includes, software services provider for that OEMs and also that includes building our own smart EVs. I think all of this effort, well, feedback data and other kinds of market signals to the Apollo platform making Apollo a stronger and a better platform for both autonomous driving and smart transportation. We are very excited that each of this new directions including the smart transportation project we are building for many, many cities, because it all can be integrated together and provide a much more efficient transportation system for the cities, for the society and provide better experience for the drivers and the consumers. And it all comes together and we are very happy we invested early and we start to reap the benefit of this direction. Operator: Thank you for the questions. Next questions comes from Alex Yao of JP Morgan. Please go ahead. Alex Yao : Hi, good evening, management. Thank you for taking my question. I have a couple of follow-up questions on the cloud. Robin, you mentioned deployment of V2X infrastructure will play – will generate network effects to your broader Apollo strategy. Can you elaborate that network effect little bit more? And also, what strategic benefits will the broader Apollo ecosystem benefit from the build-out of your V2X infrastructure in China? Then the near-term financial question is, Herman, you - I think you mentioned despite of the strong – in addition to the strong growth momentum in first quarter, you expect the cloud revenue to further accelerate into the coming quarters. Can you talk about the fundamental driver to the strong revenue growth momentum, particularly in the Smart City market? What is your competitive edge or who do you see as the biggest competitor? And what are the unique value proposition you bring to this market segment? Thank you. Robin Li : Yes. For the V2X project, it’s quite clear that the sensors build on the roads can communicate with vehicles. Therefore vehicles, be it with autonomous driving capabilities or not, they are connected so they can get signals from the infrastructure and therefore become more informed when deciding on their driving behavior. If there is a driver on the car, we can alert on any risks that’s not directly visible by a human eye, because there are sensors surrounding the environment that can alert the drivers, and also better tracking driver behavior in some cases. For example, in the city of Guangzhou, there are some commercial trucks. Their license plates could be covered by mud. So the drivers were not afraid of violating the traffic laws. But now, with the V2X infrastructure and on-vehicle devices sometimes installed on those trucks, the city regulators can much better track those violations therefore making the road safer and more efficient. Of course, with vehicles with autonomous driving capabilities, they can be assured that the infrastructure can send signals to those kinds of vehicles and help the vehicles to better assess the environment, therefore improve the accuracy of the planning and controlling process for autonomous driving. The more V2X projects we deploy, the more cars can benefit from this kind of infrastructure. Therefore, the autonomous driving capabilities can improve faster and also become safer for the passengers on those cars and also it can reduce the cost of a single - because sometimes you don’t have to rely on very expensive onboard devices such as the high-end Lidars in order to really drive on fully autonomous. Herman? Herman Yu : Yes. And to add to what Robin just said, I think, a couple of things. You asked us for Smart Transportation, what are the growth drivers. One thing is recognized how AI works, right? That the more data you have synchronized, it becomes more powerful. So, what V2X does, for example, in Guangzhou, it’s 102 intersections where we are offering an AI solution that allows the traffic lights to be synchronized throughout that whole part of the city, okay? So, when you think about that and that the chance of getting to a Phase 2, so that the first phase of the project is synchronized with the second phase. That would give you that kind of network effect. So that’s why for example, when you see in the City of Baoding when we first had our first phase, we were called back for a second phase, because you want that second set of lights to this part of the city to be synchronized. And then we even see, for example, now a third part of the phase as we continue to expand the traffic lights. So, that’s one way to expand our business is to continue to take in more area of the city and be able to synchronize all of the traffic lights synchronized with the traffic flow, okay? And you asked us our competitor. We see competitors in the area, but we don’t see them focusing on a whole part of the city. They are more looking at one light at a time, while we are using Baidu Brain to power the whole thing. And our opportunity is in addition, as Robin mentioned in the prepared remarks, once you go in there will lead to actually have the opportunity to go in there with MaaS, right. MaaS is our open platform and which controls robotaxi and Robobuses like in Guangzhou not only does it power the Robotaxis that Apollo have, you also have Robobuses in there. You also have another brand of robotaxi that our MaaS is powering. So, you can think of it as the operating system for that part of the city and whenever there are other robotaxi transportation and so forth, the government uses our MaaS to kind of power those robotaxi or Robobuses, so that you could prioritize the ride and so forth. And then, there is other product expansions like, for example, going to highway, going to parkings and so forth. So the more of these projects are synchronized, obviously, through AI and so forth, you’re going to make the traffic a more smoother. So, you’re seeing two trends. One is, as we are going into cities, we are getting multiple phases. We are expanding the products and you’re also seeing us entering new and new – more and more cities, because a lot of cities in China now, they are leveraging on technology to improve their infrastructure rather than closing down roads and taking more land in order to widen the roads to basically reach the same goal. Operator: Thank you for the questions. Next questions comes from the line of Jerry Liu of UBS. Please go ahead. Jerry Liu : Hey. Thank you. Thank you, management. Robin, if I may go back to your earlier statement about how non-ad revenues could surpass ad revenues in the Baidu Core in three years. So, I mean, that makes me feel that you guys see more – have a bit more visibility and confidence of this mix shift. So I just want to ask, what are some of the drivers you’re seeing here? Now, obviously, cloud Apollo maybe YY Live or can contribute to that. But I am just wondering what are maybe the bigger drivers in this mix shift. Thank you. Robin Li : Hi, Jerry. This is Robin. I don’t know if you’ve noticed that when we say what kind of company Baidu is, we see that we are a leading AI company with strong Internet foundation. That means that, we can not only benefit from the investments we did over the past like, ten years to more - to getting more new businesses like intelligent driving and smart cloud, we also can leverage our AI capability to better monetize our strong user base we accumulated over the past, like 20 years. If you compare the Baidu mobile ecosystem with other leading mobile ecosystems in China, you notice that we are probably one of the very few that has online marketing revenue as the majority of total revenue. This is not a very reasonable situation. Our tens of millions of users can enjoy other kind of services of Baidu, not just clicking on maps, they can pay for premium content, they can do ecommerce transactions, they can play games, they can watch live streaming and tip their influencers. There are a lots of things we can do and as we deploy more closed-loop user experience, we think that the Baidu App and as we leverage our AI algorithms to better recommend services and better understand users’ needs, we can monetize the strong user base through multiple ways. That’s how we look at this landscape. Herman Yu : Yes. And just let me add to that - to Robin. You asked us what are the key drivers, I think Robin was very clear, when you look at a mobile ecosystem, our non-advertising like here, because we can leverage our huge user base, right? We are reaching over one billion mobile devices per month, right? So, in addition to that, we talk about our cloud. You look at our cloud. It’s pretty significant in size right now and it’s still growing very robust. And I think as we mentioned before, there are two main areas that’s driving the growth. One is our infrastructure cloud. You have us differentiating with AI solutions, like on the prepared remarks whenever we go into a big customers with AI PaaS, we are seeing them having cross-selling and having upselling. So not only does it sell more PaaS in applications, you’re also seeing them, for example, crossing into IaaS, like the example we gave, one bank started buying hybrid cloud as a result of building their relationship with us. So, we are going to see that digitalization of enterprises drive our sales. I think particularly in AI PaaS, particularly, in application and it’s also going to allow us to go into the IaaS of that business. Smart transportation we talked about, we think that that’s a huge opportunity. When you look at, for example just last year in the number of projects that China has with transportation and so forth, there is probably over 300 cities. I think 302 cities recorded by the government that have a transportation project. So, there is huge opportunity for us in that area. And then, when you are looking at OGI, we look at a few areas. You look at, for example, our DuerOS with smart display, smart devices and so forth. You are looking at, for example, Apollo Self Driving, we are signing up with lot of OEMs as they are starting to ship their cars in the next few years. You’re going to see more and more come on. For example, in this year, just for example, ASD we are still in the pipeline, by the end of the year, we should have maybe four automakers install our ASD, right? And then, on top of that, we are already testing robotaxi ride-hailing. For example, went live in Beijing and so, we should see that pretty exciting in the next couple of years. So here are just some of the areas that we think that there is potential for growth and because the TAM is ten times and the CAGR is three times of advertising and you look at the pace that we have gone through, right? If you recall, just two quarters back, our non-advertising was growing at 14%. Last quarter, we said it was a little bit higher at 52% and this quarter we are saying 70%. So, you are seeing us really starting with our firing power for our non-advertising ASD - AI businesses that we have incubated over the last decade start to mature and start to monetize. Operator: Thank you. Next questions comes from the line of Miranda Zhuang from Bank of America. Please go ahead. Miranda Zhuang : Thank you, and good evening management. Thank you for taking my question. Congratulations on a very strong results and outlook. So, my question is about your EV business, can management provide any color on the scale of the financial investments that we are planning for the EV business this year? And also, as well as if there is any update to the product timeline? I would remember that in last earnings call management mentioned about planning to launch the EV car in three years time. We would like to check if there is any update to this plan given that the EV market is recently becoming more and more crowded with more newcomers and more capital inflow. So, just want to check our timeline. And also want to get a sense of what will our EV business roadmap look like? And what kind of key business milestones can we expect this year and next year? Thank you. Robin Li : Yes. As you know, the EV business is relatively independently operated company controlled by us. The goal is to make our latest and coolest technology available on the market as soon as possible. We mentioned that we intend to launch that within three years and of course the team is trying very hard to make it available earlier, as soon as possible. And our thesis remains unchanged, because Apollo is a very comprehensive platform for all kind of autonomous technologies. And we’ve been investing in this for many, many years. But we see a lot of opportunities to offer unique user experience and technology through a seamless integration of software and hardware, as well as fully take advantage of infrastructure that’s available to the consumers. Herman, do you have any financial color to add on that? Herman Yu : I think that the CEO just saying on, I think we are still working to our business plans. But it’s - to look at that whole EV market, you can actually – there is quite a few analysts that have given projection on the size and so forth. I think where we are lucky in a sense that the hardest part, if you think about EVs and so forth is the autonomous driving that that ability being able to build intelligent driving and also being able to power infotainment within the car, so that you’re having more intelligence both within the car as the person drives and also outside of the car. So, I think that would give us that ability to actually be able to design the car and to have those kinds of technologies and products ready. So we don’t have any particular numbers to give out now. But you do have projections on where the EV volume is going to be in three years. And you do have other automakers that have shown in the last few years. So, we are going to be looking at that kind of model and we are going to be looking at the market that fits us - our profile, as Robin mentioned, so that in this model. Maybe another way to look at this, if you look at where a lot of the EV cars are going, a lot of them are going direct to customers, right? If you look at a model with intelligence just like our speakers and so forth, in the past, the speakers people sell hardware, right? When you think about EVs nowadays, you look at for example, some of the cars, when they sell the cars, they are also trying to swap batteries. So that they can get users to actually have more frequent contact, so that they can also make more money after the post-sales of hardware. So they could sell more services. So, when you think about our business, number one, we are already selling a lot of services like intelligent driving. We are already getting a lot of our infotainment installed in OEMs and so forth. So, this whole business model of having more contact with the users with the consumers to build the brand and also be able to drive more services after the initial sales of hardware is something that we are very familiar with. So, I think we’ll be more prepared as we go into that model of EV and adapting to that direct to customers, rather than the traditional way of just trying to make the dollars by selling just hardware. Operator: Thank you. Next question comes from Gary Yu of Morgan Stanley. Please go ahead. Gary Yu : Hi. Thank you, Robin, Herman, and Juan. I have one follow-up question regarding your three year kind of revenue mix outlook. Even to-date, the biggest part of your non-marketing revenue is coming from AI cloud. So how should we look at contributions from various businesses in three years time when non-marketing surpasses your marketing revenue? Should we still expect kind of AI cloud to be a dominant driver of that? Or we expect some of these autonomous driving revenue and also car hailing revenue will start to become more material? And a related question to that is, how should we look at margins given the revenue mix shift? So, how should we look at the mobile ecosystem margin trend going forward? And by what time should we expect the non-marketing business to become profitable? Thank you. Robin Li : Yes. On the revenue mix, if you look at our AI cloud, we have been disclosing the revenue number and growth rate for a number of quarters. And you can probably do a projection based on the past performance. And there are many other ways that we can monetize our strong user base and AI technology through either intelligent driving or other things mentioned by myself and Herman. I think that all – when that all add up, it should represent more than half of our total revenue. But the foundation for them, we’ve been accumulating that the user base for the past 20 years and we’ve been investing in AI technology for more than ten years and this all come together and opens up a lot of new opportunities for us to grow our revenue. I’ll let Herman answer about the margin question. Herman Yu : Yes. Yes. So, on the margins, let me answer several ways. I think, number one, obviously, mobile ecosystem search and feed that is a mature business growing not as fast. When you have a business that we are in where our search is the largest in China, where we have tremendous amount of traffic, obviously, you’re going to have very good margin. But at the same time, with our mobile ecosystem, we were able to afford a lot of investments in these AIs and we are leveraging AIs into these businesses. So it helps us allocate some of that cost structure into other businesses. But as we are ramping up two types of businesses, one is 2B business right? When you think about AI cloud going into enterprises and we are also ramping up our 2G business going into cities working with municipalities and so forth, right? So, you’re going to see us getting impacted by the margins in several ways. Number one is, you’re going to have a cost of sales, right? Whether we are selling a more AI solution projects, you have cost of sales. Whether we are selling more projects with smart transportation, whether we are selling more displays, you’re going to have cost of sales. Furthermore, when you’re seeing a strong steep ramp up of our AI cloud business, smart transportation, and so forth, we have to hire ahead of the curve. We have to be looking at for the next 6 to 12 months where our sales are going to be and hire those salespeople in early so that we can train them for two quarters or so forth. And then they could start going out there and get orders. So, I think for the margins as you’re seeing for example, you’re seeing us give very robust Q2 revenue guidance, then you should assume number one is, a lot of that growth is coming from new AI business. You’re going to see gross margins, compared to last year, you’re going to see gross margin this year more incrementally from AI business. So, you got to consider that. And secondly, you got to consider the fact that we are going to increase our sales and marketing to support the current growth and also over the next few quarters, you’re going - should expect, for example, us to accrue for a bad debt, because these new business 2B and 2G, they all have AR allowances unlike our advertising. So, these are the things you should consider. So, let me just summarize. I think when you’re looking at non-advertisings, the opportunity is in our typical cloud business. It’s in smart transportation. It’s within OGI. The key drivers are going to be related to intelligent driving such as our ASD. And we think that our EV and our robotaxi and then lastly, our smart devices. So, here are the three – the few areas and then in terms of margins, cost of sales, you’re going to see it dampening. You’ve already seen that, for example in Q1, and then we have to prepare for our sales and marketing and also G&A, okay? Operator: Thank you for the questions. Next questions comes from James Lee of Mizuho. Please go ahead. James Lee : Great. Thanks for taking my questions. Two here. First on the cloud businesses and clearly you guys having a lot of success in AI point solution through customized projects and maybe can you talk about how you plan to make the business more scalable? How close are you in building a standardized solution? So you can expand across various industries using third-party developers and system integrators? And also, do you have the backlog numbers? So we can get a better understanding of the underlying trends? And second is, for second quarter, Herman, can you talk about maybe your expectation on expense growth and to the extent you can break out between core advertising and new investments? Thanks. Robin Li : First of all, I think a lot of the projects we are taking on for AI cloud is very scalable. The solution can really be standardized on a vertical industry basis. We have been talking about smart transportation. A smart transportation project in one city can be easily copied to another city. And although it is loss making right now, but the gross margin is very good at this time already. And going forward, as we do more and more this kind of projects, I think margin will improve and the investment in R&D will gradually pay-off. I mean the solutions are pretty standard from city-to-city. And more broadly, I think, other industries, be it in the financial industry or in the energy industry, we’ve been building a standardized layer mainly on the PaaS, platform-as-a-service layer. We have a lot of AI capabilities, speech recognition capability, text-to-speech capability, OCR capability, natural language processing capability. There are lots of things that can be standardized and we do work with system integrators to deliver turnkey solutions to many of our customers and we will continue to do so. And going forward, I think the standard part of our AI cloud solution will become a bigger and bigger part of the total cloud revenue. Operator: Thank you. Next question comes from the line of Han Joon Kim of Macquarie. Please go ahead. Han Joon Kim : Great. Thank you, management. As we looked at some of the cloud revenues for your, perhaps larger peers in the market, we’ve noticed a few other key accounts depart recently, partially sometimes for extenuating circumstances, but others maybe just as customers want to build out their own services and so forth. So, as we think about stickiness of our own cloud revenues and perhaps dependencies on key accounts, can you give us any kind of indication of how we think about the stickiness of that and yes, just some general, some observations you might have had about the market situation? Thank you. Robin Li : Yes. I think, at an early stage, we may be very sensitive to one or two key customers. But as the base becomes larger and larger, any single key account customer will contribute a lower and lower percentage of our total revenue. I think this is kind of different from those standard app solutions provides - provided to those Internet and media customers like some of our peers do. We’ve been more focused on vertical industries where we’ve been providing more AI empowered cloud solutions. I think that’s a more defendable approach and a direction that’s not so sensitive to any one or a few large customers. Operator: Thank you. Next question comes from Tian Hou of TH Capital. Tian Hou : Yes. Thank you, management for taking my questions. Congratulations on the good quarter. I have a quick question. In the EV car area, there are lots of new players in the market. Let’s say, Huawei right now is like announced that they have the EV cars. So, I think maybe it is better for the audience and for the street to understand, what’s the advantage of Baidu’s EV cars, compared with other guys? So, that is simple question. Thank you. Robin Li : Yes. As I mentioned that we’ve been investing in this for many years for – since 2013 and we’ve accumulated the best-in-class autonomous driving capability and over the years, Apollo also morphed into a more comprehensive platform that offers all kinds of capabilities, be it V2X capability or infotainment for individual vehicles. I think at this time, nobody on this planet has a more comprehensive solution than we do for smart EV. That’s why we are very confident when we launch our own car, we can provide the best user experience and best price to performance ratio for our consumers. Our technology is just more advanced and mature than any other people in this industry. And on a broader note, I think, Baidu has been investing very aggressively in AI. If you think about autonomous driving, it almost uses all kinds of AI technologies. And we’ve been investing in this for more than 10 years and we spent roughly RMB20 billion in R&D last year. And we will continue to aggressively invest in R&D over the next 10, maybe 20 years. And we will make sure that our technology – our AI technology and our autonomous driving technology will continue to lead in this market. It’s very hard for anyone who comes on the street new and makes this kind of claims and it’s very hard to imagine a EV maker with a smaller market share, let’s say if they are number 4 or number 5 in terms of market share, they can’t afford this kind of continued intensive investment in R&D. And I think, it’s widely known that autonomous driving will not become mature for the next 10 or even 20 years. So, this kind of sustained intensive investment in R&D is necessary to keep the lead in terms of technology. Operator: Thank you management. With that ladies and gentlemen, that does conclude the conference for today. Thank you for your participation. You may now disconnect your lines.BIDU Ratings Summary
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Baidu Inc. Reports Mixed First-Quarter Earnings
- Baidu Inc. reported an EPS of $0.2675, missing expectations but exceeding revenue forecasts with $4.36 billion.
- The stock experienced a decline of up to 5.5% in morning trading despite surpassing earnings estimates with $2.76 per ADS.
- Financial metrics reveal a P/E ratio of approximately 118.59 and a P/S ratio of about 2.22, indicating investor valuation of the company.
On Thursday, May 16, 2024, Baidu Inc. (NASDAQ:BIDU), a leading Chinese internet search provider, reported its first-quarter earnings before the market opened. The company revealed an earnings per share (EPS) of $0.2675, which did not meet the anticipated $2.3. Despite this, Baidu's revenue reached approximately $4.36 billion, slightly exceeding the expected $4.31 billion. This mixed financial performance showcases the challenges and successes Baidu faced during the quarter.
Following the earnings announcement, Baidu's stock experienced a decline of up to 5.5% in the morning trading session. This drop occurred despite the company surpassing earnings estimates for the first quarter of 2024, with earnings of $2.76 per American depositary share (ADS) on sales of $4.4 billion. These figures exceeded analysts' expectations of $2.18 per ADS and $4.3 billion in revenue. However, by late morning, the company's stock was still down about 1%, indicating investor reactions to the earnings report.
The decrease in Baidu's stock price can be attributed to its earnings, as calculated according to generally accepted accounting principles (GAAP), which were significantly lower than both the pro forma number and analyst forecasts, at only $2.06 per share. Additionally, the company's year-over-year earnings declined by 6%, and sales growth was modest at only 1%. Despite these challenges, Baidu did report a 3% growth in online marketing revenue, highlighting some areas of strength within its business model.
Baidu, headquartered in Beijing, is recognized as the leading search website in China and competes with global giants like Alphabet's Google. The company has diversified its operations to include cloud-computing services, a streaming service, and an autonomous vehicle division, among others. This diversification strategy is part of Baidu's efforts to maintain its leadership position and drive future growth.
Financially, Baidu has a price-to-earnings (P/E) ratio of approximately 118.59, indicating a higher valuation compared to the earnings it generates. The price-to-sales (P/S) ratio stands at about 2.22, suggesting that investors are willing to pay $2.22 for every dollar of sales. These financial metrics, along with others such as the debt-to-equity (D/E) ratio of about 0.34 and the current ratio of approximately 2.79, provide insights into Baidu's financial health and investor perceptions of its value.
Baidu Reports Better Than Expected Q1 Revenues
Baidu's (NASDAQ:BIDU) reported first-quarter revenue that exceeded expectations, while earnings aligned with analyst estimates. The company reported Q1 earnings per share (EPS) of RMB16.10, meeting consensus estimates. Revenue for the quarter was RMB31.51 billion, surpassing the projected RMB31.43 billion.
Baidu's core business generated revenue of RMB23.80 billion, exceeding the estimated RMB23.58 billion. Conversely, revenue from iQIYI was RMB7.9 billion, falling short of the expected RMB8.02 billion.
Robin Li, Co-founder and CEO of Baidu, noted that the company’s online marketing revenue remained stable, and the end-to-end optimization of their AI technology stack continued to drive growth in AI Cloud revenue. He highlighted the emergence of a new era of Gen-AI in China, with foundation models like ERNIE serving as crucial infrastructure, enhancing various aspects of life. Li emphasized Baidu's efforts to make the ERNIE family of models more affordable and efficient, which should create more opportunities for the company.
Baidu’s Buy Rating Maintained at Jefferies
Jefferies analysts maintained a Buy rating and a $179 price target on Baidu (NASDAQ:BIDU), adjusting the analysis to account for recent business activities and adopting a more cautious outlook across various segments.
This adjustment includes expectations of a subdued advertising market in certain categories alongside tempered forecasts for both cloud and non-cloud segments. The analysts emphasized the crucial role of artificial intelligence (AI) in enhancing monetization opportunities and operational efficiencies, highlighting its vast potential. Despite these adjustments, the full-year projections for Baidu have not been altered.
Baidu Stock Drops 7% on Q4 Revenue Miss
Baidu’s (NASDAQ:BIDU) shares declined over 7% intra-day today as the company revealed Q4 revenues that fell short of expectations. The company reported earnings per share (EPS) of RMB21.86, surpassing the consensus of RMB17.58. However, revenue stood at RMB34.95 billion, missing the Wall Street forecast of RMB35.14 billion.
The revenue from Baidu Core reached RMB27.49 billion, exceeding expectations of RMB27.31 billion, while revenue from its video streaming service iQIYI was RMB7.7 billion, below the expected RMB7.86 billion.
Baidu also reported monthly active users (MAUs) totaling 667 million, which was higher than the 658.74 million anticipated by analysts. Additionally, the non-GAAP operating margin for Baidu Core was reported at 23%.
Baidu Stock Drops 7% on Q4 Revenue Miss
Baidu’s (NASDAQ:BIDU) shares declined over 7% intra-day today as the company revealed Q4 revenues that fell short of expectations. The company reported earnings per share (EPS) of RMB21.86, surpassing the consensus of RMB17.58. However, revenue stood at RMB34.95 billion, missing the Wall Street forecast of RMB35.14 billion.
The revenue from Baidu Core reached RMB27.49 billion, exceeding expectations of RMB27.31 billion, while revenue from its video streaming service iQIYI was RMB7.7 billion, below the expected RMB7.86 billion.
Baidu also reported monthly active users (MAUs) totaling 667 million, which was higher than the 658.74 million anticipated by analysts. Additionally, the non-GAAP operating margin for Baidu Core was reported at 23%.
Morgan Stanley Bullish on Baidu
Morgan Stanley analysts maintained their Overweight rating on Baidu (NASDAQ:BIDU), expressing optimism about the company's stock performance in the near term.
The analysts commented that there is a strong likelihood for the stock's price to rise in the next 60 days, citing its recent decline as a factor that has made its short-term valuation particularly attractive. The stock price, according to the analysts, has undergone a significant correction due to market concerns surrounding the recent developments with Ernie Bot. Despite these concerns, they foresee an improvement in Baidu's fundamentals towards the fourth quarter of 2023 and into 2024.
This anticipated improvement is expected to be driven by advertising growth outpacing GDP growth and a pivotal rise in cloud growth, fueled by incremental contributions from AI technologies. The analysts estimate a 70% to 80% probability, or a "very likely" chance, of this scenario occurring.
Baidu's 'Ernie' AI Bot Achieves Milestone with Over 100 Million Users
Baidu’s (NASDAQ:BIDU) AI model, known as Ernie Bot internationally and as Wenxin Yiyan in China, recently surpassed a user base of over 100 million. Bloomberg reported that Baidu's Chief Technology Officer, Wang Haifeng, announced this achievement at a recent conference.
The model's user count surged rapidly within just two months of its launch in 2023, underscoring its appeal and contribution to the development of large language models (LLMs). Following the rapid expansion of generative AI technologies, the Chinese government's State Internet Information Office, along with six other departments, has implemented provisional rules to regulate services centered around AI.
