[Incident] The company released its 23Q4 financial report, achieving revenue of 34.95 billion yuan (yoy +6%), slightly lower than Bloomberg's agreed forecast of 35.01 billion yuan, adjusted net profit of 7.76 billion yuan, non-gaap margin of 22.2% (Bloomberg's agreed estimate of 6.38 billion yuan), and profit growth exceeded market expectations.
The core advertising business is steady, and the cloud business has achieved double-digit growth. In 23Q4, Baidu's revenue was 34.95 billion yuan (yoy +6%), which was slightly lower than Bloomberg's agreed forecast. Baidu core achieved revenue of 27.488 billion yuan (yoy +7%, Bloomberg's consensus estimate of 6.45%). 23Q4 advertising achieved revenue of 19.2 billion dollars (yoy +6%, exceeding Bloomberg's YOY +5.76% expectations), mainly driven by tourism, healthcare, financial services and other industries. 23Q4's non-marketing revenue was 8.3 billion yuan (yoy +9%), of which the intelligent cloud business achieved 11% year-on-year growth. Benefiting from the increase in companies' demand for model building and model reasoning, AI contributed about 4.8% of the revenue to the intelligent cloud business.
Fee controls continued to be implemented, and profit margins exceeded expectations. In 23Q4, Baidu's core gross margin increased to 56.2% (yoy+1.1 pct), and the sales and management expenses ratio decreased by 1 pct year on year, reaching 18% (flat from month to month).
R&D expenses accounted for 21% (an increase of 1 pct over the previous year). Taken together, Baidu's core OPM reached 17% in 23Q4, and adjusted OPM was 22.5% (yoy+1.1pct, qoq-2.6pct; Bloomberg agreed to 21.4%).
AI empowers businesses to create growth, and commercialization is progressing steadily. (1) Application and user side: The company continues to iterate Wenxin's big model and restructure products and services. As of December, Baidu App's MAU reached 667 million (yoy +3%); (2) Advertising: Based on AI technology, the company has successively launched AI marketing platforms such as Qingduo, Qingge, and Brand Intelligence. Customer retention and conversion rates have increased, and 23Q4 has increased advertising performance by hundreds of millions of yuan. In the future, as the penetration rate of AI technology among advertisers increases, it is expected to contribute further; (3) Cloud business:
The 23Q4 model brought about 660 million yuan in incremental revenue to the cloud business. The company said that looking ahead to 2024, the total increase brought by AI to advertising and cloud businesses is expected to increase to several billion yuan.
Considering that macroeconomic and consumption recovery is slower than expected, we expect the company's revenue for 23-25 to be 1346/1440/154.6 billion yuan (original forecast value 1363/1500/162.6 billion yuan); and operating efficiency is expected to improve under cost control. The company's adjusted net profit to mother is estimated to be 287/260/305 billion yuan (original forecast value 237/257/275 billion yuan), selecting leading domestic and foreign Internet and artificial intelligence-related companies. The 24-year adjusted PE was 16x, corresponding to the company's market capitalization of $41.16 billion, HKD 0.91 against RMB, and a target price of HK$162.23, maintaining a “buy” rating.
Risk warning
The commercialization of AI fell short of expectations, the recovery of the advertising industry fell short of expectations, R&D costs were too high and output was limited