The company's recent situation
Recently, we invited Baidu to conduct a non-transactional roadshow. The company focused on sharing plans to combine AI with advertising and cloud business commercialization, and shared the outlook for the core business in 2024.
reviews
The advertising market continues to be under pressure in the short term, and the long-term focus is on ECPM growth enabled by AI. Due to macro-environmental disturbances, we expect advertising revenue to increase 4% year over year in 1Q24. 4Q23 expects 10,000 advertisers to migrate to the new advertising system, and the resulting AI advertising revenue will reach hundreds of millions of yuan. The company expects this incremental contribution to reach several billion yuan in 2024, which may mainly benefit from the increase in the penetration rate of new products and the improvement in advertising monetization efficiency. In 4Q23, Baidu App MAU also increased by 3% to 670 million. The market is concerned about the slowdown in search traffic growth and the diversion pressure on the company. We believe that the transformation of the user side is a long-term process. New AI search models such as search and promotion integration and multi-round conversations are also still in the small-scale testing stage. External pressure on traffic may continue, but the company expects traffic commercialization efficiency, transaction link transformation, and there is room for improvement in the long term, which is expected to support revenue growth faster than GDP.
The cloud pursues sustainable growth, and AI may drive profit growth. Considering macro disturbances, we expect 1Q24 cloud revenue to grow 10% year over year. 4Q23 expects AI-related cloud revenue from external customers to be about 300 million yuan, mainly from three aspects of demand (GPU cloud, MaaS services, model refinement, and API calls). Currently, the overall solution has been implemented in scenarios such as online education and overseas e-commerce. Looking ahead to 2024, the company expects MaaS functionality to be used as the main requirement. In addition, GPU cloud demand for traditional clouds is also expected to be reflected. Furthermore, the company expects traditional clouds to continue to be profitable. Considering that the profit margin of model inference is higher than that of traditional clouds, we expect cloud profit margins to increase during the year.
New technology is invested in an orderly manner, and the Group's operating profit margin is expected to remain stable. In 2024, the company expects to continue to reduce costs and increase efficiency while firmly investing in AI and autonomous driving. We expect the overall operating profit margin to be the same as last year: in terms of autonomous driving, the company expects to prioritize UE break-even in key regions in 2024 and then replicate it to other regions to reduce the drag on the group's profits; on the Capex side, the company expects to maintain a cautious procurement scale on the current basis, so Group Capex in 2024 may not be higher than in 2023.
Profit forecasting and valuation
We maintain our 2024 and 2025 revenue and non-standard net profit forecasts, maintain outperforming industry ratings, and maintain the target prices of HK$151.6 and HK$146.9 for US stocks and Hong Kong stocks, corresponding to the 2024/2025 non-standard price-earnings ratio of 13 times /11 times for US stocks and Hong Kong stocks, respectively. Compared with the current US stocks and Hong Kong stocks, we have 44.9% and 41.7% upward space respectively (current US stocks correspond to 9.1 times/7.7 times 2024/2025 non-standard price-earnings ratio, and HK stocks correspond to 9.3 times/7.9 times the 2024/2025 non-standard price-earnings ratio (2024/2025 non-standard price-earnings ratio).
risks
New business expansion fell short of expectations, cost reduction and efficiency fell short of expectations, and regulatory risks.