Incident: The company announced 23Q4 results. In 23Q4, the company achieved operating revenue of 34.951 billion yuan, an increase of 6% over the previous year; of these, Baidu Core achieved revenue of 275 billion yuan, an increase of 7%; iQiyi achieved revenue of 7.7 billion yuan, an increase of 2% year on year; and achieved non-GAAP net profit of 7.8 billion yuan, which was the same as 22% of the supermarket's expectations, mainly due to non-cash tax adjustments.
In addition, the company repurchased a total of US$318 million of shares in 23Q4, with a cumulative repurchase amount of US$669 million over 23 years.
Baidu's core business revenue is in line with market expectations, and Gen AI is gradually contributing revenue. In 23Q4, Baidu Core achieved revenue of 275 billion yuan, in line with the unanimous expectations of the market. Among them, the online marketing business achieved revenue of 19.2 billion yuan, an increase of 6% over the previous year. We believe that it is mainly benefiting from the recovery in demand from advertisers in healthcare, travel, etc.; in addition, the company expects AI to contribute hundreds of millions of yuan in online marketing revenue. With AI support, the new marketing platform will effectively improve advertisers' conversion efficiency and drive up advertisers' budgets. The non-online marketing business achieved revenue of 8.3 billion yuan, an increase of 9% over the previous year. We believe that Baidu Smart Cloud's revenue growth has partly benefited from the incremental contribution brought by AI technology. According to Baidu's performance, 23Q4 Gen AI contributed 656 million yuan to Baidu Smart Cloud's total revenue, accounting for 14%/4.8% of internal/external revenue, respectively. We believe that the overall performance of Baidu's core business is in line with market expectations, and Gen AI has driven good growth in online marketing and intelligent cloud businesses.
Actively invested in AI research, AI technology is progressing well. The company continues to iterate AI technology, and the commercialization process of Gen AI continues to accelerate. In terms of AI technology, the inference cost of EB3.5 has now been reduced to 1% in March 2023, and Ernie's efficiency continues to improve. Currently, Ernie processes more than 50 million queries per day, and about 26,000 companies used the Ernie API on the cloud in December '23, an increase of 150% over the previous year.
We believe that the development of AI technology can help Baidu effectively improve the eCPM of its advertising business and effectively build AI solutions for customers, thereby increasing the revenue of the cloud computing business. The commercialization process of Gen AI is expected to continue to accelerate. According to Baidu, AI is expected to contribute several billion yuan in incremental revenue in 2024. We believe that the iteration of the company's AI technology is expected to open up room for growth in the company's business and achieve both performance and valuation growth.
Investment advice: We expect the company to achieve revenue of 1462.02/1568.63/166.768 billion yuan in 2024-2026; net profit to mother of 230.90/260.43/29.011 billion yuan; EPS 8.26/9.31/10.37 yuan.
The corresponding PE was 12.1/10.7/9.6 times, respectively, maintaining the “buy” rating.
Risk warning: AI development falls short of expectations; macroeconomics falls short of expectations; industry regulatory risks; progress in cost reduction and efficiency falls short of expectations.