Matters:
Company announcement: Baidu Group-SW (9888.HK) will release financial results for the first quarter of 2024.
Guoxin Internet's opinion: 1) Revenue is expected to increase 1% year on year in 24Q1. Of these, Baidu's core division is expected to achieve revenue of 232 billion yuan, an increase of 1% year over year. The slowdown in revenue growth is mainly due to the advertising and cloud business being pressured by weak demand side. Baidu's core division is expected to achieve adjusted operating profit of 4.9 billion yuan, -9% year-on-year, and 21% adjusted operating margin. 2) Core advertising and smart cloud are expected to be under pressure in the first quarter, and the 2024Q1 core online marketing service achieved revenue of 171 billion yuan, an increase of 3% over the previous year. The slowdown in growth was mainly due to a slight weakening in demand from real estate, home, investment promotion, and automobile advertisers in the first quarter. 3) Baidu Smart Cloud's revenue is expected to increase by 8%. The smart cloud business continued to be dominated by model training demand this quarter, and the inference section grew at an accelerated pace. We are optimistic about the potential driving effect of AI on search advertising and smart cloud businesses. Considering the slight lag in the recovery of advertising and smart cloud growth and the company's investment in large AI models, we slightly lowered our profit forecast. We expect to achieve adjusted net profit of 286/310/33.2 billion yuan in 2024-2026, a decrease of 5%/3%/3%. The AI model continues to advance the implementation scenario, which is expected to catalyze an upward trend in stock prices and continue to maintain the “gain” rating.
Commentary:
Overall: Baidu's core revenue is expected to increase 1% year on year, and the adjusted operating profit margin is 21%. We expect Baidu Group to achieve total revenue of 316 billion yuan in 2024Q1, an increase of 1% year on year. Among them, Baidu's core division is expected to achieve revenue of 232 billion yuan, an increase of 1% over the previous year. The slowdown in revenue growth is mainly due to the advertising and cloud business being pressured by weak demand. Baidu's core division is expected to achieve adjusted operating profit of 4.9 billion yuan, -9% year-on-year, and an adjusted operating margin of 21%. The operating profit margin declined year-on-year. Major companies increased investment in research and development of large AI models, etc., and increased operating expenses when the company launched new AI-related products.
Core online marketing services: Revenue is expected to increase by 3%, and advertisers' demand is slightly weak. Core online marketing services are expected to achieve revenue of 17.1 billion yuan in 2024Q1, an increase of 3% over the previous year. The advertising business continues to grow, but the growth rate has slowed down, mainly due to a slight weakening in demand from real estate, home, investment promotion, and automobile advertisers in the first quarter, but advertising demand in offline-related industries such as travel, medical care, and e-commerce is still picking up.
Baidu Smart Cloud: Revenue is expected to increase 8%. The AI smart cloud business is expected to achieve revenue of 4.5 billion yuan in 2024Q1, an increase of 8% over the previous year, based on AI training needs. The smart cloud business continued to be dominated by model training demand this quarter, and the inference section grew at an accelerated pace. Recently, the company released a small model on AI Cloud Day. Using the MOE architecture to reduce inference costs, it is expected to further increase MaaS demand and drive the growth of the intelligent cloud business.
Investment advice
The company's core advertising and smart cloud business were temporarily pressured in the first quarter due to weak demand, but are expected to pick up in the second half of the year. We are optimistic about the potential driving effect of AI on search advertising and smart cloud services. However, considering that there is a slight lag in the recovery of advertising and smart cloud growth, we slightly lowered our profit forecast and expect to achieve adjusted net profit of 286/310/33.2 billion yuan in 2024-2026, a reduction of 5%/3%/3%. The AI model continues to advance the implementation scenario, which is expected to catalyze an upward trend in stock prices and continue to maintain the “gain” rating.
Risk warning
The risk that the growth rate of the advertising market will fall short of expectations due to the macroeconomic downturn; the risk that research and development of AI models will fall short of expectations; the risk that the autonomous driving business will develop more slowly than expected; policy risks, etc.