Baidu's core revenue is predicted to increase 2% year over year
In 1Q24, we expect Baidu's overall revenue to remain flat at 31.1 billion yuan year over year; of these, Baidu's core revenue also increased 2% to 23.5 billion yuan. We expect 1Q24's non-GM net profit of 5.6 billion yuan, of which Baidu's core non-GM net profit will be 5.2 billion yuan.
Key points of interest
Maintain guidance on AI revenue contributions throughout the year. At the 4Q23 earnings conference, the company predicted that the incremental contribution of AI to advertising is expected to reach several billion yuan in 2024, and the incremental revenue contribution of AI to the cloud may be lower than that of advertising. The company is expected to hold 2024 Baidu Create AI Developers on April 16. The company plans to announce the latest technology and application progress of the Wenxin Big Model, and release development tools including the agent development tool AgentBuilder, the codeless programming tool AppBuilder, and the model customization tool ModelBuilder, with the aim of further lowering the threshold for the use and development of large models.
1Q24 advertising revenue is under pressure, and the AI cloud growth rate is basically in line with expectations. 1) Advertising: We lowered the 1Q24 Baidu core advertising revenue growth forecast to 0.9%, mainly due to the return of pressure from small and medium advertisers on the platform, and the recovery in long-tail industries such as real estate, investment, and automobiles falling short of expectations; 2) AI Cloud: Considering the weakening of ACE's revenue base and AI's partial revenue contribution, we maintain the judgment that 1Q24 Baidu Cloud's revenue increased 10% year over year; 3) Others: Considering the adjustment of Xiaodu's hardware business management strategy, we expect 1Q24 non-cloud non-cloud non-advertising revenue to be under pressure. Looking ahead to the whole year, considering the base effect, we expect Baidu marketing's core advertising revenue to grow by a low number of units, and we maintain our expectations of a double-digit year-on-year increase in cloud revenue.
The adjusted operating profit margin for 1Q24 was under pressure. At the 4Q23 earnings conference, the company is expected to firmly invest in a large model in 2024. Considering that high-profit advertising revenue is lower than expected, we expect 1Q24 Baidu Core's adjusted operating profit margin to decrease year-on-year.
Profit forecasting and valuation
We basically maintain 2024 and 2025 revenue and non-standard net profit forecasts, maintain outperforming industry ratings, and maintain target prices of HK$151.6 and HK$146.9 for US stocks, corresponding to the 2024/2025 non-standard price-earnings ratios of 13 times/11 times US stocks and 13 times/11 times Hong Kong stocks, respectively. Compared with the current US stocks and Hong Kong stocks, there is 47.1% and 46.8% upward space, respectively (current US stocks correspond to 9.0 times/7.6 times the 2024/2025 non-standard price-earnings ratio, corresponding to Hong Kong stocks 9.0 times/7.7 times 2024/2025 non-GAAP).
risks
New business expansion fell short of expectations, cost reduction and efficiency fell short of expectations, and regulatory risks.