1Q24 Non-standard net profit exceeds market expectations by 26%
The company announced 1Q24 results: the company's revenue also increased 1% to 31.5 billion yuan, which is basically in line with market expectations; Baidu's core revenue also increased 4% to 23.8 billion yuan, which is basically in line with market expectations. Non-standard net profit of 7 billion yuan (non-standard net profit margin of 22%) exceeded market expectations by 24%, mainly due to good cost control. The 1Q24 company repurchased $229 million of shares, and the cumulative repurchase amount under the $5 billion repurchase program announced in 2023 reached 889 million US dollars. Progress has been relatively slow.
Development trends
The growth rate of 1Q advertising and cloud is basically in line with expectations, and operating profit margins are steady. 1Q Baidu's core advertising revenue also increased by 3%, and small and medium-sized advertisers resumed pressure; AI cloud revenue also increased 12% and continued to be profitable. The main line of the company's strict fee control to support AI development remains unchanged, and Baidu's operating profit margin, which is not a common standard, remained stable at 23% year-on-year in 1Q24. We expect the advertising business to be at a critical point of user-side transformation. Commercialization progress may slow down, or cause the 2-3 Q ad revenue growth rate to be slower than 1Q; the ACE base effect will be eliminated, AI clouds will continue to contribute, and the industry cloud will grow steadily. We expect cloud revenue growth to accelerate in 2Q.
API calls are growing at a high rate, but monetization is relatively slow. Advertising revenue contributed by 1Q24 AI increased month-on-month. Cloud revenue contributed by AI was about 330 million yuan (accounting for 6.9% of external cloud revenue), mainly model training revenue, and inference revenue grew rapidly. Currently, the average daily API call volume has exceeded 200 million (50 million in 4Q23), and the company is promoting rapid growth in API calls: 1) activating internal demand: the company expects 15% of internal cloud revenue to be used for large models and generative AI; 2) promoting cooperation with external manufacturers such as mobile phones, PCs, and new energy vehicles; 3) revitalizing the developer ecosystem: The company released a full-stack developer service architecture in April to support flexible model and chip selection, and provide a series of low-threshold tools such as smart device development, application development, and model customization.
Radish Run is expected to achieve break-even in a single region by the end of the year. The number of 1Q Radish Express orders also increased 25% to 826,000. The company expects its revenue to increase 9 times and continue to reduce losses at the beginning of this year. On Apollo Day in May, the company announced that the total cost of its sixth-generation unmanned RT6 model will be lowered to 200,000 yuan. The company expects to accelerate the large-scale deployment of RT6 in Wuhan in 24 years (expected to reach 1,000 units by the end of the year). Considering the expansion of the operating area, the continuous increase in the penetration rate of fully unmanned vehicles (reaching 70% in April), and the reduction in hardware depreciation costs, the company expects Radish Express to achieve break-even in Wuhan by the end of '24.
Profit forecasting and valuation
Considering that core advertising revenue is under pressure, we lowered our 2024 and 2025 revenue forecasts by 2% and 3% to 139.8 billion yuan and 147.7 billion yuan. Considering strict corporate fee controls, we have basically maintained the non-general standard net profit forecast for 2024 and 2025. Maintaining an outperforming industry rating and maintaining the target price 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, there is 36.9% and 35.5% upward space, respectively (current US stocks correspond to 9.8 times/8.7 times the 2024/2025 non-standard price-earnings ratio, and Hong Kong stocks correspond to 9.9 times/8.8 times the 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.