Key points of investment
Performance Overview: 2024Q1's revenue is in line with market expectations, and adjusted net profit exceeds market expectations.
2024Q1's revenue was 31.5 billion yuan, up 1.2% year on year; non-GAAP operating profit was 6.7 billion yuan, up 3.8% year on year, market expectations were 5.7 billion yuan; non-GAAP net profit was 7 billion yuan, up 22.4% year on year, and market expectations were 5.5 billion yuan. Since 24Q1, Baidu shares have been repurchased for US$229 million, with a cumulative repurchase amount of US$898 million under the 23-year share repurchase plan.
Operational optimization drove Baidu's core performance to exceed expectations, and investment in AI had limited impact on profit margins. 1Q24 Baidu's core non-GAAP gross margin/operating margin and net margin were 59.0%/23.5%/27.8%, respectively, better than Bloomberg's unanimous expectations, and the company's operating efficiency continued to be optimized. 24Q1's non-GAAP R&D cost rate increased by 0.3 pct to 15.1% year over year, mainly due to increased depreciation costs and server rack fees for servers supporting generative AI research investment. At the company's 24Q1 results conference, it was stated that the chip is sufficient to support the Wenxin model's training in the next year or two, and due to the limited supply of high-performance chips in China in '24, the company expects a year-on-year decrease in capital expenditure, which will have a manageable impact on short-term profit margins, and is expected to generate more profits in the future.
Advertising business: Under short-term pressure, AI technology continues to improve the user experience. 24Q1 Baidu's core revenue was 23.8 billion yuan, up 4% year on year; of this, online marketing revenue was 17 billion yuan, up 3% year on year, mainly affected by the weak intention of advertisers in real estate and upstream and downstream related industries. In March 2024, Baidu App reached 676 million monthly active users, an increase of 3% over the previous year, and hosted page revenue accounted for 50% of Baidu's core online marketing revenue. The company is working to improve the user experience using GenAI. 11% of search results pages are already generated results, providing more accurate, more organized, and more direct answers to user questions.
Non-advertising business: Cloud computing revenue is growing at an accelerated pace, and AI contributions are increasing. 1) Cloud computing business: Cloud revenue continued to accelerate in 2024Q1, with a year-on-year increase of 12% (11% in 23Q4). Increased demand for model training and inference drove accelerated revenue growth, and continued to generate positive Non Gaap operating profits. Q1 The company launched a variety of lightweight large language models to make Wenxin more and more affordable; launched and improved MaaS platform tools for enterprise customers to promote the development of AI native applications and agents, and create customized models on Baidu MaaS platform. Benefiting from increased demand and the company's end-to-end optimization of the AI technology stack, GenAI and the base model's revenue share increased from 4.8% in 23Q4 to 26.9% in 24Q1. 2) Intelligent driving business: In 24Q1, the number of Radish Express orders increased by 25% to 826,000. As of April 19, '24, the cumulative number of orders exceeded 6 million. The proportion of orders for completely driverless cars in Wuhan in April was 70%, up from 45% in 23Q4, and the company expects to reach 100% in the next few quarters. The company's focus remains on improving regional UE and reducing business losses, and profits are expected to gradually improve as operational efficiency increases and costs are reduced.
Profit forecast and investment rating: Considering that the overall advertising business is still under pressure in the short term, but the company's operating efficiency continues to be optimized, we lowered the company's 2024-2026 revenue forecast from 1396/1500/158.5 billion yuan to 1393/1482/155.7 billion yuan, and raised non-GAAP net profit from 288/311/34.5 billion yuan to 309/327/351 billion yuan, corresponding to 9 times the 2024 non-GAAP PE. The company's continuous repurchases reflect a focus on shareholder returns and maintain a “buying” evaluation grade.
Risk warning: Risk of technology development falling short of expectations, AI ethical risk, technical risk, competition risk.