Core views:
The company released its 24Q1 quarterly report, and core business profit was stable: Baidu 24Q1 revenue reached RMB 31,513 billion, YoY +1%, QoQ -10%, vs. consistent expectations (Bloomberg, same below) of RMB 31.4 billion. Adjusted operating profit was $6.673 billion, YoY +4%, QoQ -6%, vs. consistent forecast of $5.732 billion. Adjusted net profit was $7.011 billion, YoY +22%, QoQ -10%, vs. the agreed forecast of $5.501 billion (over 28%).
Baidu Core 24Q1 revenue was 23.803 billion yuan, YoY +4%, and QoQ -13%. Baidu's core advertising revenue reached 17 billion yuan, YoY +3%. Other revenue was 6.8 billion yuan, up 6% from the same period, mainly driven by smart cloud. In 24Q1, Baidu Smart Cloud's revenue was 4.7 billion yuan, YoY +12%.
Baidu Core's adjusted operating profit reached 5.586 billion yuan, YoY +4%, QoQ -10%, vs. consistent expectations of 5.144 billion yuan. Baidu Core's adjusted net profit was 6.628 billion yuan, YoY +26%, QoQ -12%, vs. the agreed forecast of 4.959 billion yuan.
Profit prediction and investment suggestions: Baidu Search's AI restructuring is progressing. More search results come from AI generation or 2C-side product experience transformation through AI technology to optimize user experience and improve user stickiness and retention. Short-term AI restructuring has a negative impact on product commercialization, but it is expected that with the completion of product reshaping and the restoration of advertising space, it will effectively improve advertising efficiency and drive revenue growth. We expect 2024-25 revenue to reach 140.6 billion yuan and 152.2 billion yuan, an increase of 4% and 8% year-on-year. The adjusted net profit for 2024-25 is estimated to be RMB 34 billion and RMB 33.2 billion, respectively. According to the SOTP valuation method, the reasonable value of US stocks is 166 US dollars/ADS, and the reasonable value of Hong Kong stocks is 162 HKD/share, all maintaining a “buy” rating.
Risk warning: Risks such as marketing business growth falling short of expectations, increased competition, and AI policy changes.