Incident: The company announced 24Q1 results. In 24Q1, the company achieved operating revenue of 31,513 billion yuan, +1%/-10% month-on-month, and achieved non-standard net profit of 7.011 billion yuan, an increase of 22% over the previous year. Among them, Baidu's core revenue was 23.803 billion yuan, +4%/-13% month-on-month, and achieved non-standard net profit of 6.628 billion yuan, an increase of 26% over the previous year. In addition, the company's 24Q1 share repurchase amount was US$229 million, and the cumulative repurchase amount under the 2023 share repurchase plan project reached US$898 million AI-driven cloud service innovation, and the revenue growth rate of Baidu's core intelligent cloud business continued to accelerate. 2024Q1, Baidu's core intelligent cloud business revenue increased 12% year on year, and the year-on-year growth rate of 23Q4 was 11% faster. We believe that the main reason for the acceleration in revenue growth is the incremental revenue directly brought about by Gen AI and the basic model and its driving effect on traditional CPU cloud business. According to Baidu's performance disclosure, 24q1's revenue from GenAI and basic models accounts for 6.9% of AI cloud revenue. In addition, Baidu has launched a number of large lightweight models in 24Q1, thus providing developers with an efficient and affordable development environment.
For example, Baidu recently launched AgentBuilder, AppBuilder, and ModelBuilder, which have improved developer productivity. Driven by this, there are currently 13 million developers in the Baidu Propeller community. Looking backwards, we believe that the core of the success of the AI model is whether developers are willing to continue to create value in the company's ecosystem. Currently, with Baidu related technology support, Baidu's core developers are highly sticky, and the normal profit margin of Gen AI and basic model related businesses is expected to continue to increase, driving the company's overall cloud service profitability growth.
The number of orders for intelligent driving continues to grow rapidly, and the Wuhan region is about to achieve break-even. The company's autonomous driving service Radish Express 24Q1 has about 826,000 orders for autonomous driving, an increase of 25% over the previous year. Radish Express began 24/7 operation in Wuhan in early March '24, expanding Apollo Go's reach and improving vehicle utilization. Furthermore, Radish Express 6th generation unmanned vehicles equipped with Baidu Apollo 6th generation intelligent system solutions directly reduced the total vehicle cost by 60% compared to 5th generation cars, and the price was only 200,000. After putting into use, the depreciation costs of the intelligent driving business will be significantly reduced. Driven by the above two major factors, we expect the Wuhan region to achieve break-even by the end of 2024, and will gradually replicate the successful experience in other regions. In terms of safety, Baidu is based on the big model of autonomous driving and already has the technical capabilities required for city-level autonomous driving travel services. The actual risk rate of Baidu unmanned vehicles in the past two years was only 1/14 of that of a human driver. In addition, Baidu is expected to work with Tesla to optimize assisted driving functions, which is another catalyst for the company's intelligent driving business. Overall, at present, Baidu's smart driving unit price per kilometer and accident rate are significantly lower than traditional online car-hailing, and it has a significant competitive price advantage. If stable profits are achieved in multiple regions in the future, it is expected to drive a double boost in the company's fundamentals and valuation.
Investment advice: We expect the company to achieve revenue of 1462.02/1568.63/166.768 billion yuan in 2024-2026; net profit to mother of 230.91/260.45/29.014 billion yuan; EPS 8.26/9.31/10.37 yuan.
Corresponding PE was 13.1/11.6/10.4 times, respectively. The company's core business maintained steady growth. The AI big model and intelligent driving business are expected to boost the company's fundamentals and valuation and maintain a “buy” rating.
Risk warning: AI development falls short of expectations; macroeconomics falls short of expectations; industry regulatory risks; progress in cost reduction and efficiency falls short of expectations.