Baidu 24Q2 performance forecast: We expect Baidu 24Q2's total revenue to be 35.36 billion yuan, +3.8% year over year;
Non-GAAP net profit of 7.9 billion yuan, -1% YoY.
Baidu Core: We expect Baidu Core revenue for 24Q2 to be 27.3 billion yuan, +3.5% year over year; of this, online marketing revenue is 20 billion yuan, +2% year over year. We expect mainly macroeconomic impact. Investment demand in the automotive, real estate, and franchise industries falls short of expectations; non-online marketing revenue is 7.4 billion yuan, +8% year over year; iQiyi revenue is 8.3 billion yuan, +7% year over year. We believe that in '24, the company was affected by macroeconomic consumption and fell short of expectations, and the advertising business may be under pressure, but the big language model has been widely implemented and is expected to drive Baidu's cloud business growth.
Gross profit & profit: We expect 24Q2 non-GAAP operating profit of 7.5 billion yuan, of which Baidu Core is 7.3 billion yuan, with an operating margin of 27%.
Smart Cloud & Wenxin in a nutshell: We expect Baidu Cloud business revenue to reach 5.1 billion yuan, achieving a 14% year-on-year increase. Wenxin Big Model 4.0 Turbo was officially released at WAVE SUMMIT Deep Learning Developer Conference 2024. Wenxin said that the cumulative number of users has reached 0.3 billion, and the number of daily calls has reached 0.5 billion.
The 3.0 framework of the propeller depth model was released at the same time. It has core technologies such as unified automatic parallelism of motion and static, automatic optimization of the compiler, multi-hardware adaptation of large models, and integrated training and promotion of large models. By the end of June, Propeller Wenxin Ecology had gathered 14.65 million developers, served 0.37 million enterprises and institutions, and created 0.95 million models. At the same time, Comate released the Chinese name “Wenxin Express Code”, and the version was upgraded to 2.5. By the end of June, 80% of Baidu engineers were already using Wenxin Express Code in depth. Among them, the code adoption rate had reached 46%, the number of codes submitted per unit time had increased by 35%, the proportion of weekly R&D deliveries had reached 57%, and the overall R&D efficiency had been improved by more than 14%. In addition, 12 companies appeared on Baidu Smart Cloud Qianfan AI Accelerator 2024 Demo Day to showcase the implementation of large models in industrial manufacturing, marketing, education, sports, psychology, etc. We believe that the company actively promotes the application of big models in different scenarios, fully exploits the potential of big language models, and brings growth by promoting enterprise application requirements. At the same time, advances in applications can drive innovation in basic models, complement each other to promote model iteration, and further development is expected in the future.
Intelligent driving: Apollo Day 2024 released the world's first large model, Apollo ADFM, which supports L4 level autonomous driving, and also introduced a new 6th generation Radish Express unmanned vehicle equipped with Baidu's sixth-generation intelligent system solutions. The total cost of the vehicle is directly reduced by 60% compared to the 5th generation. The price is only 0.2 million, and 1,000 units will be deployed in Wuhan within the year. We believe that the large ApolloDFM model on this car can balance the safety and generality of technology. Radish Express has completed more than 6 million travel services across the country. Baidu Apollo's autonomous driving range has exceeded 0.1 billion kilometers, and there have been no major casualties. In 2024Q1, the company provided approximately 0.826 million driverless rides, an increase of 25% over the previous year. The company aims to achieve balance of payments in Wuhan by the end of 2024, and to fully enter a profit period in 2025. At the same time, the company will continue to quickly replicate the successful experience of Wuhan and promote the launch in more cities. We believe that with the release of the company's new and efficient products and models, and the increase in the scale of operations, Radish Express's goal of achieving balance of payments in Wuhan within the year is expected; in the future, if the commercialization experience accumulated by the company in Wuhan is quickly and efficiently replicated in other cities, this business revenue is expected to usher in breakthrough growth.
Investment advice: Due to the fall short of expectations in the small and medium stores and real estate industry, as well as continued investment in chip depreciation and subsequent AI models, we forecast FY2024-2026 revenue of 138.6/152.9/170 billion yuan; non-GAAP operating profit of 28/31.9/35.4 billion yuan. Based on SOTP estimates, Baidu maintained a “buy” rating for 2024 advertising, cloud business, and iQiyi's non-advertising revenue at 8x P/E, 3x P/S, and 14x PE, corresponding to a target price of HK$140.
Risk warning: 1. Increased competition in the domestic cloud market; 2. Internet regulatory risks; 3. Recurrent risk of the epidemic; 4. Macroeconomic slowdown; 5. Smart driving business falls short of expectations