28 May 2025 | 7:48PM HKT Baidu.com Inc. (BIDU) Buy NDR takeaways: Solid cloud momentum to sustain in FY25; AI search revamp to weigh on advertising growth/margin | BIDU | 12m Price Target: $96.00 | Price: $83.92 | Upside: 14.4% | | --- | --- | --- | --- | | 9888.HK | 12m Price Target: HK$94.00 | Price: HK$82.60 | Upside: 13.8% | Lincoln Kong, CFA +852-2978-6603 | lincoln.kong@gs.com Goldman Sachs (Asia) L.L.C. We hosted Baidu Investor Relations team with investors on May 27, where investors' key focus and o ...

Baidu (NASDAQ: BIDU ) reported earnings for the first fiscal quarter that widely exceeded (low) Wall Street’s expectations. The tech enterprise saw a robust performance in its Cloud segment, which is where revenues surged 42% year-over-year, in part due to utilization of AI products. The company'sAnalyst’s Disclosure: I/we have a beneficial long position in the shares of BIDU, BABA, PDD either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinio ...

Baidu (BIDU) and Alibaba (BABA) are two of China’s tech titans that have increasingly pivoted toward artificial intelligence (AI). Both companies dominate their respective fields – Baidu in online search and AI cloud services, Alibaba in e-commerce and cloud computing – yet they share notable similarities. Each is profitable, generates substantial cash, and has been pouring investments into cutting-edge AI research and applications.In fact, Chinese tech companies like Alibaba and Baidu have recently capture ...

Core Viewpoint - Tencent and Baidu are adapting their strategies to maintain competitiveness in the global AI landscape despite U.S. semiconductor export restrictions, focusing on stockpiling chips, optimizing AI models, and leveraging domestic semiconductor capabilities [1][2][12]. Tencent's Approach - Tencent has a strong stockpile of graphics processing units (GPUs), which are essential for training AI models, and believes it can achieve effective training results with fewer chips than American companies suggest [3][4]. - The company is enhancing efficiency through software optimization, allowing it to utilize existing GPUs more effectively for AI tasks, and is exploring smaller models that require less computing power [5][6]. Baidu's Strategy - Baidu emphasizes its "full-stack" capabilities, integrating cloud computing, AI models, and applications, which allows it to deliver value even without the most advanced chips [7]. - The company is also focusing on software optimization to reduce operational costs and improve GPU utilization, which it considers a competitive advantage [8]. - Baidu highlights the progress of domestic Chinese technology firms in developing AI semiconductors, which could mitigate the impact of U.S. chip restrictions [10]. Domestic Semiconductor Development - China is increasing its focus on developing a domestic semiconductor ecosystem, although it still lags behind the U.S. in GPU and AI chip technology [11]. - Analysts note that stockpiling chips is one strategy Chinese companies are employing to navigate export restrictions, and there have been advancements in semiconductor technology within China [12]. - The development of self-sufficient chips and efficient software stacks is seen as a foundation for long-term innovation in China's AI ecosystem [10].

Group 1 - The company specializes in providing daily-rebalanced ETP products that include leveraged, unleveraged, inverse, and inverse leveraged factors [3] - The research focuses on macroeconomic assessments, strategic sector viability, and market data trends to inform investment decisions [1] - There is a significant interest in Asian markets, particularly India and China, with in-depth analyses published on economic trends and business developments in the region [1] Group 2 - The company does not hold any stock or derivative positions in the companies mentioned, ensuring an unbiased perspective in its analyses [2] - The assets under management (AUM) are primarily influenced by investor interest rather than market movements [3] - The company emphasizes that past performance does not guarantee future results, highlighting the importance of careful consideration before investing [4]

Core Insights - Baidu, Inc. reported better-than-expected first-quarter 2025 results, with adjusted earnings and total revenues exceeding the Zacks Consensus Estimate, although the bottom line declined year-over-year while the top line grew [1][5]. Financial Performance - Adjusted earnings per share (EPS) were $2.55, surpassing the Zacks Consensus Estimate of $1.96 by 30.1%, but declined 7% from the previous year [5]. - Total revenues reached $4.47 billion, exceeding the consensus mark of $4.3 billion by 4.1% and growing 3% year-over-year [5]. - Revenues from the Baidu Core segment increased by 7% year-over-year to $3.51 billion, with online marketing revenues declining 6% to $2.21 billion, while non-online marketing revenues surged 40% to $1.3 billion [6]. - iQIYI segment revenues declined 9% year-over-year to $990 million [6]. Operating Highlights - Selling, general and administrative (SG&A) expenses grew 10% year-over-year to $815 million, driven by increased channel spending and promotional marketing expenses [7]. - Research and development expenses decreased by 15% year-over-year to $626 million [7]. - Adjusted operating income was $735 million, down 20% year-over-year, with an adjusted operating margin of 16%, contracting 500 basis points from 21% [7]. EBITDA and Cash Position - Adjusted EBITDA for the quarter was $993 million, down 13% year-over-year, with an adjusted EBITDA margin contracting 400 basis points to 22% [8]. - As of March 31, 2025, Baidu had cash and cash equivalents of $6.81 billion, up from $5 billion at the end of 2024 [9]. Business Developments - The AI Cloud segment saw a 42% year-over-year growth, highlighting Baidu's competitive advantage in full-stack AI products and solutions [2]. - The autonomous ride-hailing service, Apollo Go, expanded into Dubai and Abu Dhabi, providing over 1.4 million rides in Q1, a 75% increase year-over-year [12]. - Baidu App's monthly active users reached 724 million, up 7% year-over-year [12]. - New product launches included ERNIE 4.5 and ERNIE X1, enhancing Baidu's AI capabilities [10][11].

Investment Rating - The report assigns a "Buy" rating for Baidu (BIDU US) with a target price of $99.00, indicating a potential upside of 15.8% from the current price of $85.48 [2][4][14]. Core Insights - Baidu's cloud business performance significantly exceeded expectations, while the monetization of AI search is anticipated to take more time [2][7]. - The first quarter of 2025 saw total revenue of 32.5 billion RMB, a year-on-year increase of 3%, surpassing market expectations by 5% [7]. - Adjusted net profit for the same period was 6.5 billion RMB, with a net profit margin of 20%, also exceeding expectations [7]. - The report highlights a strong demand for generative AI and large models, contributing to a 42% year-on-year increase in cloud revenue, which now constitutes 26% of core revenue [7][8]. - The report anticipates a continued decline in advertising revenue due to the ongoing transformation of AI search, projecting a 9% decrease for the full year 2025 [7][9]. Financial Overview - Revenue projections for Baidu are as follows: 134,598 million RMB in 2023, 133,125 million RMB in 2024, and an estimated 135,508 million RMB in 2025, with a slight growth expected thereafter [3][15]. - Net profit is projected to decline from 28,747 million RMB in 2023 to 21,014 million RMB in 2025, reflecting a significant drop in earnings per share (EPS) from 80.91 RMB to 60.65 RMB [3][15]. - The report notes a decrease in the price-to-earnings (P/E) ratio from 7.6 in 2023 to an estimated 10.2 in 2025, indicating a shift in valuation metrics [3][15]. Business Segment Performance - Baidu's core business revenue is expected to be 25,463 million RMB in Q1 2025, with online marketing services projected to decline by 11% year-on-year [8][9]. - The cloud segment is expected to grow significantly, with revenue estimates of 6,630 million RMB for Q1 2025, reflecting a 42% increase year-on-year [8][9]. - The report also highlights the growth of Baidu's autonomous driving and new business segments, with a 34% increase in revenue year-on-year [8][9]. Market Position and Future Outlook - The report emphasizes the importance of AI search product monetization and the sustainability of high growth in the AI cloud segment [7][9]. - Baidu's strategic expansion into international markets, including the launch of Robotaxi services, is expected to enhance its global footprint [7][9]. - The report concludes with a cautious outlook on advertising revenue, projecting continued challenges in the near term due to the transition to AI-driven services [7][9].

Financial Performance - Baidu's total revenues for Q1 2025 were RMB 32.5 billion ($4.47 billion), representing a 3% increase year over year[10]. - Baidu Core revenue grew 7% year over year to RMB 25.5 billion ($3.51 billion), with online marketing revenue decreasing 6% year over year[6][12]. - AI Cloud revenue surged 42% year over year, contributing significantly to overall revenue growth[3]. - Net income attributable to Baidu increased by 42% year over year to RMB 7.7 billion ($1.06 billion), with diluted earnings per ADS rising 45% to $2.98[4][16]. - Baidu's total revenues for the three months ended March 31, 2025, were RMB 32,452 million (approximately US$4,472 million), a decrease of 2% from RMB 34,124 million in the previous quarter[32]. - Non-GAAP net income attributable to Baidu for the same period was RMB 7,717 million (approximately US$1,063 million), representing an increase of 48% compared to RMB 5,192 million in the previous quarter[32]. - The company's operating income for the three months ended March 31, 2025, was RMB 4,508 million (approximately US$621 million), up from RMB 3,917 million in the previous quarter[32]. - Operating income for Baidu in Q1 2025 was RMB 4,164 million, reflecting an 18% year-over-year decrease[34]. - Net income attributable to Baidu in Q1 2025 was RMB 7,633 million, a 42% year-over-year increase[34]. - Baidu's operating margin for Q1 2025 was 16%, compared to 19% in the previous year[34]. - The diluted earnings per ADS (non-GAAP) for Q1 2025 was $2.55, compared to $2.98 in Q4 2024, indicating a decrease of 14.4%[36]. Cash and Investments - Baidu's cash, cash equivalents, and short-term investments totaled RMB 142.0 billion ($19.57 billion) as of March 31, 2025[18]. - Baidu's cash and cash equivalents increased significantly to RMB 49,202 million (approximately US$6,780 million) as of March 31, 2025, compared to RMB 24,832 million at the end of the previous quarter[33]. - Baidu's cash, cash equivalents, and restricted cash at the end of Q1 2025 amounted to RMB 49,876 million[35]. - The company reported a net cash provided by operating activities of RMB 5,284 million in Q1 2025[35]. Expenses and Liabilities - Research and development expenses decreased by 15% year over year to RMB 4.5 billion ($626 million)[11]. - The company reported total costs and expenses of RMB 27,944 million (approximately US$3,851 million) for the three months ended March 31, 2025, a decrease from RMB 30,207 million in the previous quarter[32]. - Baidu's total costs and expenses in Q1 2025 were RMB 21,299 million, an increase of 11% year-over-year[34]. - The company’s total liabilities increased to RMB 163,908 million (approximately US$22,587 million) as of March 31, 2025, from RMB 144,168 million at the end of the previous quarter[33]. Shareholder Returns - Baidu returned $445 million to shareholders since the beginning of Q1 2025, with cumulative repurchases reaching $2.1 billion[8]. User Engagement and Product Development - Apollo Go provided over 1.4 million rides in Q1 2025, marking a 75% increase year over year, and cumulative rides surpassed 11 million[12]. - Baidu App's monthly active users (MAUs) reached 724 million, up 7% year over year[12]. - Baidu launched ERNIE 4.5 and ERNIE X1 in March 2025, enhancing its AI product offerings[8]. iQIYI Performance - iQIYI's operating income for Q1 2025 was RMB 342 million, a rise from RMB 285 million in Q4 2024, reflecting a growth of 19.9%[36]. - Baidu's adjusted EBITDA for iQIYI in Q1 2025 was RMB 495 million, up from RMB 444 million in Q4 2024, representing an increase of 11.5%[36]. - The net income attributable to Baidu (non-GAAP) for Q1 2025 was RMB 6,330 million, a decrease from RMB 6,741 million in Q4 2024, showing a decline of 6.1%[36]. Other Financial Metrics - Free cash flow for Baidu in Q1 2025 was negative RMB 8,901 million, a significant decline from the previous quarter[35]. - Baidu's adjusted EBITDA margin for Q1 2025 was 22%, compared to 26% in the previous year[34]. - Baidu's core operating income for Q1 2025 was RMB 4,164 million, a 14.5% increase from RMB 3,638 million in Q4 2024[36]. - The adjusted EBITDA for Baidu in Q1 2025 reached RMB 6,712 million, up from RMB 6,516 million in Q4 2024, reflecting a growth of 3.0%[36]. - Baidu's fair value loss of long-term investments in Q1 2025 was RMB (1,889) million, compared to RMB (288) million in Q4 2024, indicating a significant increase in losses[36].

Core Insights - U.S.-listed shares of Baidu Inc and Xpeng Inc are gaining attention after both companies exceeded revenue expectations for Q1, with Baidu benefiting from AI cloud services and Xpeng narrowing its quarterly losses [1] Baidu Inc (BIDU) - Baidu's shares were last seen down 0.8% at $88.61, despite a year-over-year increase of 10.1%, facing resistance at the $95 level since late March [2] - The stock has struggled to recover from a two-year low of $74.71 reached on April 9, with the $95 resistance level coinciding with its 320-day moving average [2] Xpeng Inc (XPEV) - Xpeng's shares rose 12.8% to $22.20, marking its best performance since February and trading at the highest level since March, supported by its 80-day moving average [3] - Over the past 12 months, Xpeng's stock has increased by 156%, and it is up 89.6% in 2025 [3] Options Trading Activity - Both Baidu and Xpeng are experiencing significant options trading activity, with volumes reaching eight times the intraday average [4] - The most active options for Baidu are the weekly 5/30 100-strike calls, while for Xpeng, it is the weekly 5/23 22-strike calls, with new positions being opened for both [4]

Financial Data and Key Metrics Changes - Baidu's total revenue for Q1 2025 was RMB32.5 billion, a 3% year-over-year increase [28] - Baidu Core's revenue reached RMB25.5 billion, reflecting a 7% year-over-year growth, while online marketing revenue decreased by 6% to RMB16.0 billion [28][29] - Non-GAAP operating income was RMB5.3 billion, with a non-GAAP operating margin of 19% for Baidu Core [32][34] - Net income attributable to Baidu was RMB7.7 billion, with diluted earnings per ADS at RMB21.59 [33][34] Business Line Data and Key Metrics Changes - AI Cloud revenue reached RMB6.7 billion, marking a 42% year-over-year increase and accounting for 26% of Baidu Core's revenue [29][21] - Non-online marketing revenue for Baidu Core was RMB9.4 billion, up 40% year-over-year, primarily driven by AI Cloud [29] - Revenue from iQIYI decreased by 9% year-over-year to RMB7.2 billion [29] Market Data and Key Metrics Changes - The MAU of Baidu App increased by 7% year-over-year, reaching 724 million [17] - Apollo Go provided approximately 1.4 million rides in Q1, representing a 75% year-over-year growth [26] Company Strategy and Development Direction - The company is focusing on enhancing its AI capabilities and expanding its AI Cloud business, which is seen as a core priority [7][21] - Baidu aims to democratize AI through initiatives like the launch of MiaoDa, which allows users to create applications without coding [22] - The company is also investing in autonomous driving technology, with plans for international expansion of its Apollo Go service [19][20] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the ongoing demand for AI solutions and the potential for AI Cloud to drive future growth [6][21] - The company is adapting to the evolving AI landscape and is committed to maintaining its competitive edge through continuous innovation [10][75] - Management acknowledged potential near-term pressures on revenue and margins due to the transition to AI search but emphasized the long-term growth potential [62][94] Other Important Information - Baidu's cash position as of March 31, 2025, was RMB159 billion, with a negative free cash flow of RMB9.2 billion due to increased investments in AI [34][35] - The company has accelerated its share repurchase program, purchasing a total of USD 445 million in shares since the beginning of Q1 2025 [35][94] Q&A Session Summary Question: Update on AI model and technology roadmap - Management highlighted the rapid iteration of foundation models and emphasized the importance of application-driven innovation [38][39] - Future models will continue to focus on areas with real application value, and costs are expected to decrease further [43][44] Question: Key drivers for cloud business growth - The strong growth in AI Cloud was attributed to surging demand for Gen AI and foundation models, with enterprise cloud revenue being the primary contributor [47][50] - Management expects subscription-based revenue to rise, supporting sustainable growth [51] Question: AI search transformation rationale - The transformation aims to enhance user experience and meet evolving information-seeking behaviors [55][58] - Management anticipates that AI search will improve monetization capabilities over time [61][62] Question: Competition in the robotaxi space - Baidu's Apollo Go is positioned as a leader in autonomous ride-hailing, with a focus on expanding globally and exploring partnerships [64][67] - The company expects to see faster growth in its global fleet and operational scale [68][69] Question: Competition with other AI applications - Baidu is focusing on enhancing AI search and integrating innovative applications to create lasting value [72][75] - The company is committed to making its platform more open and flexible to meet diverse user needs [78]