Summary of Baidu.com Inc. (BIDU) Conference Call Company Overview - **Company**: Baidu.com Inc. (BIDU) - **Date of Call**: November 21 - **Analysts**: Goldman Sachs team including Lincoln Kong, Ronald Keung, and Luqing Zhou Key Industry Insights AI-Powered Business - **AI Cloud Infrastructure Revenue**: Reached Rmb4.2 billion, a 33% year-over-year increase in 3Q25, contributing significantly to total AI Cloud revenue of Rmb6.2 billion, which grew by 21% year-over-year [3][9] - **AI Applications Revenue**: Increased to Rmb2.6 billion in 3Q25, accounting for 25% of total AI-powered business revenue [3][9] - **AI-Native Marketing Services Revenue**: Surged to Rmb2.8 billion, reflecting a 262% year-over-year growth [4][9] - **Subscription-Based Revenue**: From AI accelerator infrastructure saw a remarkable increase of 128% year-over-year in 3Q25 [3] Advertising Business - **Outlook**: Management expressed a more positive outlook for the advertising business, noting stabilization in key areas such as AIGC search results and new search result designs, although no specific timeline for recovery was provided [8][11] - **AIGC Content**: 70% of mobile search result pages now include AIGC content, up from over 10% a year ago, indicating a significant shift in content strategy [11] Financial Performance - **Total Revenue**: Reported total revenue of Rmb134.6 billion for 2022, with projections of Rmb133.1 billion for 2023 and Rmb135.4 billion for 2024 [18] - **Core Online Marketing Revenue**: Comprises 78,685 million in 2020, with a forecasted decline to 62,141 million in 2025 [18] - **Operating Metrics**: Management highlighted the focus on improving operating metrics and global expansion for the Robotaxi business [10] Shareholder Returns and Asset Value - **Shareholder Return Strategy**: Management acknowledged the importance of total shareholder return through buybacks and dividends, emphasizing the need for consistent future commitments [11] - **Asset Value Unlocking**: Management sees potential for unlocking asset value through prioritizing key projects [11] Risks and Challenges - **Competitive Landscape**: Key risks include competition in the AI cloud space and potential chip availability issues affecting growth [19] - **Robotaxi Fleet Expansion**: Slower-than-expected ramp-up of Robotaxi fleets in the domestic market poses a risk [19] - **Advertising Revenue Decline**: A significant decline in search ads could lead to deteriorating margins and operating cash flow [19] Price Target and Valuation - **12-Month Price Target**: Maintained at US$155 for BIDU and HK$151 for 9888.HK, with an upside potential of approximately 39.7% [21] - **Valuation Methodology**: Utilizes a target multiple of 5X P/E for core search, 5X EV/Sales for cloud business, and 18X EV/NOPAT for Apollo NOPAT [19] Conclusion - Baidu is focusing on leveraging its AI capabilities to drive growth in both its cloud and advertising segments while navigating challenges in the competitive landscape and ensuring shareholder returns through strategic asset management and project prioritization.

Core Insights - Baidu, Inc. reported Q3 2025 non-GAAP earnings of $1.56 per ADS, exceeding estimates by 30%, but down 34.2% year over year [1] - Revenues for the quarter were $4.38 billion, a decline of 8.4% year over year, yet beating estimates by 1.7% [2] - The company introduced a new AI-native framework to highlight key valuation drivers and its evolving AI strategy [7] Financial Performance - Non-GAAP operating income was RMB 2.21 billion ($310 million), down 68.6% year over year, with an operating margin of 7.1%, a contraction of 1380 basis points [4] - Adjusted EBITDA was RMB 4.43 billion ($622 million), down 49.3% year over year, with a margin contraction of 1180 basis points to 14.2% [5] - Total cash and investments increased to RMB 296.4 billion ($41.64 billion) as of September 30, 2025, compared to RMB 124.2 billion ($17.34 billion) at the end of June 2025 [6] Segment Performance - Revenues from Baidu Core segment declined 7% year over year to RMB 24.66 billion ($3.46 billion) [2] - Online marketing revenues fell 18% to RMB 15.3 billion ($2.16 billion), while non-online marketing revenues rose 21% to RMB 9.3 billion ($1.31 billion) [3] - iQIYI segment revenues decreased 8% year over year to RMB 6.68 billion ($939 million) [3] AI and Innovation - AI Cloud Infra generated RMB 4.2 billion, up 33% year over year, driven by strong demand for AI infrastructure [8] - AI Applications produced RMB 2.6 billion, a 6% increase, benefiting from subscription models [8] - AI-native Marketing Services surged to RMB 2.8 billion, up 262%, as customers adopted AI-driven solutions [8] Autonomous Driving - Apollo Go delivered 3.1 million fully driverless rides in Q3 2025, with year-over-year growth accelerating to 212% [12] - The service operated in 22 cities and achieved 100% fully driverless operations across all mainland China service areas [12]

Financial Data and Key Metrics Changes - In Q3, total revenues were RMB 31.2 billion, a decrease of 7% year-over-year [27] - Baidu Core reported total revenue of RMB 24.7 billion, also down 7% year-over-year [27] - Baidu Core's online marketing revenue decreased by 18% year-over-year to RMB 15.3 billion, while non-line marketing revenue increased by 21% year-over-year to RMB 9.3 billion [27] - Operating loss was RMB 15.1 billion, with a non-GAAP operating income of RMB 2.2 billion [29][30] Business Line Data and Key Metrics Changes - AI Cloud revenue reached RMB 6.2 billion, increasing by 21% year-over-year [27] - Revenue from AI Cloud infrastructure was RMB 4.2 billion, up 33% year-over-year, with subscription-based AI accelerator infrastructure revenue growing 128% year-over-year [25][41] - Revenue from AI-native marketing services reached RMB 2.8 billion, representing a robust 262% year-over-year increase [27][15] Market Data and Key Metrics Changes - Apollo Go provided over 3 million fully driverless operational rides in Q3, marking a 212% year-over-year increase [9][19] - As of October, Apollo Go's global footprint expanded to 22 cities, up from 16 last quarter [11] - Baidu App's MAU reached 708 million, up 1% year-over-year, with daily average time spent per user increasing by 2.3% year-over-year [21] Company Strategy and Development Direction - The company is focusing on AI capabilities across its business lines, with a strong emphasis on AI Cloud and AI-native marketing services [22][23] - Apollo Go is entering a phase of rapid global expansion, with plans to scale operations and improve unit economics [60] - The company aims to enhance its AI search capabilities and integrate AI-generated content into its services [21][66] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the growth trajectory of the AI Cloud business, driven by strong demand for AI-centric services [41] - The company anticipates that the AI-native marketing services will continue to grow and offset traditional advertising weaknesses [66] - Management highlighted the importance of continuous investment in AI technologies to maintain competitive advantages [70] Other Important Information - The company has conducted a comprehensive review of its asset base, leading to a significant impairment of long-lived assets amounting to RMB 16.2 billion [29] - Total cash and investments as of September 30, 2025, were RMB 296.4 billion [31] Q&A Session Summary Question: How will Ernie 5.0 drive the next stage of application? - Management highlighted that Ernie 5.0 enhances digital humans and FM Agents, focusing on application-driven improvements [34][36] Question: What is the outlook for the cloud business? - Management noted that the cloud business is growing above industry averages, with strong demand for AI-centric services [40][41] Question: How is AI search monetization progressing? - Management reported that nearly 70% of mobile search result pages contain AI-generated content, with positive user engagement metrics [63][66] Question: What are the goals for Apollo Go next year? - Management outlined plans for geographic expansion and improving unit economics, with a focus on scaling operations [57][60] Question: What is the rationale behind the asset impairment? - Management explained that the impairment was due to a review of assets that no longer met current computing efficiency requirements [70]

Financial Data and Key Metrics Changes - In Q3, total revenues were RMB 31.2 billion, a decrease of 7% year-over-year [26] - Revenue from Baidu Core was RMB 24.7 billion, also down 7% year-over-year [26] - Baidu Core's online marketing revenue decreased by 18% year-over-year to RMB 15.3 billion, while non-line marketing revenue increased by 21% year-over-year to RMB 9.3 billion [26] - Operating loss was RMB 15.1 billion, with a non-GAAP operating income of RMB 2.2 billion [28][29] - Net loss attributable to Baidu was RMB 11.2 billion, with a diluted loss per ADS of RMB 33.88 [29] Business Line Data and Key Metrics Changes - AI Cloud revenue reached RMB 6.2 billion, increasing by 21% year-over-year [26] - Revenue from AI Cloud infrastructure was RMB 4.2 billion, up 33% year-over-year, with subscription-based revenue growing 128% year-over-year [24][40] - Revenue from AI-native marketing services, including agents and digital humans, reached RMB 2.8 billion, a 262% increase year-over-year [26][14] Market Data and Key Metrics Changes - Apollo Go provided over 3 million fully driverless operational rides in Q3, representing a 212% year-over-year increase [8][18] - Apollo Go's global footprint expanded to 22 cities, with significant progress in Europe, the Middle East, and Hong Kong [10][56] Company Strategy and Development Direction - The company is focusing on AI capabilities across its business lines, with a strong emphasis on AI Cloud and AI-native marketing services [22][50] - Apollo Go is positioned for rapid global expansion and aims to improve unit economics as it scales operations [56] - The company is committed to enhancing its AI infrastructure and applications to drive long-term growth [42][50] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the growth trajectory of the AI Cloud business, driven by strong demand for AI-centric services [40] - The company anticipates that the AI transformation will create long-term competitiveness, despite near-term revenue pressures [62] - Management highlighted the importance of technology investments and operational efficiency to improve margins in the future [67] Other Important Information - The company introduced a new AI-native view to better reflect valuation drivers across its diverse product offerings [23] - Total cash and investments as of September 30, 2025, were RMB 296.4 billion [30] Q&A Session Summary Question: How will ERNIE 5.0 drive the next stage of application? - Management highlighted that ERNIE 5.0 enhances digital humans and FM Agents, improving user engagement and enterprise efficiency [33][35] Question: What is the outlook for the cloud business? - Management noted that the cloud business is growing above industry averages, with strong demand for AI-centric services [40] Question: How is AI search monetization progressing? - Management reported that nearly 70% of mobile search result pages contain AI-generated content, with positive user engagement metrics [60][62] Question: What are the goals for Apollo Go next year? - Management outlined plans for continued scaling and geographic expansion, aiming for improved unit economics [56][57] Question: What is the rationale behind the asset impairment? - Management explained that the impairment was part of a strategy to optimize the asset portfolio for advanced AI computing demands [66]

Core Insights - Baidu reported its third-quarter financial results for 2025, highlighting the transformative impact of AI across its business portfolio, particularly in AI Cloud and autonomous driving services [2][3][6]. Financial Performance - Total revenues for Q3 2025 were RMB 31.2 billion ($4.38 billion), a decrease of 7% year-over-year [9]. - Operating loss was RMB 15.1 billion ($2.12 billion), with Baidu Core operating loss at RMB 15.0 billion ($2.10 billion) [12]. - Net loss attributable to Baidu was RMB 11.2 billion ($1.58 billion), with diluted loss per ADS at RMB 33.88 ($4.76) [14]. - Non-GAAP net income attributable to Baidu was RMB 3.8 billion ($530 million), with a non-GAAP diluted earnings per ADS of RMB 11.12 ($1.56) [14]. Business Segments - AI Cloud revenue reached RMB 4.2 billion, up 33% year-over-year, driven by increased enterprise adoption [18]. - Revenue from AI-native marketing services surged 262% year-over-year to RMB 2.8 billion, indicating strong demand for performance-driven AI solutions [18]. - Apollo Go, Baidu's autonomous ride-hailing service, provided 3.1 million fully driverless rides in Q3 2025, marking a 212% increase year-over-year [6][7]. Strategic Developments - Baidu introduced a new AI-native view to better reflect its AI-powered assets and enhance investor visibility [8]. - The company launched ERNIE 5.0, an advanced omni-modal foundation model, showcasing its commitment to AI innovation [6]. - Baidu's ESG evaluations improved, and it was recognized in Fortune's Change the World 2025 list for its positive social impact through Apollo Go [6]. Operational Highlights - As of October 2025, Apollo Go's global operations expanded to 22 cities, achieving 100% fully driverless operations in all cities where it operates [7]. - Baidu App's monthly active users reached 708 million, reflecting a 1% year-over-year increase [18]. Cash and Investments - Total cash and investments as of September 30, 2025, were RMB 296.4 billion ($41.64 billion) [16]. - Operating cash flow was RMB 1.3 billion ($176 million), with an adjusted figure excluding iQIYI at RMB 1.5 billion ($214 million) [16].