24 November 2025 | 2:24AM HKT Equity Research Baidu.com Inc. (BIDU): NDR takeaways: Key focus on AI powered business, advertising and unlocking asset value We hosted Baidu's Investor Relations team with investors on Nov 21, where investors' key focus and our takeaways were centered around: 1) AI powered business driver and margin; 2) Advertising revenue outlook and when it turns around; 3) Shareholder return and unlocking asset value. We summarize our key takeaways within the report. Maintain Buy on Baidu w ...

Key Takeaways Baidu's Q3 earnings and revenues beat estimates even as both declined year over year.BIDU's AI Cloud Infra, AI Applications and AI-native Marketing Services all posted solid growth.Baidu's Apollo Go delivered 3.1M fully driverless rides, with Y/Y growth accelerating sharply.Baidu, Inc. (BIDU) reported third-quarter 2025 non-GAAP earnings of $1.56 per ADS (American Depositary Share), which surpassed the Zacks Consensus Estimate by 30%. The figure decreased 34.2% year over year. In domestic curr ...

Summary of Baidu (BIDU) and iQIYI (IQ) 3Q25 Earnings Call Company Overview - **Companies Involved**: Baidu (BIDU/9888.HK) and iQIYI (IQ) - **Quarter**: 3Q25 Key Highlights for Baidu 1. **Earnings Performance**: Baidu's 3Q25 results were largely in-line, with solid cloud growth offsetting a decline in advertising revenue. The AI-empowered business generated Rmb10 billion, accounting for 40% of total revenue and growing 50% year-over-year [1][10] 2. **AI Business Growth**: The AI business includes cloud infrastructure, AI applications, and autonomous driving, reflecting Baidu's capabilities across its ecosystem. The company expects continued rapid growth in AI-empowered business despite pressures on traditional search ads [1][9] 3. **Cloud Revenue**: Out of Rmb6.2 billion in cloud revenue, enterprise cloud revenue was approximately Rmb4.2 billion, growing at 33% year-over-year. Subscription-based revenue has more than doubled, indicating strong demand for AI training and inference [5][9] 4. **Robotaxi Expansion**: Baidu's Apollo completed 3.1 million fully driverless rides in 3Q25, a 40% quarter-over-quarter increase. The company is expanding its Robotaxi service to 22 cities globally and exploring an asset-light model [5][9] 5. **Advertising Revenue Pressure**: The advertising segment is expected to face high pressure for another 1-2 quarters, with a projected decline of high teens percentage year-over-year in 4Q25. AI agents and digital humans now account for 18% of ad revenue, up from 16% in 2Q25 [5][9] 6. **Profit Margin Outlook**: The group profit margin is expected to bottom out at 9% in 3Q25, with traditional ads contributing less to overall revenue as cloud and Robotaxi segments improve operational efficiency [9][10] 7. **Valuation Update**: Baidu's target price is revised to US$155/HK$151, reflecting a slight adjustment in revenue estimates for 2025E-2027E [6][9] Key Highlights for iQIYI 1. **Earnings Performance**: iQIYI reported inline 3Q25 results with total revenue down 8% year-over-year and a non-GAAP net loss of Rmb148 million. Membership revenue declined by 4% year-over-year, while advertising revenue fell by 7% [24][25] 2. **Content Performance**: The new drama policy and successful titles like "Strange Tales of Tang Dynasty III" are expected to help iQIYI's revenue return to positive growth in 4Q25E, with subscription revenue projected to grow by 3% year-over-year [24][25] 3. **International Growth**: iQIYI's overseas subscription revenue grew robustly by over 40% year-over-year in 3Q25, indicating potential for future contributions to profitability [24][25] 4. **Valuation Update**: iQIYI's 12-month target price remains unchanged at US$2.1, with a slight adjustment in revenue estimates reflecting higher content distribution business offset by softer advertising recovery [25][27] Additional Insights - **Market Sentiment**: The market is expected to start valuing Baidu's AI and cloud businesses separately, as these segments show significant growth potential [9][10] - **Long-term Investments**: Baidu's total net cash, including long-term investments, is approximately US$27 billion, representing over 70% of its market cap [9][10] This summary encapsulates the key points from the earnings call, highlighting the performance and outlook for both Baidu and iQIYI in 3Q25.

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].

Summary of Baidu.com Inc. (BIDU) Conference Call Company Overview - **Company**: Baidu.com Inc. (BIDU) - **Market Cap**: $48.3 billion - **Enterprise Value**: $36.7 billion - **Current Price**: $137.83 - **12-Month Price Target**: $154.00 (Upside: 11.7%) [1][18] Key Industry Insights - **Search Business**: The decline in Baidu's search business is acknowledged and reflected in market earnings estimates. A significant impact from ad deleveraging is expected in Q3 2025, with a projected 70% year-over-year decline in core operating profit [1][2]. - **Non-Search Business Growth**: The non-search revenue is anticipated to rise to 54% of Baidu's core revenue by 2027, with cloud services accounting for 36% of this growth [2][24]. Core Business Components 1. **Cloud Services**: - Estimated valuation of $25 billion or $72 per share, with a 32% year-over-year growth in 1H25 [22][24]. - Full stack capabilities from chips to AI applications are highlighted as a key competency [24][52]. - Target multiple raised to 5X price-to-sales to reflect growth potential [25]. 2. **Apollo Robotaxi**: - Valuation increased to $8 billion or $23 per share, with fleet size expected to grow from 1,000 to 2,500 by the end of 2025 [26][27]. - The lower cost RT6 model is expected to enhance profitability and fleet expansion [26][39]. - Breakeven unit economics are being achieved in high-density cities like Wuhan [40]. 3. **Net Cash and Long-Term Investments**: - Baidu holds $22 billion in net cash, valued at $64 per share, with proactive measures for shareholder buybacks and dividends expected to enhance market recognition of cash value [28][22]. Financial Projections - **Revenue Forecasts**: - 2024: Rmb 133,125 million - 2025E: Rmb 129,539.9 million - 2026E: Rmb 138,923.7 million - 2027E: Rmb 149,206.8 million [6][15] - **Earnings Per Share (EPS)**: - 2024: Rmb 77.20 - 2025E: Rmb 53.62 - 2026E: Rmb 66.36 - 2027E: Rmb 76.91 [6][15] Risks and Challenges - **Competitive Landscape**: Increased competition in AI cloud services and chip availability may impact growth [20]. - **Robotaxi Expansion**: Slower-than-expected ramp-up of Robotaxi fleets could hinder profitability [20]. - **Search Ads Decline**: Continued decline in search ads may lead to deteriorating margins and cash flow [20]. Future Catalysts - Anticipated higher value appreciation of the Robotaxi business due to fleet expansion and paid rides [19]. - Potential primary listing in Hong Kong and Southbound inclusion expected to bring additional fund flow [19]. - Asset value unlock of subsidiaries through external funding [19]. Conclusion Baidu is positioned for growth through its diversified business model, particularly in cloud services and autonomous driving technology. Despite challenges in its search business, the company’s strong cash reserves and proactive strategies for shareholder returns present a favorable risk-reward scenario for investors [18][22].

Core Insights - Baidu, Inc. has experienced a 12.6% increase in shares over the past six months, outperforming the Zacks Computer and Technology sector's growth of 9.3, as it transitions from an Internet-centric business to an AI-focused technology leader [1] Financial Performance - In Q4 2024, Baidu's total revenues slightly declined by 2% year-over-year to RMB34.1 billion ($4.68 billion), while Baidu Core revenues increased by 1% to RMB27.7 billion ($3.8 billion) [2] - The AI Cloud business showed significant growth, achieving a 26% year-over-year increase in Q4 2024, which helped mitigate a 7% decline in the traditional online marketing business [3] Strategic Developments - Baidu's ERNIE foundation model handled approximately 1.65 billion API calls daily in December 2024, with external API calls growing by 178% quarter-over-quarter [6] - The company plans to open-source its upcoming ERNIE 4.5 series and make ERNIE Bot free for users to enhance market awareness and adoption [7] - AI-enabled features in Baidu Wenku reached 94 million monthly active users in December 2024, marking a 216% year-over-year increase [8] Autonomous Driving Initiatives - Baidu's Apollo Go service provided over 1.1 million rides in Q4 2024, a 36% increase year-over-year, and surpassed nine million total rides in January 2025 [9] - The company has secured permits for autonomous driving testing in Hong Kong, expanding its market presence [10] Competitive Landscape - Baidu faces competition in the AI cloud market from Alibaba and Tencent, which have strong enterprise relationships and financial resources [11] - The autonomous driving sector is becoming increasingly competitive with emerging players like Xpeng and WeRide [11] Valuation Metrics - Baidu's current forward 12-month P/S ratio is 1.65x, significantly lower than the Zacks Internet - Services industry average of 5.57x, indicating a discounted valuation [12] Financial Position - As of December 31, 2024, Baidu held RMB139.1 billion ($19.06 billion) in cash and equivalents, and has repurchased over $1 billion in shares since the beginning of 2024 [15] - The Zacks Consensus Estimate for 2025 revenues is $18.73 billion, reflecting a year-over-year decline of 1.31%, while earnings estimates have increased by 3.9% over the past 30 days [16] Future Outlook - Baidu is positioned to benefit from continued AI adoption and autonomous driving expansion, with expectations for gradual improvement in its advertising business and strong momentum in the AI Cloud sector [19] - The current stock price may represent an attractive entry point for long-term investors, given the company's technology leadership and strategic focus on high-growth areas [20]