Summary of Baidu.com Inc. (BIDU) Conference Call Company Overview - **Company**: Baidu.com Inc. (BIDU) - **Industry**: Technology, specifically focusing on AI, cloud services, and autonomous driving Key Points Kunlunxin Spin-off - Baidu announced that Kunlunxin submitted an application for a listing on the HK Stock Exchange on January 1, 2026, as part of a proposed spin-off through a Global Offering of Kunlunxin shares [1] - Following the spin-off, Baidu expects Kunlunxin to remain a subsidiary, with Baidu holding a controlling stake of 59% as of August 2025 [2] Financial Implications - The potential spin-off of Kunlun could unlock significant value for Baidu, with estimates suggesting a valuation range of US$3 billion to US$11 billion for Baidu's 59% stake in Kunlun, which could represent 6% to 23% of Baidu's current market cap [8] - If applying a 40X 2026 P/S multiple, the implied valuation for Baidu could reach US$22 billion, equating to 45% of its latest market cap [8] Sales and Revenue Projections - Kunlun's total sales are estimated to have reached approximately RMB 3.5 billion in 2025, with projections of RMB 6.5 billion for 2026 [6] - External sales from Kunlun, which were insignificant as of late 2025, are expected to grow rapidly, potentially accounting for 14% of total cloud sales by 2026 [6] - Subscription-based revenue is projected to contribute close to 30% of cloud revenue, indicating a shift towards more recurring revenue streams [6] Strategic Positioning - Kunlun is a critical component of Baidu's full-stack AI cloud capabilities, which includes chips, deep learning frameworks, and applications across various industries [6] - The launch of the Kunlun P800 chip has garnered orders from diverse sectors, including internet platforms, telecommunications, finance, and government [6][7] Future Expectations - Upcoming announcements are anticipated regarding new orders and product upgrades for Kunlun, as well as updates on the separate listing process [8] - Baidu is expected to revise its shareholder return policy in Q1 2026 and provide further details on steps to unlock asset value [8] Market Context - Baidu's cloud segment is expected to grow significantly, driven by strong demand for AI accelerator-based cloud services, which saw a year-over-year growth of 128% in Q3 2025 [11] - The overall cloud segment is valued at 5X price to 2026E sales, with traditional CPU-based revenue having lower profit margins compared to GPU-based subscription services [11] Risks and Considerations - Key risks include competition in the AI cloud space, slower-than-expected growth in Robotaxi fleets, and potential declines in search advertising revenue impacting overall margins [24] Valuation and Price Target - Goldman Sachs maintains a Buy rating on Baidu with a 12-month price target of US$155, reflecting a potential upside of 3.1% from the current price [25] Additional Insights - Baidu is transitioning from a traditional advertising-focused model to a more diversified revenue stream, with non-search business expected to account for over 50% of core revenue by 2027 [23] - The company is taking proactive measures to enhance shareholder returns, which is reflected in its valuation approach [23]

Summary of Baidu.com Inc. (BIDU) Conference Call Company Overview - **Company**: Baidu.com Inc. (BIDU) - **Industry**: Technology, specifically focusing on artificial intelligence and cloud services Key Points and Arguments Proposed Spin-off of Kunlunxin - Baidu is assessing its chip subsidiary Kunlunxin for a potential spin-off and listing, which aims to unlock value [1] - A listing application for Kunlun could occur as early as Q1 2026, with a recent funding round valuing Kunlun at approximately Rmb21 billion (US$3 billion) [1] Kunlun's Role in Baidu's Cloud Business - Kunlun is integral to Baidu's full-stack AI cloud capabilities, which include chips, a deep learning framework (PaddlePaddle), and applications across various industries [3] - The vertical integration of these components allows for continuous optimization and efficiency [3] Financial Performance and Projections - Kunlun's revenue is expected to exceed Rmb3.5 billion in 2025, up from Rmb2 billion in 2024, indicating a significant growth trajectory [9] - The company aims to achieve breakeven in 2025, improving from a net loss of Rmb200 million in 2024 [9] - External sales of Kunlun are projected to rise rapidly, potentially accounting for 14% of total cloud sales by 2026 [12] Product Development and Market Position - Kunlun has launched the P800 chip and plans to introduce two more chips (M100 and M300) in 2026 and 2027, respectively [6] - The company has built a 30K chip cluster and aims for 100K clusters by 2030, with a long-term goal of reaching 1 million clusters [6] Competitive Landscape - Baidu's cloud business is positioned to offer competitive pricing for AI model inference and training tasks, catering to state-owned enterprises and government clients [10] - Recent approvals for Nvidia H200 chip exports to China raise questions about the necessity of domestic chips, but Baidu's domestic alternatives may still hold structural advantages [10] Valuation Insights - The valuation range for Baidu's 59% stake in Kunlun is estimated between US$3 billion and US$11 billion, which could represent 7-25% of Baidu's current market cap [13] - The overall cloud segment is valued at 5X price to 2026E sales, with subscription-based revenue expected to drive consistent growth [11] Future Expectations - Upcoming announcements are anticipated regarding new orders and product upgrades for Kunlun, as well as updates on the shareholder return policy and potential asset value unlocks [14] - The company is also expected to progress on its Hong Kong primary listing and Southbound connection [14] Additional Important Information - Baidu's shift towards non-search business is expected to account for over 50% of its core revenue by 2027, driven by AI and cloud services [27] - Key risks include competition in the AI cloud space, slower-than-expected growth in Robotaxi fleets, and potential declines in search advertising revenue [28]