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Baidu slips 5% in reaction to mixed results; Aims to improve efficiency in 2024

AInvestWednesday, Feb 28, 2024 10:22 am ET
2min read

Baidu, the leading Chinese search engine, reported strong Q4 earnings Wednesday morning. Results were mixed, with the reported revenue slightly missing expectations. However, the growth in AI and cloud services, as well as the strong performance of the core business, indicate a promising future for Baidu. The stock is currently down over 5% in reaction to the report as well as an overall decline in China due to property worries, but long-term investors may view the decline as a buying opportunity.

Baidu's total revenues for the quarter were RMB35.0 billion, increasing 6% year over year, driven by a 7% increase in Baidu Core revenues to RMB27.5 billion and a 2% increase in iQIYI revenues to RMB7.7 billion. Cost of revenues increased by 3% year over year to RMB17.4 billion, primarily due to an increase in costs related to AI Cloud business, partially offset by a decrease in content costs.

Baidu's operating income was RMB5.4 billion, with Baidu Core operating income at RMB4.7 billion and Baidu Core operating margin at 17%. Non-GAAP operating income was RMB7.1 billion, with Non-GAAP Baidu Core operating income at RMB6.2 billion and Non-GAAP Baidu Core operating margin at 23%.

Baidu's net income attributable to Baidu was RMB2.6 billion, with diluted earnings per ADS at RMB6.77. Non-GAAP net income attributable to Baidu was RMB7.8 billion, with non-GAAP diluted earnings per ADS at RMB21.86. Adjusted EBITDA was RMB9.1 billion, with adjusted EBITDA margin at 26%. Adjusted EBITDA for Baidu Core was RMB8.1 billion, with adjusted EBITDA margin for Baidu Core at 30%.

Baidu's commitment to Generative AI (Gen-AI) and foundation models is evident in its progress, as ERNIE AI services have already started to contribute to the company's revenues. 

The core business remained resilient, and the company returned $318 million to shareholders since the beginning of Q4 2023, bringing the cumulative repurchase to $669 million under the 2023 share repurchase program.

Baidu's AI Cloud services reached 10.7 million and serving 235,000 businesses as of the end of 2023. Developers have created 860,000 models on PaddlePaddle by the end of 2023.

In the Intelligent Driving segment, Baidu's autonomous ride-hailing service, Apollo Go, provided about 839K rides in the fourth quarter of 2023, up 49% year over year. As of January 2, 2024, accumulated rides provided by Apollo Go on public roads surpassed 5 million. In the fourth quarter of 2023, the proportion of fully driverless orders within the overall order portfolio in Wuhan reached 45%, up from 40% in the third quarter of 2023.

Baidu's Mobile Ecosystem has also grown, with Baidu App's MAUs reaching 667 million in December 2023, up 3% year over year. Managed Page accounted for 51% of Baidu Core's online marketing revenue in the fourth quarter of 2023.

iQIYI, Baidu's streaming service, reported an average daily number of total subscribing members for the quarter of 100.3 million, compared to 111.6 million for the fourth quarter of 2022 and 107.5 million for the third quarter of 2023. iQIYI's monthly average revenue per membership (ARM) for the quarter was RMB15.98, compared to RMB14.17 for the fourth quarter of 2022 and RMB15.54 for the third quarter of 2023.

Baidu's CEO, Robin Li, expressed optimism for the future, stating that the company's goal for 2024 is to enhance operational efficiencies and achieve high-quality growth. This commitment to growth is underpinned by Baidu's focus on advancing its AI capabilities and developing foundation models, which will pave the way for the creation of new growth engines.

In conclusion, Baidu's Q4 earnings report highlights the company's commitment to AI and cloud services, which have driven significant growth in the past year. Baidu's core business has remained resilient, and the company has returned a significant amount of money to shareholders. As Baidu continues to invest in Gen-AI and foundation models, we can expect further growth and innovation from the company in the coming years.

In summary, Baidu's Q4 earnings report demonstrates the company's strong commitment to AI and cloud services, which have driven significant growth. The stock has been extended and overbought, so this is a healthy pullback. I would be a buyer of the stock at this point, with a stop below $130. BIDU is also considered an AI play, and it is one of the best AI plays in the market. The stock has a lot of momentum, and the long-term trend remains very bullish.


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