Financial Analysis Summary of Baidu (Ticker: BIDU)
Analyst: Hubert Li
Date: 10/05/2024
BIDU Current Price: 108.66
Baidu has shown a positive financial trajectory, with its core revenue segments experiencing steady growth. The Baidu Core segment reported revenue of RMB27.5 billion, marking a 7% increase year-over-year. This growth is driven significantly by the AI Cloud business, which saw a 9% increase in non-online marketing revenue (Mainly attributed to investments in autonomy — a new industry it works on).
Market and Political Context:
Despite external pressures such as the Israel-Hamas and Ukraine wars, and the US-China tensions, Baidu has not been a major loser in these geopolitical disruptions despite the cyclic downturn of China’s economy influenced by factors like the real estate crisis. Baidu's performance and strategic positioning mitigate these risks to an extent.
Competition and Industry Dynamics:
Baidu faces significant competition in online marketing, notably from platforms like TikTok and 小红书 (Little Red Book). However, the company has managed to maintain a strong market presence in China, benefiting from technological advancements and partnerships. [ Refer to Annex 1 ]
Financial Performance:
#1: Notable Financials rating: 3/5
[ Latest 2 Quarters Change (in %) ; Q4/23 ; Q3/23 ; Q2/23 ; Q1/23 ]
Total revenue | (1.46%) | 34,951,000 | 34,447,000 | 34,056,000 | 31,144,000 |
Cost of revenue | (6.90%) | 17,418,000 | 16,294,000 | 16,167,000 | 15,152,000 |
Gross profit | (-3.31%) | 17,533,000 | 18,153,000 | 17,889,000 | 15,992,000 |
Free cash flow | (-107.11%) | -677,000 | 9,525,000 | 10,632,000 | 5,840,000 |
YoY:
[ FY23 ; FY22 ; FY21 ; FY20 ]
Other short-term investments | 168,670,000 | 120,839,000 | 143,243,000 | 126,402,000 |
(Latest 2 years change: 39.58%)
Total cash | 193,901,000 | 173,995,000 | 180,093,000 | 162,184,000 |
(Latest 2 years change: 11.44%)
Free cash flow | 25,320,000 | 17,777,000 | 8,882,000 | 18,869,000 |
(Latest 2 years change: 42.43%)
The company's financials show mixed signals:
Revenue growth is apparent with a slight increase in total revenue quarter-over-quarter (Q/Q).
A concerning aspect is the sharp decline in free cash flow in the latest quarter by over 107%, signaling potential issues in cash management or more probably increased investments which still demonstrate an uncertainty in its return.
#2 Valuation rating: 4/5
*Trailing P/E | 14.31 |
*Forward P/E | 9.45 |
PEG ratio (5-yr expected) | 2.09 |
*Price/sales (ttm) | 2.08 |
Price/book (mrq) | 1.14 |
Enterprise value/revenue | 1.26 |
Enterprise value/EBITDA | 3.39 |
Trailing P/E is positioned at the 45th percentile based on its historical data from the past year.
P/S (ttm) is positioned at the 24th percentile based on its historical data from the past year.
The valuation metrics remain strong with a forward P/E of 9.45 significantly lower than the industry average of 23.8, suggesting undervaluation.
Growth Potential:
Baidu is investing heavily in the autonomous vehicle sector, particularly robotaxis, with expectations to capture a significant market share in this emerging market. The company anticipates that investments in AI software will bolster its market position, supported by the satisfying test results of Apollo robotaxi service in different cities and the recent mapping grants given to Tesla.
Strategic Initiatives:
The partnerships with smartphone companies like Apple and Samsung, and the integration with Hyundai's connected car technology, demonstrate Baidu's commitment to expanding its technological footprint and enhancing its product offerings, fully utilizing its AI technology which it has invested billions into R&D over the past years. Furthermore, Baidu has been proactive in developing AI tools like the "Comate" AI coding assistant, which has been widely adopted by individuals and enterprises and positively impacts its software development capabilities.
Conclusion:
Put aside its huge dominance and stable performance of the Search Engine business in China. Looking ahead to 2024, Baidu is positioned to multiply its incremental revenue from advertising and AI cloud services significantly, and also benefit a sum from the emerging new Robotaxi market. Despite some volatility in financial metrics like free cash flow, the overall growth potential, strategic partnerships, and robust market position in AI and online marketing outline a positive outlook for Baidu’s stock in the near future. The company's focus on innovation and technology adaptation in response to competitive pressures and market demands places it on a promising trajectory for growth and profitability.
Rating: 4/5 [ a strong potential ]
Key events to take note: Earning reports for Q1/2024 (Current financials and forecast of 1 year)
Annex 1:
“In the fourth quarter, we earned several hundred million RMB primarily from ad technology improvement, and helping enterprises build their own models,” he added. “Looking into 2024, we believe this incremental revenue will multiply to several billion RMB, primarily from advertising and AI cloud building,” Li said.
[ Source: https://www.warc.com/content/feed/baidu-looks-to-ai-for-incremental-ad-revenue/en-GB/9223#:~:text=“In%20the%20fourth%20quarter%2C%20we,cloud%20building%2C”%20Li%20said. ]
Disclaimer: Not a Financial Advice, just for learning purposes