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Baidu (BIDU US) Summary

Core Content and Key Highlights

Baidu released its 4Q22 and full year 2022 results, with quarterly revenue at RMB33.1bn, flat YoY and slightly above forecast/Bloomberg consensus estimates. Non-GAAP net income reached RMB5.4bn, up 13% YoY, driven by cost control measures. The company is focusing on driving efficiency improvements while maintaining investment in long-term growth areas like autonomous driving and AI.

Key Financial Performance

• Revenue Growth:

  • 4Q22: RMB33.1bn (flat YoY)
  • FY22: RMB123.675bn (-0.7% YoY)
  • FY23E: RMB136.974bn (+10.8% YoY)
  • FY24E: RMB147.086bn (+7.4% YoY)
  • FY25E: RMB163.5bn (+11.2% YoY)

• Non-GAAP Net Profit:

  • 4Q22: RMB5.4bn (+13% YoY)
  • FY22: RMB20.68bn
  • FY23E: RMB22.469bn
  • FY24E: RMB24.866bn
  • FY25E: RMB29.323bn

• Gross Profit Margin (GPM):

  • 4Q22: 48.8%
  • FY23E: 48.7%
  • FY24E: 49.4%
  • FY25E: 50.3%

• Operating Profit Margin (OPM):

  • 4Q22: 19.6% (Baidu Group) and 21.4% (Baidu Core)
  • FY23E: 16.4% (Baidu Group) and 17.3% (Baidu Core)
  • FY24E: 16.9% (Baidu Group) and 17.8% (Baidu Core)
  • FY25E: 17.9% (Baidu Group) and 18.5% (Baidu Core)

• Non-GAAP Net Profit Margin:

  • 4Q22: 16.4%
  • FY23E: 16.4%
  • FY24E: 16.9%
  • FY25E: 17.9%

• Core Ads Recovery:

  • 4Q22: Revenue down 1.2% YoY to RMB25.7bn (77.6% of total revenue), but 4% higher than expected.
  • December 2022: MAUs of Baidu app reached 648mn (+4% YoY)
  • 2023E Forecast: Baidu Core ads revenue to reach RMB75.5bn (+8.9% YoY)

• Non-Ad Revenue:

  • 4Q22: Up 10% YoY to RMB10.0bn (30% of Baidu Core revenue)
  • FY22: Baidu Core revenue flat YoY at RMB95.4bn, with non-GAAP OP down 6% YoY to RMB20.9bn due to soft advertising performance.

• Apollo and Baidu Cloud:

  • Apollo Go provided over 561,000 rides in 4Q22 (+162% YoY, +18% QoQ)
  • Baidu Cloud revenue grew 4% YoY to RMB5.1bn in 4Q22, but 23% YoY in FY22. Management expects gradual recovery in cloud revenue, with recognition back-loaded in 2023.
  • ACE (Autonomous driving, connected road, efficient mobility) adopted by 69 cities in 4Q22.

Valuation and Target Price

• Target Price: US$196.30 per ADS (up from US$195.20)

• Valuation Method (SOTP):

  • Baidu Core: US$60.4 (based on 7.0x 2023E non-GAAP PE)
  • Apollo ASD: US$22.8 (based on 2.0x 2030E revenue, discounted at 13.0% WACC)
  • Baidu Cloud: US$40.3 (based on 4.8x 2023E PS)
  • Net Cash: US$58.6
  • iQIYI and Other Investments: US$14.2 (with 30% holding discount applied)

• Valuation Multiples:

  • P/E (Non-GAAP): 21.5x (2023E), 19.6x (2024E)
  • P/CFPS: 15.6x (2023E), 13.7x (2024E)

Analyst Recommendations

• Rating: BUY (Maintain)
• Reasoning: Baidu's core ads business is on a solid recovery track, and the company is well-positioned to benefit from post-pandemic demand recovery in offline-sensitive sectors. The target price reflects improved expectations for core ads performance and a slight uplift in valuation due to share buybacks.

Shareholding and Performance

• Shareholding Structure:

  • Robin Yanhong Li: 16.5%

• Share Performance:

  • 1-month: +3.7% (Absolute), -2.0% (Relative)
  • 3-month: +48.9% (Absolute), +39.3% (Relative)
  • 6-month: +9.1% (Absolute), +17.5% (Relative)

• Market Cap: US$49.4bn

• Average 3-Month Trading Volume: US$126.9mn

• 52-Week High/Low: US$162.86/US$76.57

Analyst Contact

• Saiyi HE, CFA: (852) 3916 1739 | hesaiyi@cmbi.com.hk
• Ye TAO: franktao@cmbi.com.hk
• Ji SHI, CFA: (852) 3761 8728 | shiji@cmbi.com.hk
• Wentao LU: luwentao@cmbi.com.hk
• Sophie HUANG: sophiehuang@cmbi.com.hk
• Eason XU: easonxu@cmbi.com.hk

Peer Comparison and Cloud Valuation

• Cloud Computing Peers:

  • Microsoft (MSFT US): P/E 22.0x, P/S 8.5x
  • Google (GOOG US): P/E 22.0x, P/S 4.3x
  • Salesforce (CRM US): P/E 16.4x, P/S 4.8x

• Baidu Cloud:

  • Valuation is inline with Chinese cloud peers but below the average of overseas comparable companies due to smaller revenue scale.

Analyst Certification and Disclaimer

• The analyst certifies that the views expressed accurately reflect personal opinions and that compensation is not directly related to the report's content.
• The analyst confirms no trading activity in the covered stocks within 30 days prior to the report and will not trade within 3 business days after.
• CMBIGM does not provide individually tailored investment advice and the report is not suitable for all investors.

CMBIGM Ratings

• BUY: Potential return of over 15% over next 12 months
• OUTPERFORM: Industry expected to outperform the relevant broad market benchmark over next 12 months

Disclaimer

There are risks involved in transacting in any securities. The information contained in this report may not be suitable for the purposes of all investors. CMBIGM does not provide individually tailored investment advice. This report has been prepared without regard to the individual investment objectives, financial position or special requirements. Past performance has no indication of future performance, and actual events may differ materially.