Overview of Baidu Inc.
Baidu Inc., a leading internet company, is renowned for its services in algorithmic search, enterprise search, news, voice assistance, online storage, and navigation. The report highlights its current stock performance, market position, and future prospects.
Current Financial Standing
Baidu’s share price stands at HK\$83.85, with a target price set at HK\$90.00, offering an upside potential of 7.3%. The company’s market capitalization is HK\$242,511.2 million, translating to US\$31,105.5 million. The stock’s performance over the past year has been volatile, with a 52-week high and low of HK\$144.20 and HK\$80.00, respectively. Major shareholders include BlackRock Inc with 12.4%, BBH & CO at 4.9%, and Vanguard Group Inc holding 4.0%.
The analyst recommendation remains a “HOLD,” emphasizing caution amid current market trends.
3Q24 Earnings Analysis
The third quarter of 2024 presented challenges for Baidu, with results falling short of expectations. Revenue increased by 3% year-on-year to Rmb33.6 billion, aligning with consensus estimates. However, gross margin decreased by 2 percentage points to 51.1%, consistent with forecasts. Non-GAAP operating profit dropped by 8% year-on-year to Rmb7 billion, leading to a 21% operating margin. Additionally, non-GAAP net profit decreased by 19% to Rmb5.9 billion, missing consensus estimates by 6%.
Key Financial Metrics
For the year ending December 31, Baidu reported a net turnover of Rmb134,574 million for 2024, with a forecast for growth to Rmb141,515 million by 2025. EBITDA is projected to be Rmb28,266 million in 2024, decreasing slightly by 2025. Net profit adjusted is expected to reach Rmb26,742 million in 2024 and Rmb28,252 million in 2025.
The report highlights a PE ratio of 8.2x for 2024, indicating market expectations for the company’s earnings growth. Notably, Baidu’s net margin is predicted to be 19.9% in 2024, improving slightly to 20.0% in 2025.
Stock Performance and Future Outlook
The report anticipates subdued online advertising revenue growth in the fourth quarter of 2024, attributed to a challenging macroeconomic environment and sectoral weaknesses, particularly in real estate, franchising, and healthcare. However, Baidu’s generative AI initiatives are expected to drive incremental revenue, potentially expanding to several billion renminbi by 2025.
Despite a challenging quarter, Baidu’s AI cloud business shows promising growth, with non-online marketing revenue increasing by 12% year-on-year, driven by generative AI and large language models.
Strategic Initiatives and Risks
Baidu is focusing on monetization and loss reduction in its autonomous driving initiatives, with Apollo Go providing 988,000 rides in the third quarter of 2024, a 20% year-on-year increase. The company aims to enhance operational efficiency and reduce losses in its intelligent driving and robot technology sectors.
The report identifies several risks, including potential weaknesses in the advertising sector, uncertainties in autonomous driving, and the impact of US restrictions on high-end chip supplies.
Valuation and Recommendation
UOB Kay Hian maintains a “HOLD” recommendation for Baidu, with a target price of HK\$90.00. The valuation is based on a core PE of 1x for 2025, reflecting modest growth expectations. The company trades at 7.4x 2025F PE, below its historical mean of 15.5x.
Conclusion
Baidu Inc. faces a challenging yet opportunistic landscape as it navigates macroeconomic pressures and capitalizes on its AI-driven ventures. Investors are advised to maintain a cautious outlook while monitoring the company’s strategic initiatives and market conditions.
