Earnings Digest | Baidu's having a tough time!
Just now, $Baidu(BIDU)$ $BIDU-SW(09888)$ released their first-quarter report, and the revenue is still slowing down. Luckily, profits are up a bit due to cost-cutting measures. The stock price even surged over 4% in pre-market.
Revenue
Specifically, Baidu's revenue for the quarter was RMB31.51 billion, a mere 1.2% increase year-on-year. It's a bit above analysts' expectations of RMB31.43 billion, but growth rate is definitely sliding further down.
By segments:
The core online advertising business revenue was RMB18.49 billion, up 2.9%. But other services totalled RMB13 billion, down 1.1%.
That online advertising, though still positive, is showing no signs of reviving. Compare that to $TENCENT(00700)$ $Tencent Holding Ltd.(TCEHY)$ , with their Video Accounts, Mini Programs, WeChat, and search engines, their ad revenue grew 26%!
So, Baidu's online marketing seems to be relying solely on their established base rather than making any significant innovations. What's the new magic they can bring to the table?
Although Others business declined by 1.1%, $iQiyi Inc.(IQ)$ was mainly unsuccessful, with revenue of RMB7.93 billion in the first quarter, down 5% year-on-year:
iQiyi and $Tencent Music(TME)$ are in a similar situation: user growth is stalling, so they're relying on increasing paid subscriptions.
In the first quarter of this year, Tencent Music is doing great, with 19.6% paid users, up from 15.9% last year. But iQiyi? Their membership revenue is down 13% to 4.8 billion.
Tencent Music invested heavily in music copyrights and got the pricing power. But iQiyi's facing stiff competition from Tencent Video. Plus, TV shows and movies are more unpredictable than music. With user growth stalled, it's tough for iQiyi to raise prices and grow.
iQiyi's dragging, but Baidu's non-advertising revenue is up 6% to RMB6.8 billion, mainly driven by their intelligent cloud business.
At this point, Baidu's only hope seems to be ERNIE Bot. It's claimed to be the best large-scale model in China, but since its launch last year, it hasn't really taken off. In fact, the hottest AI product this quarter was Kimi!
Can AI be Baidu's second growth driver? We don't know yet. One thing's for sure: cutting costs and boosting profits.
Expenses and Profit
In the first quarter, Baidu's Selling, general and administrative expenses fell 3.8%, and R&D expenses dipped 1.1%. This helped push their operating margin to 17.4%, way up from 14.9% last year.
As a result, Baidu's adjusted net profit in the first quarter was RMB7 billion, an increase of 22%.
But Baidu's share buybacks are a bit lackluster. They only repurchased $2.29 billion in the quarter, nowhere near Tencent's ambitious HK $100 billion buyback plan for 2024!
They've got RMB191.8 billion in cash. What are they planning to do with it? If there's no good investment, why not share it with shareholders? Their P/E ratio is only 14!
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