$Baidu(BIDU)$ - 4Q Mixed; Growth and Margins to Gradually Improve in 2025; —Tigertrade Research
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We are maintaining our BUY rating but decreasing PT to $118 (was $120) after $Baidu(BIDU)$ reported mixed 4Q results with revenue above but profits below consensus.
Baidu Core ad revenue declined 7% y/y, vs. -5% in 3Q, as macro remained weak and more search results are now AI generated, which is not monetized. Specifically, 22% of search result pages now contain generated content, up from last reported 20%. Mgmt. believes AI transformation efforts are improving user experience, engagement, and future monetization opportunities.
On AI development, Baidu WenKu subscription revenue grew 21% y/y, AI-enabled feature MAUs reached 94M, up 216% y/y. BIDU is open sourcing the upcoming ERNIE 4.5 Series, and believes the decision will accelerate adoption; ERNIE daily API calls reached 1.65B, up 178% q/q. More advertisers are using ERNIE-powered AI agents, particularly in sectors like healthcare, legal, and education.
The biggest positive surprise was from cloud, with revenue up 26% y/y in 4Q (decelerating 15pts from 3Q) to RMB 7.1B, driven by rapid AI related revenue growth. Moreover, the mgmt. believe DeepSeek meaningfully accelerates AI adoption and expect revenue growth in AI Cloud to remain strong (likely over 20% y/y in 2025), benefiting from rising adoption of AI-driven solutions across industries.
Apollo Go is now 100% fully driverless operations across China since February 2025 and UE continued to improve. Ride volumes are expected to accelerate significantly in 2025, following 36% YoY growth in Q4. Apollo Go is expanding beyond Mainland China, with Hong Kong testing paving the way for new markets. BIDU is exploring asset-light business models, including partnerships with taxi operators and fleet services, to scale efficiently.
Looking ahead, monetization of AI-generated results is planned, although the exact timing will depend on further refinements. Core ad revenue growth should turn positive in the 2H, and cloud revenue will remain strong with continued margin expansion. As a result, BIDU believes revenue growth and margins will gradually improve through 2025.
2025 investments will focus on advancing AI technology, improving AI Cloud offerings, and deepening search transformation, with moderate growth of Capex.
$Baidu(BIDU)$ $BIDU-SW(09888)$ repurchased $1B in 2024, accelerating its share buyback program and plans to increase buybacks under the 2023 program.
4Q revenue 1%/2% above Tiger/Street. Baidu Core advertising revenue -7% y/y (vs. -6% in 3Q). Non-ad Core revenue was RMB 9.8B, +18% y/y (accelerating 6pts from 3Q). Within non-ad, Cloud revenue grew 26% y/y to RMB 7.1B, and non-cloud grew 1% y/y.
EBITDA 2%/12% below Tiger/Street. Gross profit was 1% above Tiger but 2% below Street. SG&A expenses were 4% below Tiger, and R&D was 13% below.
Estimate revisions. Increasing 1Q Baidu Core revenue by 1%, Core gross profit by 2%, and non-GAAP EBIT by 2%. Increasing 2Q:25E Baidu Core revenue estimate by 1%, and Core gross profit by 1%, and Core non-GAAP operating income by 1%. For IQ estimate revisions, please see our IQ earnings note dated 2/18.
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