To The Moon

$Baidu(BIDU)$ (BUY) reported 3Q25 results broadly in line when excluding a one-time impairment, with strong traction across AI Cloud, AI applications, and AI-native marketing services. Legacy online marketing remained soft, but AI-powered businesses delivered >50% YoY revenue growth (~RMB 10bn), increasingly anchoring the company’s long-term revenue quality. The Tiger Research team notes that management expects margins to improve going forward, as AI infrastructure utilization rises and more AI-native products scale.

Revenue and Core Operations
Total revenue declined 7% YoY to RMB 31.2bn, reflecting Baidu’s deliberate shift of Search and its mobile ecosystem toward AI-native formats. This strategic transformation currently weighs on legacy marketing but strengthens higher-quality revenue streams over time. Baidu Core reported a GAAP operating loss due to a RMB 16.2bn one-time impairment tied to retiring older infrastructure. Excluding this, Baidu Core generated RMB 1.2bn operating income, while non-GAAP operating income was RMB 2.2bn (9% margin).

AI Cloud: Resilient Growth
AI Cloud revenue reached RMB 6.2bn (+21% YoY), supported by broad enterprise demand. The subscription-based infrastructure mix grew 128% YoY, improving visibility and margin scalability.

AI Applications: Strong Engagement
Revenue grew to RMB 2.6bn, mostly recurring and subscription-based. Flagship products such as Wenku, Drive, Digital Employee, and Miaoda continue to see strong usage, with Wenku + Drive MAUs approaching 300M.

AI-native Marketing: Rapid Expansion
AI-native marketing services—including agents and digital humans—grew +262% YoY to RMB 2.8bn, now representing 18% of Baidu Core’s online marketing revenue (vs. 4% a year ago). Adoption is broad, driven by performance-based ROI pricing. Tiger Research team believes this could reshape Baidu’s long-term revenue structure and reduce reliance on traditional keyword ads.

Apollo Go: Robotaxi Scaling
Apollo Go completed 3.1M fully driverless rides (+212% YoY) in 3Q, with weekly rides exceeding 250k in October. It now operates in 22 cities globally and has achieved 100% fully driverless operations in all mainland China cities where it is active. Management expects more cities to reach positive unit economics in 2026, driven by scale, technology improvements, and lower cost-per-mile. Tiger Research team views robotaxi as one of Baidu’s most compelling long-term optionalities, given regulatory tailwinds and safety leadership.

Summary and Outlook
Baidu’s AI strategy is executing well, reallocating traffic, compute, and products toward AI-native formats. Growth across AI Cloud, AI-native marketing, AI Applications, and Apollo Go demonstrates continued scaling. As AI businesses expand, the revenue mix is shifting toward subscription and agent-driven monetization, delivering higher ROI and defensibility.

The Tiger Research team maintains a BUY rating with a $135 price target, revising 4Q Baidu Core revenue and gross profit -2%, but increasing Core non-GAAP EBIT +1%.