Earnings Alert: 2Q22 earnings above expectations thanks to cost optimisation; expect revenue growth to resume in 2H22
- 2Q22 revenue fell by 5% y-o-y to Rmb29.6bn, in line with market expectations
- Non-GAAP net profit grew by 3% to Rmb5.5bn, above consensus due to tighter controls on SG&A and content costs
- Revised up FY22F non-GAAP net profit by 15% on higher operating efficiency
- Maintain BUY with higher TPs of HK$203/US$208 as we shift our valuation benchmark to FY23F
2Q22 results highlights
– Revenue decreased by 5% y-o-y to Rmb29.6bn, in line with market expectations.
– Baidu’s core revenue decreased by 4% to Rmb23.2bn, with online marketing revenue declining by 10% to Rmb17.1bn and non-online marketing revenue climbing by 22% to Rmb6.1bn, driven by cloud and other AI-powered businesses.
– Baidu AI Cloud business maintained its rapid growth momentum with revenue increasing by 31% y-o-y or 10% q-o-q in 2Q22. iQiyi’s revenue decreased 13% to Rmb6.7bn in 2Q22.
– Non-GAAP net profit increased by 3% to Rmb5.5bn, above market expectations of c.Rmb3.7bn, due to better-than-expected cost optimisation and operating efficiency. We noticed that marketing expenses declined by 16% y-o-y due to a decrease in promotion activities.
– Note that iQiyi recorded non-GAAP net profit of Rmb79m in 2Q22, turning profitable in two consecutive quarters.
Outlook
– Online marketing business has been sluggish due to weakened business activities due to Covid resurgence in 2Q22. We expect revenue growth to pick up in 2H22 along with economic recovery.
– Management shared that June’s performance was better than May while overall growth in 2H22 will depend on the macro environment. Several vertical sectors like e-commerce and short videos have raised their ad budgets.
– We believe mid to long term growth will remain robust, supported by cloud and AI-powered businesses and further monetization of intelligence driving technology.
-We have revised up our non-GAAP net profit by 15% for FY22F, to reflect tighter cost control and improving operating efficiency. We kept our FY23F/FY24F earnings largely unchanged. We maintain our BUY rating with new TPs of HK$203/US$208 based on the SOTP methodology: (1) Baidu Core: 12x on FY23F non-GAAP net profit (HK$124); (2) Cloud: 5x FY23F price-to-sales (HK$63); (3) autonomous driving: (HK$5); and (4) market value of major listed investees (HK$10).
