Earnings First Take: 4Q23 Baidu core revenue grew 7%, in line with market expectations
- 4Q23 Baidu core revenue increased by 7% y-o-y, with online marketing revenue increasing by 7%
- Cloud AI revenue growth back on track to 11%; expect further acceleration in FY24
- Maintain BUY with positive outlook on its AI and Cloud businesses
4Q23 Baidu core revenue grew 7%, in line. Baidu (9888 HK) announced its 4Q23 results on 28 Feb 2024 after HK market close. Revenue increased by 6% y-o-y to Rmb35.0bn, slightly lower than market expectations due to lower-than-expected iQiyi revenue. Baidu core revenue grew by 7% y-o-y to Rmb27.5bn, with online marketing revenue increasing 7% y-o-y to Rmb19.2bn. Meanwhile, non-online marketing revenue rose by 9% to Rmb8.3bn, with AI cloud revenue increasing by 11% y-o-y to Rmb5.7bn. iQiyi revenue increased 2% y-o-y to Rmb7.7bn, with number of subscribers decreasing by 10% to 100m. Gross margin was 1.4ppts higher y-o-y at 50.2% in 4Q23, mainly due to improving online ad efficiency. Non-GAAP net profit increased by 44% y-o-y to Rmb7.8bn, due to tax credit of Rmb96m recorded in 4Q23, vs. tax expenses of Rmb1.2bn in 4Q22. Excluding the income tax impact, non-GAAP net profit would have increased by 16% y-o-y, in line with market expectations.
AI cloud business returns to double digit growth. Overall performance was satisfactory. Online ad revenue showed improvement in 4Q23 compared to 3Q23’s 5% y-o-y growth, with key verticals being travel, healthcare and business services. AI cloud revenue growth was back on track to double digit in 4Q23. We expect the momentum to further accelerate in FY24, with increasing number of enterprise users building LLM on its platform. Management shared that incremental revenue from GenAI and foundation model was hundreds of millions in 4Q23, and the scale will reach several billion yuan in FY24, contributing a low to mid-single-digit percentage to revenue. The stock is trading at an undemanding valuation of 11x FY24 PE, 1.8 SD below historical average. Maintain BUY.