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produced by radar finance hongtu | edited by xiao sha | deep sea

like the previous quarter, baidu's revenue in the second quarter had almost no year-on-year growth.

recently, baidu disclosed its second quarter 2024 performance report. the company's total revenue for the quarter was 33.931 billion yuan, lower than 34.056 billion yuan in the same period last year. among them, baidu's core revenue was 26.687 billion yuan, an increase of only 1% year-on-year.

this is the second consecutive quarter that baidu has performed poorly. in the first quarter of this year, the company achieved operating income of 31.513 billion yuan, a year-on-year increase of 1%; baidu's core revenue in the same period was 23.803 billion yuan, a year-on-year increase of 4%.

in a post-earnings conference call, baidu management said that the company's advertising business is currently under pressure from both external factors and ai-driven search transformation. external challenges include macroeconomic weakness and intensified competition, especially in the real estate, franchise and automotive sectors.

in addition, changes in user behavior have also affected baidu's online advertising business. currently, 18% of search results contain generative ai content, but it has not yet been monetized.

in this regard, bloomberg industry research pointed out that baidu's poor performance highlights the challenges it faces in converting its leading edge in artificial intelligence generation into substantial revenue, and reflects the difficulty of transitioning from search advertising to artificial intelligence during an economic downturn.

amid internal and external troubles, baidu's stock price returned to 2022, two years after its move towards generative artificial intelligence. since the beginning of the year, the company's hong kong stocks have fallen by nearly 30%, and its market value has evaporated by nearly hk$100 billion.

revenue growth under pressure

according to tianyancha data, baidu was founded in 2001 and is a company mainly engaged in the internet and related services. the company's registered capital is 13.4 billion yuan, which exceeds 99% of its peers in beijing.

at the earnings conference after the release of the first quarter 2024 financial report, baidu founder, chairman and ceo robin li stated that 2024 is the second year of baidu's move towards generative artificial intelligence, and the company is shifting from an internet-centric to an ai-first approach.

li yanhong said that with the arrival of the era of generative artificial intelligence in china, basic models such as the wenxin model will become infrastructure and be integrated into all aspects of people's lives, which will bring more opportunities to baidu.

however, can the huge investments made by technology companies in ai bring returns? at least for now, they have not brought returns far exceeding expectations.

the financial report shows that in the first quarter of this year, baidu achieved operating income of 31.513 billion yuan, a year-on-year increase of 1% and a quarter-on-quarter decrease of 10% from the fourth quarter of last year; net profit attributable to baidu was 5.448 billion yuan, a year-on-year decrease of 6% and a quarter-on-quarter increase of 110%.

revenue growth fell back to 1%, which is the first time baidu has seen such a decline since the first quarter of last year. according to ifind data from tonghuashun, from the first to the fourth quarter of 2023, baidu's quarterly revenue growth rates were 9.62%, 14.87%, 5.86% and 5.67% respectively.

in addition, baidu's core revenue in the first quarter was 23.803 billion yuan, a year-on-year increase of 4% and a month-on-month decrease of 13%; the net profit attributable to baidu core was 5.15 billion yuan, a year-on-year decrease of 7% and a month-on-month increase of 111%.

baidu core mainly includes online marketing and non-online marketing businesses, and advertising business is its main source of income. at that time, the management explained that it was mainly the weakness of the macro economy that led to the weakness of the advertising business. the company's advertisers mainly come from small and medium-sized enterprises from all walks of life and are highly sensitive to the macro environment. in the first quarter, advertiser sentiment in vertical fields such as real estate and franchising remained weak.

and this impact continued into the second quarter. on august 22, baidu released its unaudited second quarter financial report ending june 30, 2024.

the financial report shows that in the second quarter of 2024, baidu achieved revenue of 33.931 billion yuan, a decrease from 34.056 billion yuan in the same period last year; under non-gaap, net profit attributable to baidu decreased by 8% year-on-year to 7.396 billion yuan.

this quarter, baidu's core revenue was 26.7 billion yuan, up 1% year-on-year, and the growth rate slowed down again compared with the first quarter. among them, online marketing revenue was 19.2 billion yuan, down 2% year-on-year; non-online marketing revenue was 7.5 billion yuan, up 10% year-on-year, mainly driven by intelligent cloud business.

baidu's non-online marketing business includes the revenue of innovative businesses such as smart cloud, xiaodu and autonomous driving. in addition, iqiyi continued its negative growth momentum in the first quarter, with revenue decreasing by 5% year-on-year again.

the main factor dragging down baidu's core revenue is advertising. in the earnings call on the evening of august 22, robin li admitted that the advertising business was facing a series of external pressures, including many small and medium-sized advertisers taking a very cautious attitude towards advertising spending due to macroeconomic weakness; and users increasingly focusing their time on a few leading short video and social media platforms.

some market opinions believe that the management's statement once again confirms the market's concerns, that is, in the context of weak consumption, offline small and medium-sized businesses are often the first to be short of money, and this happens to account for a large proportion of baidu's advertisers, which has a significant impact on its revenue.

as for the erosion of baidu's search traffic by short video platforms, it is no longer a new topic. the financial report shows that in june 2024, the monthly active users of baidu app reached 703 million, a year-on-year increase of 4%.

however, according to questmobile data, as of june 2024, the number of monthly active users of mobile internet will reach 1.235 billion, of which the monthly active users of short videos will reach 989 million, a year-on-year increase of 3.4%. the average monthly viewing time per person will reach 60.7 hours, making it a well-deserved "online entertainment platform."

is it difficult to monetize large ai models?

due to the limited size of its smart cloud and other businesses, baidu is currently struggling to reduce its reliance on advertising. as its advertising business faces a lot of external pressure, baidu is pinning its hopes on technological innovation.

"we strongly believe that technological innovation will be the key to our future success," said the company's management. at the earnings conference, baidu spent a lot of time focusing on its layout in the field of artificial intelligence.

specifically, in october last year, the wenxin big model evolved to version 4.0; in june this year, baidu released the wenxin big model 4.0 turbo, claiming that its performance is better than 4.0.

against the backdrop of a price war among large models, baidu has recently lowered the prices of its two flagship models, wenxin large models 3.5 and 4.0, and made three models, ernie speed, ernie lite and ernie tiny, available for free.

currently, baidu uses ernie extensively to transform its own products, such as baidu search and baidu app (i.e. baidu's mobile ecosystem). especially since the second quarter, it has accelerated the pace of using ernie to transform search.

the main goal of doing so is to improve the user experience, provide more features, and increase user engagement on baidu. when the generative ai results have met the user's query needs, baidu will recommend other content or services to enhance the user's stay time and engagement.

but in reality, the monetization of big models is still in a very early stage, especially in enabling search-based advertising business.

management admitted that using ernie to transform baidu search has high potential, but it is not something that can be accomplished in the short term. in the process, it may even have a negative impact on revenue, "which may put pressure on profit margins in the short term."

it is reported that currently 18% of baidu's search results are provided by generative ai, but this part has not yet been monetized.although it may take time for ai-enhanced search products to show revenue contribution, baidu is confident that it will eventually build a more diverse, efficient and user-friendly ai ecosystem that will drive sustainable revenue growth.

the intelligent cloud business is a sector where baidu is currently performing well, but the incremental growth brought by ai is still limited. currently, generative ai-related revenue accounts for 9% of baidu cloud's total revenue. baidu's intelligent cloud business is gradually eliminating low-profit businesses, and the company believes that in the long run, the normalized profit margin of generative ai-related cloud business should be higher than that of traditional cloud business.

radar finance noticed that there are many people who "pour cold water" on baidu's ai "story". according to phoenix technology, bloomberg pointed out that this financial report shows that baidu has difficulty in monetizing artificial intelligence (ai), and the transition of revenue-generating business from search advertising to ai has encountered difficulties.

baidu's booming autonomous driving business is still in the "burning money" stage. iimedia research analysts believe that in the face of fierce competition in the global autonomous driving market, luobo kuaipao is expected to break even in wuhan by the end of 2024 and is expected to enter the profit period in 2025.

the stock price has fallen by nearly 30% this year

with revenue stagnant, baidu's profit performance is also not optimistic.

in the second quarter of this year, the net profit attributable to baidu was 5.488 billion yuan, a year-on-year increase of 5%; but under non-gaap, the net profit attributable to baidu decreased by 8% year-on-year to 7.396 billion yuan.

if the impact of iqiyi's business in the financial report is excluded, the net profit attributable to baidu core is 5.462 billion yuan, a year-on-year increase of 9%; the net profit attributable to baidu core under non-gaap is 7.29 billion yuan, a year-on-year decrease of 5%.

according to a research report by first shanghai securities, baidu's revenue in the second quarter was slightly lower than market expectations, but its profit was better than market expectations, mainly due to cost optimization.

according to the financial report, baidu has made great efforts to optimize expenses this quarter, with both r&d expenses and sales and channel management expenses decreasing. sales and management expenses decreased by 9% year-on-year, and r&d expenses decreased by 8% year-on-year, due to expected credit losses, channel expenses and marketing expenses; personnel-related expenses decreased.

wu liuyan, an analyst at kaiyuan securities, believes that baidu will continue to face pressure on the revenue side and wait for ai to be monetized, but the steady performance on the profit side is more secure. on the profit side, the steady-state profit margin of ai cloud is expected to be higher than that of traditional businesses. the goal of intelligent driving is to prioritize the break-even in key areas, reduce investment in non-core businesses and optimize expenses, and the profit margin is expected to remain stable.

however, baidu's profit-first strategy seems to be unable to appease the institutions. first shanghai securities pointed out in a research report that baidu faces pressure in the second half of the year due to economic uncertainty and the lack of commercialization of ai search. the long-term traffic erosion problem continues, and the short video platform has a great impact. baidu's c-end ai user penetration rate lags behind, growth slows down, and the effectiveness of ai-assisted search advertising is questionable.

in addition, although the company has sufficient cash, its repurchase efforts are insufficient. considering macro pressure, traffic competition and difficulties in ai monetization, the agency lowered baidu's target price to hk$107 and maintained a "buy" rating.

after the performance was disclosed, goldman sachs also lowered baidu's target price from hk$141 to hk$127 and maintained a "buy" rating.the bank lowered its revenue forecast for baidu from this year to 2026 by 2%, reflecting a downward revision in advertising revenue forecasts; the net profit forecast was raised by up to 1%, reflecting the company's ongoing operating expenses.

the bank also lowered its forecast p/e target for the company's core advertising to 7 times, reflecting the delayed recovery of the online advertising business, the expansion of less monetizable artificial intelligence searches and weaker macro conditions.

as of the close of august 28, baidu's hong kong stock closed at hk$81.9, down 3.19% on the day, with a total market value of hk$229.7 billion, and the stock price is close to the low point of 2022. based on this calculation, baidu's stock price fell 29.46% this year, and its market value evaporated by hk$95.939 billion.