On the afternoon of March 1, Baidu released its fourth quarter and annual results for 2021.
In the last quarter, Baidu's total revenue was 33.09 billion yuan, up 9% year-on-year, higher than the market average expectation of 32.2 billion yuan, and non-GAAP, net profit of 4.08 billion yuan, down 41% year-on-year, but still higher than the market average expectation of 2.9 billion yuan.
But that's a slightly fragmented earnings report.
On the one hand, Baidu's online marketing revenue in the fourth quarter was 19.1 billion yuan, a year-on-year growth rate of only 1%. In contrast, Baidu's online marketing revenue in the first three quarters of last year grew by 27%, 18% and 6% year-on-year, respectively. The rebound dividend of the advertising market in the post-epidemic era has basically disappeared.
On the other hand, new businesses, including smart cloud and autonomous driving, generated 6.9 billion yuan in revenue for Baidu last quarter, up 63% year-on-year; the proportion of core revenue increased from 18.2% a year ago to 26.5%.
In the financial report, Baidu called these two large businesses "Baidu core", which was calculated differently from the total revenue of companies including iQiyi's revenue. In the fourth quarter, "Baidu Core" revenue totaled 26 billion yuan, an increase of 12% year-on-year.
Last quarter, Baidu's revenue costs increased by 19% year-on-year to 17.3 billion yuan, mainly due to increased traffic acquisition costs, bandwidth costs, costs of goods sold, and costs related to new AI businesses. Among them, the research and development expenditure was 7.39 billion yuan, an increase of 30% year-on-year. Both figures were significantly higher than revenue growth, resulting in a 39% year-over-year decline in Non-GAAP operating profit.
In other words, the online marketing business contributes about three-quarters of Baidu's revenue, but it pulls down the revenue growth rate of the entire company; while the new business acts as a growth locomotive, but it also significantly pushes up costs, which in turn drags down profit performance.
This has also been the norm for Baidu in the past year. For the whole of 2021, Baidu's online marketing revenue was 74 billion yuan, an increase of 12% year-on-year, and new business revenue was 21.2 billion yuan, an increase of 71% year-on-year. Combined, the annual revenue of "Baidu Core" was 95.2 billion yuan, an increase of 21% year-on-year.
Capital markets don't like this sense of fragmentation.
In U.S. stock trading on Tuesday, Baidu shares were quoted at $162.86, up nearly 7%, which is a positive response from investors to the performance of the previous quarter that exceeded expectations. But in the long run, Baidu's stock price performance is not ideal.
At the end of March last year, Baidu's stock price climbed to $311 with Geely to help build cars and accelerate the landing of the autonomous driving business. But then in the past year, Baidu's stock price has continued to decline, and Tuesday's closing price is close to the waist compared with the 52-week high.
In the eyes of many people, Baidu's fundamentals have not deteriorated significantly, and its stock price is suspected of wrongful killing. Especially with the domestic epidemic under control, companies are bound to increase their Internet marketing budgets, and Baidu, which is highly dependent on advertising business, is expected to benefit from it.
But alphabet list (ID: wujicaijing) believes that Baidu's online marketing business and new business seem to complement each other, but in fact, they are fighting each other. These two lack of linkage business in the same main body not only makes the company's overall growth rate appear slow, but also continues to drag down profit performance, which has become an important obstacle to the upward trend of Baidu's market value.
Before Baidu has successively split iQiyi, Xiaodu Technology, Kunlun AI chips and other businesses, will Baidu play this move again?
A
If You summarize Baidu's development strategy in one sentence, then it is probably "advertising is responsible for making money to support the family, and new business is responsible for beautiful flowers.".
Since its listing, the online marketing business has contributed most of Baidu's revenue and profits. In the fourth quarter of 2021, this revenue accounted for 73.5% of Baidu's core revenue and 77.7% for the whole year. This is also the performance of the rapid growth of new services such as intelligent cloud and the greatly enhanced sense of existence.
The Internet advertising business model is very mature, the difficulty of technology research and development is not high, and the profits are very rich. This also means that the greater the weight of online marketing, the better Baidu's profit performance.
In 2020, online marketing business accounted for 84.2% of Baidu's core revenue. Baidu's core operating profit reached 20.5 billion yuan that year, and the operating profit margin was 26%.
By 2021, due to the slowdown in advertising growth and the acceleration of commercialization in smart cloud, autonomous driving and other sectors, the revenue share of online marketing business has shrunk to 77.7%. At the same time, Baidu's core operating profit was 15.1 billion yuan, and the operating profit margin shrank sharply to 16%.
In contrast, the new business is still in the investment period, and it has not yet been able to bring rich revenue to Baidu, but fortunately, the momentum is rapid, and the growth rate is obviously more than the online marketing business.
At present, Baidu's new business is mainly an intelligent cloud that exports AI capabilities to enterprises, and an apollo platform that covers autonomous driving technology and passenger services. In addition, Baidu also has a layout in frontier fields such as the metaverse.
In 2021, Baidu's new business revenue increased by 63% thanks to cloud computing and other AI-driven businesses. With online marketing growth nearly stagnant and iQiyi's revenue falling, this business has become the most important growth engine.
However, it is also a very expensive engine. Baidu did not disclose the cost of related businesses in the financial report, but from the experience of Google, Amazon and other companies, whether it is cloud computing or autonomous driving, it is necessary to maintain a huge investment all year round in order to always stand at the top of the industry technology, otherwise it is easy to be thrown off.
Baidu's financial report also reveals this from the side. In 2020, Baidu's core R&D expenditure was 19.5 billion yuan, accounting for 24.8% of revenue; in 2021, it further increased to 22.1 billion yuan, accounting for 23%.
In other words, a large part of the money Baidu makes by selling advertisements is spent on new businesses that do not make money.
In the environment of internet advertising, this choice is understandable and should even be appreciated; but when advertisers tighten their budgets, Baidu's online marketing revenue growth slows down, and it is increasingly difficult to keep up with the burning rate of new business, resulting in a sharp decline in profits and a downturn in stock prices.
What is more worrying is that Baidu's online marketing revenue increased by only 1% last quarter, which is only a microcosm of the cold winter of domestic Internet advertising. Advertising channels with larger traffic and stronger strength than Baidu, such as ByteDance, Alibaba and Tencent, are also facing huge pressures for slow or even negative growth in advertising revenue. In the face of the general trend, baidu is difficult to achieve advertising revenue growth that far exceeds the industry average on its own.
In addition, Baidu is still dominated by more traditional search and information flow advertising, and its efficiency and attractiveness are not as good as the current popular short videos, live broadcasts and other emerging forms, and it will suffer losses when competing for marketing budgets.
In this case, Baidu may wish to be bold, abandon the idea of using advertising revenue to feed back the new business, split the latter out, and let the two businesses fly separately.
B
If Baidu's online marketing business develops independently, its profitability will be improved, providing more ammunition for business development and transformation.
While not sexy enough, internet advertising is a "lying money" business. As long as it has enough traffic, coupled with strong ground pushing ability, it can contribute a steady stream of cash flow.
Baidu occupied the Internet entrance of Chinese users in the PC era, and the early revenue scale pressured Ali Tencent, which was once the façade of the bat three giants. Around 2010, with Google's withdrawal from the Chinese mainland, Baidu sat firmly on the Internet.
With the advent of the mobile Internet era, Baidu quickly stepped down from the altar, and Ali and Tencent gradually occupied the center of the stage. Even so, Baidu's online marketing business is still growing at a high speed, bringing in huge revenues every year.
But after 2017, Byte, Tencent and Ali stood on three feet, using their respective APP arrays to split traffic; small giants such as Kuaishou, B Station, and Xiaohongshu rose rapidly and are also competing for netizen time. Baidu, which is still selling advertising, has reached a critical juncture where it has to change.
Robin Li invited Lu Qi, who worked at Yahoo and Microsoft, who prescribed "All in AI." In more than a year, Lu Qi set off a "martingale transformation method" within Baidu, drastically combing business lines and changing the strategic focus. It can be said that this change has largely shaped Baidu today.
Lu Qi
According to Lu Qi's idea, Baidu is not only a search engine company, but also an AI-based platform-based enterprise. Unfortunately, to this day, Baidu is still a company that makes a living from advertising and marketing in the financial sense. The change that lasted for more than 5 years only reduced the proportion of advertising revenue from more than 90% to 70%.
For the foreseeable future, Baidu will still rely heavily on online marketing services. Advertising is a good business, but the premise is to have traffic and scenarios; and this piece is gradually becoming Baidu's short board.
At present, Baidu APP is Baidu's largest traffic portal, with MAU (monthly active users) reaching 622 million in the fourth quarter of last year, an increase of 14% year-on-year; daily login users accounted for 92%. Although the scale is not small, this is twice the difference from WeChat's 1.23 billion MAU; and compared with Douyin, which also has more than 600 million monthly active users, Baidu APP users stay in the ascendant.
Users are reluctant to come, come and leave quickly, which is a common problem of all tool-based applications, and the Baidu APP with search as the core is naturally no exception. The best antidote is to do content ecology, which is also the direction that Baidu is trying to break through.
At the end of 2020, Baidu increased its size in the short video sector to look good, and announced the acquisition of YY Live for a sky-high price of $3.6 billion. But more than a year later, the good-looking video is tepid, and the distance is still far away; YY live broadcasts the news that the team is difficult to integrate and the data has fallen sharply.
Good-looking videos and YY live broadcasts are difficult to improve, and it is an important reason that funds are not as abundant as opponents. After the new business has taken away a lot of profits, Baidu can not allocate many resources to second-tier players, and it is naturally difficult to match Jitter in terms of technology, operation, marketing and other dimensions.
If Baidu no longer directly transfuses blood for new businesses, the money saved is not a small amount. It will have the opportunity to invest more resources in the short video and live broadcast sectors, so as to open up new traffic scenarios and user communities in addition to search and information flow, lay the foundation for attracting more advertisers, and take the opportunity to transform to more promising rich media marketing.
C
Look at Baidu's new business. This sector mainly includes cloud computing and automatic driving, etc., with high technical thresholds and long monetization paths, which are gold-devouring beasts that need to continue to invest heavily.
Take the C-end self-driving taxi business "Radish Run" as an example, which currently covers 8 cities such as Beijing, Shanghai, Guangzhou, and Shenzhen, and is known as the world's largest self-driving travel service provider. However, Radish Run only started paid operations in Beijing, Chongqing and Yangquan, and there were significant discounts.
JPMorgan Chase previously expected that Radish Run would not be profitable until 2025. Considering the costs of technology development and platform operation, this business is still far from making real money.
In the financial report, Baidu did not disclose the profitability of the new business. However, judging from the fact that non-GAAP net profit fell by more than 40% in the fourth quarter, the loss caused by these businesses may not be small.
As a listed company, Baidu must consider the adverse impact of quarterly losses on its stock price. According to Tech Planet, citing people familiar with the matter, Robin Li proposed in May 2020 that "turning losses into profits" is the only OKR of Baidu Cloud, and the gross profit margin is at least 20%.
Li
This also means that if you stay in the listed company system, cloud computing, autonomous driving and other teams must consider their own drag on the company's profitability when formulating development plans, and minimize the adverse effects.
But for a new business that is in the process of investment, the requirement of both growth and making money is obviously an extremely difficult goal to achieve, and it can even be said to contradict each other. However, if you jump out of the system and develop independently, you no longer need to be responsible for the short-term losses of the parent company, and there are fewer unnecessary constraints and concerns.
In addition, several core targets of Baidu's new business, including intelligent cloud, flying pulp, apollo, etc., are high-quality targets with technical barriers. After cutting and weaning, they can get in vitro blood transfusions entirely through the capital markets.
Baidu has previously had the experience of demolishing new businesses for different purposes and has achieved good results.
For example, the split of iQiyi in 2016 allowed Baidu to unload the burden of huge losses and obtain billions of yuan in revenue every quarter; in 2018, Baidu split the financial services business group to operate independently under the "Degree Xiaoman" brand, thus avoiding the potential risks of Internet finance.
In addition, Baidu split the smart life business group in September 2020, which raised funds twice in the name of "Xiaodu Technology", with a valuation of 33 billion yuan. In March last year, Baidu spun off Kunlun's AI chip business, which was valued at 13 billion yuan.
It can be seen that Baidu's spin-off strategy has both the purpose of throwing off baggage and defusing bombs, as well as the consideration of introducing external living water. For businesses that have a promising long-term outlook but need massive funds in the short term, Baidu does not have to hold it firmly in the palm of its hand.
Nowadays, in the case of new businesses such as AI and automatic driving, which are gradually improving, but causing a lot of drag on short- and medium-term business, Baidu seems to have once again reached the crossroads of separation.