Baidu's annual report revealed the progress of transformation, and the cloud business drove growth, saying that the AI business was undervalued by the market

On March 1, Baidu disclosed its first annual report after its second listing in Hong Kong.

According to the financial report, Baidu's revenue in 2021 was 124.5 billion yuan, an increase of 16% year-on-year, but the operating profit of about 10.5 billion yuan fell by 27%. Adjusted EBITDA was about $25 billion, down 9 percent. Baidu's core operating margin for the current period was 16%.

The financial report also shows that Baidu's revenue structure is changing: the proportion of advertising revenue is declining, and the presence of businesses such as intelligent cloud business that represents Baidu's current and AI businesses that represent Baidu's farther future are increasingly strong in the financial report. However, Baidu's corresponding investment is also increasing.

After the earnings report, as of the close of the US stock market on March 1, Baidu's price of $162.86 rose nearly 7%. On March 2, as of the "China Times" reporter's press release, Baidu's price of Hong Kong stocks in Hong Kong was 160.5 Hong Kong dollars, up 8.37%. But this is far from the peak of Baidu's stock market.

Changes in revenue structure

Online advertising revenue remains Baidu's largest source of revenue.

In 2021, after removing the core of Baidu after iQIYI, the revenue of 95.2 billion yuan increased by 21% year-on-year. Among them, 74 billion yuan of online marketing revenue accounted for 77.7% of Baidu's core revenue. Specific to the fourth quarter of last year, Baidu's online marketing revenue of 19.1 billion yuan accounted for only about 73.5% of Baidu's core in the current period.

For comparison, in 2020, Baidu's online marketing revenue accounted for 84.2% of Baidu's core. In 2019, this proportion is as high as nearly 98%.

Shen Ji, executive vice president of Baidu Group, said in a conference call after the earnings report that Baidu's advertising performance in the fourth quarter of last year was affected by the macroeconomic environment and the epidemic. He believes that the performance of education, real estate, tourism and other industries in the first quarter of this year will continue to be weak, but some recovery momentum has been seen in some areas such as medical care. In addition, there are also views that traffic channels such as Xiaohongshu and Douyin have also taken away a part of Baidu's advertising revenue. According to the financial report, in the fourth quarter of last year, Baidu's online marketing revenue increased by 1% year-on-year.

The mobile ecological business that Shen Ji is responsible for is an important source of Baidu's advertising revenue. According to the reporter's understanding, in December 2021, Baidu App monthly active was 622 million, an increase of 14% year-on-year, and the proportion of daily login users reached 82%. In January this year, Baidu also announced that it would achieve interconnection with more than a dozen Internet companies. On March 2, a reporter from China Times saw in the Baidu APP that it can already connect to the traffic outside the station such as B station, Xiaohongshu, and Meituan takeaway through the way of mini programs.

While the proportion of advertising revenue declined, Baidu's non-online marketing revenue last year was 21.2 billion yuan, an increase of 71% year-on-year. In the fourth quarter of last year, Baidu's non-online marketing revenue was RMB6.9 billion, up 63% year-on-year. This figure accounts for 26.5% of Baidu's core.

Baidu said that this is mainly driven by cloud business. According to Baidu CFO Luo Rong, the business's revenue of 15.1 billion yuan last year increased by 54% year-on-year and contributed 17% of the advertising revenue of Baidu's core business. However, some insiders believe that the current volume of Baidu's intelligent cloud business is still small, and the profit needs to be improved. As a reference, in the fourth natural quarter of last year, Alibaba Cloud's total revenue was 26.431 billion yuan.

It should be mentioned that with the change of Baidu's revenue structure, Baidu's core expense ratio is also improving.

Last year, Baidu Core's total costs and expenses reached 80.021 billion yuan, accounting for 84% of its revenue in the current period. It is about ten percentage points higher than in 2020.

Among them, the cost of sales of 64.3 billion yuan, an increase of 17% year-on-year, Baidu said, mainly due to content costs, traffic acquisition costs, bandwidth costs, commodity sales costs and other costs related to new AI services increased. Sales and management expenses of 24.7 billion yuan increased by 37% year-on-year, and Baidu said that it was mainly due to channel expenses, marketing, personnel-related expenses and contingent losses related to legal proceedings involving former advertising agencies. Baidu's research and development expenses last year were 24.9 billion yuan, an increase of 28% year-on-year, mainly related to the increase in personnel-related expenses.

Last year, it repurchased a total of $1.2 billion

Baidu also disclosed its repurchase progress in the 2021 financial report.

In the fourth quarter of 2021, Baidu repurchased $615 million from shareholders under its 2020 share repurchase program, and its cumulative repurchase amount in 2021 reached about $1.2 billion. As of the end of 2021, Baidu has repurchased approximately $2.9 billion from shareholders under its 2020 share repurchase program.

According to the "China Times" reporter, Baidu announced in May 2020 when it released the first quarter of the year's financial report, it would buy back up to $1 billion of its own stock. In December last year, Baidu announced that it would increase the amount of possible repurchases to US$4.5 billion, and the repurchase period would be valid until December 31, 2022.

Speaking about the buyback in the conference call, Luo Rong said, "I think the company's AI business is undervalued by the market, such as investors not counting the valuation of the smart driving business, which is why the company continues to buy shares." ”

Taking Hong Kong stocks as an example, SenseTime, an AI company that is still losing money, has a highest share price of HK$9.7 after landing on Hong Kong stocks, which has risen 1.5 times compared with the issue price. After the same loss-making Kuaishou was listed on the Hong Kong stock market in February last year, its stock price soared to HK$340, nearly twice as much as the issue price. But Baidu's highest price in Hong Kong was HK$256.6 on the first day of listing in March last year, just HK$4.6 more than the issue price.

Some investors exchanged with the "China Times" reporter that the valuation of Baidu by the Hong Kong stock capital market is more based on its core advertising business. At present, Baidu's earnings ratio (TTM) in Hong Kong stock market is 36.05 times. However, it should be mentioned that this figure is higher than the three Internet companies of Alibaba, Tencent and JD.com, which are located in Hong Kong stocks in the same period.

The capital market is more interested in Baidu's new business.

Judging from Baidu's U.S. stocks that have stayed longer, its last round of stock price increases was in February 2021. At one point, Baidu's stock price was close to $355. Prior to this, Baidu first announced in November 2020 that it had wholly acquired YY Live for $3.6 billion, and then announced in January of that year that it would build a car with Geely.

According to the "China Times" reporter, Jidu Automobile, which was established by Baidu and Geely, has completed a round of financing of 400 million US dollars in January this year. Recently, there is also news that Jidu's first car robot will begin to be booked in the second half of this year. Baidu did not confirm the news to reporters, but said that the car will be released at the Beijing Auto Show in April 2022 and mass production in 2023.

In addition, the financial report also shows that in the fourth quarter of 2021, the order for unmanned vehicles supplied by Radish Run nearly doubled to about 213,000 orders from the previous quarter. As of February 27, Radish Run has officially started charging operations in Beijing, Chongqing and Yangquan.

Jiang Han, a senior researcher at Pangu Think Tank, told the "China Times" reporter that in a sense, Baidu has left itself with a lot of space for the market to move around with the relatively low-key development of these years, and also let everyone see a long-term value of the enterprise, which may be the most worthy of market attention in Baidu's financial report.

Responsible Editor: Huang Xingli Editor-in-Chief: Han Feng