On March 1, 2022, Baidu Group (NASDAQ: BIDU; HK: 09888) announced its fourth quarter and annual results in 2021.
In fiscal 2021, Baidu's revenue was 124.5 billion, of which non-advertising revenue was 43.6 billion, accounting for 35%; in fiscal years, EBITDA was 24.9 billion yuan, with a profit margin of 20%.
At the closing price on March 4, Baidu's market value was $52 billion, down 58.5% from its February 2021 high, and Baidu, which has a price-to-book ratio of less than 1.6 times, has fallen beyond fall.
Who is driving revenue growth
1) iQiyi once saved the car
Baidu divides its revenue into two parts: "Baidu Core" and "iQiyi". In 2021, the total revenue was 124.5 billion yuan, an increase of 16.3% year-on-year (Note: the total revenue was confirmed after offsetting the transaction between Baidu Core and iQiyi).
In 2015, Baidu's core accounted for 92.2% of total revenue; in 2020, it fell to 73.5%;
In 2021, Baidu's core revenue was 95.2 billion, rebounding to 76.4% of total revenue.
In recent years, iQIYI's growth rate has gradually declined, and its contribution to Baidu Group's revenue growth has been decreasing:
In 2016, iQiyi's revenue surged by 113% to 11.24 billion, while Baidu's core revenue fell by 2.9% year-on-year. Driven by iQIYI, Baidu Group's revenue increased by 6.2%;
In 2017, iQIYI's growth rate rose to 54.6% 100%, but the core growth rate of Baidu rebounded to 13.8%, resulting in a 20.2% increase in Baidu Group's revenue;
In 2018, iQIYI's revenue exceeded 25 billion yuan, and the growth rate remained above 40%, Baidu's core growth rate rose slightly to 15.6%, and Baidu Group's revenue increased by 20.6%. The contribution of the two main businesses to the group's revenue growth is "four or six open", and the contribution rate of iQiyi is slightly higher than 40%.
In 2019, the revenue growth rate of Baidu Core and iQIYI was 1.8% and 16% respectively, and the contribution rate of iQIYI reached 78%;
In 2020, in the darkest hour, both major businesses were "turned off", Baidu's core revenue fell by 1.3%, iQiyi increased by 2.5%; and the group's revenue fell slightly by 0.3%;
In 2021, Baidu's core growth rate rebounded to 20.9%, iQiyi's growth rate was 2.9%, and Baidu Group's revenue increased by 16.3%.
iQiyi is close to the "ceiling", and the revenue growth rate is in line with objective laws. By increasing the cost of content, increasing marketing investment, and forcing large revenue, I am afraid that the gain is not worth the loss.
iQiyi, which was once "successful in saving the car", is no longer the "engine" of Baidu's revenue growth.
2) The proportion of advertising revenue is gradually declining
Baidu started with online marketing (i.e., advertising), and Baidu Core and iQiyi both provide such services.
In 2016, Baidu Core and iQiyi's advertising revenue was 57.9 billion yuan and 5.7 billion yuan respectively, accounting for 90.1% of revenue.
In 2018, Baidu Core and iQiyi's advertising revenue was 72.6 billion yuan and 9.3 billion yuan respectively, accounting for 80.1% of revenue, #两年掉10个百分点 #
In 2020, Baidu Core and iQIYI's advertising revenue was 66.3 billion yuan and 6.8 billion yuan respectively, accounting for 68.3% of revenue;
In 2021, Baidu Core and iQiyi's advertising revenue will be 73.9 billion and 7.1 billion, respectively, accounting for 65% of revenue;
There are three points worth paying attention to in the change of Baidu's advertising revenue:
First, the status of advertising business in Baidu is "irreversibly" declining and has a further downward trend;
Second, Baidu's core advertising revenue may have room to rise, iQIYI's focus has shifted to membership services, and the advertising business will not give up, but the revenue has stopped growing;
With the rise of cloud computing, intelligent driving, intelligent hardware and other businesses, the proportion of advertising revenue continues to decline.
Non-ad revenue
The "ceiling" of online marketing is not high!
In 2021, China's advertising industry will exceed 1 trillion, and the Internet accounts for about 50%. Internet giants such as Baidu, Tencent, and ByteDance and countless small and medium-sized players are vying for 500 billion advertising budgets.
1) Three major non-advertising revenues
In 2021, the proportion of advertising revenue fell to 65%, and non-advertising revenue reached 43.6 billion, which is a considerable scale.
Non-advertising revenue mainly includes iQIYI membership services, intelligent cloud and content distribution.
Membership services and content distribution are iQIYI's businesses: membership services revenue exceeded 10 billion yuan in 2018, reached 16.5 billion yuan in 2020, and increased slightly to 16.7 billion yuan in 2021; and content distribution revenue reached 2.9 billion yuan in 2021.
In 2018, smart cloud revenue reached 3 billion; in 2019, it doubled to 6.4 billion; and in 2020, it earned 9.2 billion;
In 2021, smart cloud revenue was 15.1 billion, up 64% year-on-year. By the end of 2021, Fly pulp had served 157,000 enterprise customers and 4.06 million developers had created nearly 480,000 models.
In 2021, membership services, content distribution, smart cloud and other non-advertising revenue accounted for 35% of Baidu's revenue.
Baidu does not want to "curl up" under the ceiling of Internet advertising, and has already put it into action. Non-advertising revenue will account for 35% in 2021, meaning that "one-third of the ceiling above the head" has been replaced.
2) Non-advertising business in conception
Baidu's financial report also disclosed two non-advertising businesses: one is intelligent driving, and the other is intelligent hardware (the main products are smart speakers, giant screen TVs, and translation pens). #智能驾驶值得特别关注 #
Baidu's smart driving strategy is a two-pronged approach:
The first is the online unmanned car service. Radish Run has begun operations in Beijing, Chongqing and Yangquan to obtain valuable data and increase the confidence of the government and users in Baidu's driverless technology. Beijing started the earliest (November 25, 2021), and the number of orders for unmanned vehicles in Q4 2021 reached 21.3 million. Entering 2022, Chongqing (February 18) and Yangquan (February 27) have successively begun charging operations.
The second is alliances with automakers. Baidu and Geely have established a joint venture company "Jidu", which has completed the A round of $400 million financing, and smart electric vehicles will accept reservations in 2022. In addition, it is reported that BYD has chosen Baidu as its intelligent driving supplier, and models equipped with Baidu intelligent driving products will soon be put on the market. (Note: BYD's new energy vehicle sales in 2022 will be about 1.2 million to 1.5 million units)
The penetration rate of new energy vehicles has reached 20%, but intelligent driving is a short board, even BYD is not sure of this aspect of Tesla, and it is wise to cooperate with Baidu or Huawei.
Catching up with the outlet of China's new energy vehicles, Baidu's intelligent driving "money path" is immeasurable.
The mission of the existing business
The mission of Baidu's existing business is to support the expansion of new business with stable cash flow.
1) Segment performance
Relatively speaking, the profit margin of non-advertising business is low, and with the increase in the proportion of non-advertising business, Baidu's core EBITDA profit margin oscillates downward.
In 2018, Baidu's core EBITDA reached 31.4 billion yuan and a profit margin of 40%; in 2019, EBITDA fell to 25.5 billion, and in 2020, it rose to 31.7 billion, and the profit margin accounted for 40%; in 2021, EBITDA and profit fell back to 27.7 billion and 29% respectively.
iQiyi's growth rate has slowed, but the loss rate has narrowed unilaterally. In 2018, EBITDA lost 7.3 billion yuan, with a loss rate of 29%, and in 2021, EBITDA lost 2.6 billion yuan, with a loss rate of 8.6%. According to this trend, iQiyi may "tie" in 2023!
In Q3 2020, Baidu Group's (Baidu Core + iQiyi) EBITDA soared to 9.8 billion, with a profit margin of 34.8%. Entering 2020, EBITDA margins have fallen significantly, with Q4 falling to 17.4%.
The decline in Baidu's core profit margin, iQiyi's still not reversing losses, and stagnant net profits are superimposed on the unfavorable factors faced by Chinese stocks, which is the reason for Baidu's stock price downturn.
Baidu Core still has considerable cash flow in capacity: net cash inflow from operating activities was 28.82 billion yuan in 2017 and cash flow from operating activities was 26.1 billion yuan in 2021. Tens of billions of cash flow per year are enough to support new businesses such as intelligent cloud and intelligent driving to achieve large-scale profitability.
2) Invest in the future
R&D and capital expenditure are investments that focus on the future.
R&D expenses
From 2010 to 2012, Baidu spent a total of 4.36 billion yuan on research and development expenses, an average of 1.45 billion yuan per year;
In 2013, the R&D expenditure was 4.11 billion yuan, close to the sum of the previous three years;
In 2015, the R&D expenditure exceeded 10 billion yuan, accounting for 15.3% of the current revenue;
From 2010 to 2020, the total R&D expenditure exceeded 100 billion yuan;
In 2021, R&D expenses reached 24.9 billion, accounting for 20% of the current revenue.
Since 2010, Baidu has invested a total of 127.3 billion yuan (nearly $20 billion) in research and development.
"Free cash flow" after capital expenditures still amounts to tens of billions
Baidu's R&D investment continues to rise, but capital expenditure is relatively "restrained", and free cash flow has been maintained at a relatively high level:
Net cash inflow from operating activities in 2017 was 28.82 billion, minus 3.76 billion capital expenditures and free cash flow of 25.1 billion;
Net cash inflows from operating activities increased to $33.1 billion, capital expenditures of $8.2 billion and free cash flow of $24.9 billion in 2018;
In 2021, cash flow from operating activities was $26.1 billion, capital expenditure soared to $10.6 billion, and free cash flow was $15.4 billion.
In 2021, Baidu's core capital expenditure increased by 120% year-on-year, while free cash flow still reached 10 billion, indicating that Baidu is quite stable.
3) Overall profitability assessment
Blue depreciation represents gross profit (rate), colored stacking columns represent expenses (rate), and blue flood color to obtain operating profit.
In 2016, the gross profit was 35.3 billion yuan, the two expenses totaled 25.2 billion yuan, and the operating profit was 10 billion yuan;
In 2018, the gross profit was 50.5 billion, the two expenses totaled 35 billion, and the operating profit expanded to 15.5 billion;
In 2021, the gross profit was 60.2 billion yuan, a record high, with a total of 497 expenses and an operating profit of 10.5 billion yuan, slightly higher than in 2016.
Blue and color generally maintain a distance of more than 10 billion, and Baidu has always been an excellent stock.
Baidu can not fall
As of the end of 2021, Baidu's cash on paper plus short-term investments reached US$30.2 billion, accounting for 90.3% of current assets and 89.8% of net assets. From the perspective of financial liquidation, Baidu is a "marijuana bag" containing $30 billion.
Excluding cash, Baidu is valued at just $22 billion. The advertising business with an annual revenue of 80 billion yuan is valued at about $60 billion (6.7 times for Google) at a 5 times price-to-sales ratio; the intelligent cloud with an annual revenue of 15 billion yuan is valued at 25 billion US dollars at 10 times the price-to-sales rate, and the intelligent driving is worth at least 20 billion US dollars... These four businesses alone are worth $125 billion.
Baidu is a very "cattle" in China's Internet companies, investors are accustomed to Baidu "high standards, strict requirements": revenue growth can not be reduced, "increase income does not increase profits" can not ... But now Baidu, which has a market value of $50 billion, has basically no room for decline.
*The above analysis is for reference only and does not constitute any investment advice