Introduction to the stone: Having a second-rate business in multiple industries is far less valuable than having a first-class business in the industry, and it is too dispersed, and it may also drag Baidu into the quagmire of huge losses. Therefore, the author suggests that for Baidu Group's current business, Robin Li should dare to "break away" strategically. In addition to stabilizing the basic disk of the online marketing business, we must focus on a core business with the determination of "not breaking the building and never returning", rather than dispersing the efforts on multiple businesses.
Li Ping | author
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Baidu, the Internet giant that used to be ranked in BAT, what is the current situation?
Not long ago, Baidu released unaudited financial reports for the fourth quarter and full year ended December 31, 2021, and the author took the opportunity to learn more about its business.
From the surface financial data, in the fourth quarter of 2021, Baidu achieved revenue of 33.09 billion yuan, an increase of 9% year-on-year; achieved a net profit of 1.7 billion yuan, down 67% year-on-year; non-GAAP net profit attributable to Baidu was 4.1 billion yuan, down 41% year-on-year.
For the whole of 2021, Baidu achieved total revenue of 124.5 billion yuan, an increase of 16% year-on-year; net profit of 10.226 billion yuan, down 54.49% year-on-year; and net profit attributable to Baidu under non-gaaped accounting standards was 18.8 billion yuan, down 14% year-on-year.
From the overall data point of view, Baidu Group is in a state of increasing revenue and not increasing profits. Behind this, the surge in fees is the main reason. For the whole of 2021, Baidu's R&D expenditure reached 24.9 billion yuan, an increase of 28% year-on-year, and sales and management expenses reached 24.7 billion yuan, an increase of 37% year-on-year. Because the growth rate of these two expenses is higher than the increase in revenue, Baidu's operating profit margin continues to decline. The data shows that in Q1-Q4 of 2021, Baidu's operating profit margins were 19%, 19%, 15% and 11%, respectively.
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After looking at the overall business data performance, let's look at the specific segments of the business. At present, Baidu Group's revenue composition is mainly divided into two parts: core business and iQIYI business. Among them, the core business is divided into two parts: online marketing business (advertising) and non-marketing business (intelligent cloud, intelligent transportation, intelligent driving and other AI business).
For the full year of 2021, Baidu's online marketing revenue was 74 billion yuan, an increase of 12% year-on-year. From a quarterly point of view, the revenue growth rate of Q1-Q4 in 2021 is 26%, 18%, 5% and 1% respectively, and the growth rate slowdown trend is obvious. On the one hand, this stems from the growth ceiling of Baidu's search, information flow and short video business, and on the other hand, the advertising business is affected by the macroeconomic environment and the decline in the prosperity of education, real estate and other industries.
The non-marketing business achieved revenue of 21.2 billion yuan, an increase of 71% year-on-year, which is quite beautiful from the digital point of view. Among them, the main force driving the growth of Baidu's non-marketing business is the intelligent cloud business, which achieved revenue of 151 yuan in 2021, with a revenue growth rate of up to 64%.
In addition to the intelligent cloud business, Baidu's non-marketing businesses also include Apollo autonomous driving, Xiaodu intelligent hardware, Baidu Health and Baidu Kunlun chips, etc., with a cumulative revenue of 6.1 billion yuan.
iQIYI's business segment achieved revenue of 30.6 billion yuan, an increase of 3% year-on-year. In terms of revenue contribution, iQiyi has accounted for a quarter of Baidu's overall revenue, close to about 50% of the online marketing revenue of the basic disk business.
However, iQiyi's current revenue is difficult to maintain in the future. Since iQiyi has long been a large loss-maker of Baidu Group, it has now reached a stage where its business model is unsustainable, so it will massively reduce content expenses and personnel expenses from 2022 to reduce the amount of losses. However, while reducing losses, with the reduction of content expenditure, iQiyi's market position is bound to decline rapidly, which in turn will lead to a sharp decline in advertising revenue and membership payment business.
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Search engines, information flow, short videos, intelligent cloud, automatic driving, Xiaodu intelligent hardware and iQiyi, although from the perspective of business structure, Baidu has got rid of search dependence and formed a diversified business layout.
But one problem that cannot be ignored is that in these businesses, in addition to advertising revenue based on search and information flow, other businesses are also facing significant losses.
For example, Baidu's intelligent cloud business, which has performed quite well in terms of revenue, is still in a relatively backward position in the domestic market. According to IDC's latest data report, Alibaba Cloud's market share in the third quarter of 2021 was 38.24%, ranking first; Tencent Cloud's market share was 10.92%, ranking second; HUAWEI CLOUD's market share was 10.74%, ranking third; Baidu's intelligent cloud market share was only 3.97%, ranking sixth.
From a global perspective, the AAA pattern in the field of cloud computing has been very stable, Amazon AWS, Microsoft Azure and Alibaba Cloud Alibaba Cloud ranked in the top three in the world, together occupying 70% of the global cloud computing market share, Google, Huawei ranked fourth and fifth, Baidu Cloud can only be classified as "others" column.
As a typical giant competitive industry, cloud computing belongs to a "winner-take-all" business with stronger and stronger, which determines the difficulty of Baidu intelligent cloud to achieve "counterattack". The reason why Baidu Cloud has achieved a revenue growth rate that exceeds the industry average in 2021 is more because of its low revenue volume. From the perspective of absolute revenue, the gap between Baidu's intelligent cloud and industry leaders is getting bigger and bigger.
In addition, cloud computing is still a heavy asset business, "huge capital investment + sustained loss" has almost become the norm in the industry, Alibaba Cloud is also suffering for twelve years before achieving its first profit in the fourth quarter of 2020 (EBITA from loss to profit). It is reported that Tencent Cloud has not yet achieved profitability under the current scale of Baidu Intelligent Cloud. Therefore, although Baidu did not separately disclose the profit and loss performance of the cloud business, its real profitability may not be optimistic, which is also an important reason for the pressure on Baidu's profit side.
In addition to the cloud business, the autonomous driving service represented by the Apollo platform is one of Baidu's most high hopes, but the business has not found a too mature business model. On the one hand, most core automakers want to take autonomous driving technology into their own hands and remain cautious about working with third-party manufacturers such as Baidu. In addition, even as an autonomous driving supplier to automobile brands, the revenue of providing Apollo autonomous driving technology solutions to it is relatively limited.
Because it is difficult to make money by providing autonomous driving services, Baidu has also been forced to carry out its own business. On the one hand, it launched a driverless taxi business radish run, on the other hand, it personally built a car, and established a joint venture with Geely to establish a Jidu automobile brand.
For the two businesses of Radish Run and Jidu Automobile, Baidu also has an uncertain future. First of all, Radish Run is still in the stage of commercial experimentation, and it is still far from finding a mature profit model. Secondly, new energy vehicle manufacturing not only requires huge capital investment, but also the current new energy automobile industry has become a trend of competition in the Red Sea, and it is difficult for latecomers like Jidu Automobile to have another chance.
iQiyi is a huge burden, not only short-term profitability is hopeless, but also began to appear a financial crisis. According to the annual report released by iQiyi, as of the end of 2021, its current monetary funds are only 3 billion yuan, a decrease of 7.87 billion yuan from the beginning of the year, and according to the previous burning rate of nearly 10 billion yuan per year, the 3 billion funds will soon be exhausted.
What is more serious is that iQIYI currently has interest-bearing liabilities of about 4.1 billion yuan due within one year, which means that iQIYI has a great debt repayment risk. Once iQIYI is unable to repay its debts on time, it is likely to cause a run effect between financial institutions and suppliers, and iQIYI will fall into a catastrophe.
Therefore, not long ago, we saw that Baidu Group was forced to unite with some financial investors to carry out an emergency blood transfusion of 1.8 billion yuan to iQiyi, but these funds are only a drop in the bucket for competition in the online video field. If Baidu Group also wants to strategically maintain iQiyi's competitive position in the market, then it also needs to continuously invest more funds. If capital investment is stopped, then iQiyi will soon fall sharply.
Capital investors in the secondary market are very keen, and they have anticipated iQiyi's current predicament and have begun to sell heavily. In the last three trading days, iQiyi's stock price has fallen by 21.71%, 13.4% and 24.1% respectively, and its market value has fallen to $1.66 billion.
Among all the new businesses of Baidu Group, Xiaodu intelligent hardware has always been more optimistic about the author. First of all, it has a relatively mature product model; secondly, Baidu has a differentiated leading edge in the field of artificial intelligence voice; third, Baidu has sufficient funds to support the development of Xiaodu intelligent hardware, and more importantly, this team has proved itself through previous achievements.
When I study the strategies of many companies, I found that the ultimate strategy does not come from top-down formulation, but from bottom-up business performance. Which businesses perform well can be elevated to strategy. Therefore, the author has always suggested that Baidu Group should upgrade Xiaodu intelligent hardware to the company's strategic business.
However, due to the fact that Baidu has entered a lot of business, and each business needs to consume a lot of team energy and capital investment, Baidu lacks a more systematic top-level design in the small intelligent hardware business, and is not equipped with sufficient resources, so the development so far, although there is no lack of bright spots, but it is far from meeting the author's expectations for it.
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From the perspective of future development, the author believes that whether it is online video, intelligent electric vehicles, intelligent cloud or small smart hardware business, if saturation attacks, Baidu still has some opportunities. However, if it is still a multi-line operation and balanced force, it is difficult for these businesses to achieve breakthroughs, and they can only maintain their position in the second- or third-rate industry.
Having a second-rate business in multiple industries is far less valuable than having a first-class business in the industry, and in the long run, an overly fragmented business may drag the company into a huge loss. Therefore, the author suggests that for Baidu Group's current business, Robin Li should dare to make a strategic "breakaway". In addition to stabilizing the basic disk of the online marketing business, we must focus on a core business with the determination of "not breaking the building and never returning", rather than dispersing the efforts on multiple businesses.
However, for entrepreneurs, it is much harder to do subtraction than to do addition. In the above-mentioned complex business layout, which business the strategy focuses on, which business the strategy abandons, and how to exit the abandoned business most effectively needs to be systematically considered, which will be an important test of Robin Li's strategic wisdom and entrepreneurial boldness.