Baidu Q4: Sustained Momentum Across Business Lines

Baidu (NASDAQ:BIDU) reported its fourth quarter and full-year results on February 21. The company beat consensus revenue and EPS estimates. As indicated by an internal memo in January, Baidu crossed RMB 100 billion in revenue for 2018 with total revenue coming in RMB 102.7 billion ($14.9 billion, +28% y-o-y), with 856K active online marketing customers (+10% y-o-y). While other revenue grew 86% to $3 billion driven by iQIYI, content costs grew 75% to $3.42 billion, also driven by iQIYI.

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Key takeaways from the quarter are below:

• Search and Feed: Baidu App’s daily active users (DAUs) grew 24% year-on-year to 161 million (+24% y-o-y), Baijiahao – Baidu feed’s content network – grew to 1.9 million. Meanwhile, BaiduSmart Mini Program monthly active users (MAUs) grew to 147 million (+30% y-o-y), while Haokan (short video) and Quanmin (flash video) DAUs reached 19 million and 4 million, respectively.
• DuerOS: The installed base for DuerOS crossed 200 million (+45% q-o-q), while registering 1.6 billion voice queries.
• Apollo: The company’s self-driving project has been granted over 50 licenses for open road testing in some of China’s major cities. Apollo has also secured 135 OEMs as partners.
• Cloud and Others: On the eve of the Chinese New Year, Baidu’s cloud handled over 20 billion interactions with a peak of 10 million hits per second. The company continues to see widespread adoption of its AI tool kit and also has been expanding in local cities for newer initiatives of blockchain-based implementations.
• iQIYI: User base grew to 87.4 million (up 36.6 million) and also launched a hybrid OTT TV box with Sichuan Cable TV.
• Q1 Guidance: Management expects Q1 revenues to range between $3.42-3.60 billion (+12-18% y-o-y).

Baidu’s results look fairly strong in light of the expected weakness due to the ongoing U.S.-China trade disputes. Further, we note that Baidu is maintaining its leadership position in search while also moving towards profitability in its digital content (capital intensive) business. Additionally, the developments at Apollo point toward sustained headway in commercializing the company’s self-driving technologies. Coupled with management’s vision on ramping up AI across the portfolio of Baidu’s offerings, this hints towards significant upside if these endeavors come to fruition.

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