What Are Baidu’s Key Sources of Revenues?

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Baidu‘s (NASDAQ: BIDU) Core business mostly constitutes an online marketplace that introduces internet search users to customers, who pay Baidu a fee based on click-throughs for priority placement of their links in the search results. This segment is expected to contribute $13 billion to Baidu’s 2020 revenues, making up 70% of Baidu’s $18.7 billion in revenues for 2020. Baidu’s core segment’s revenue contribution is more than twice that from iQIYI’s business, where revenue comes from membership services and online marketing services.

Baidu’s core business will provide around $2.7 billion, which is 47% of the $5.7 billion in total revenue the company is expected to add between 2017 to 2020. While we believe that Baidu’s core revenues will grow at a subdued rate in the near future, its content subscription services, iQIYI, should continue to drive the top line. The company’s stock price declined around 25% during this period, due to a combination of a slowdown in the China market and the ongoing U.S.-China trade conflicts.

We have created an interactive dashboard Baidu Revenues: How Does Baidu Make Money? Below we discuss Baidu’s business model, followed by sections that review past performance and 2020 expectations for Baidu’s revenue drivers and competitive comparisons with Alibaba and Google.

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Baidu’s Total Revenue has grown 46% from $10.2 billion in 2016 to almost $15 billion in 2018, and is expected to grow over 25% to around $18.7 billion by 2020

  • Baidu has added $4.7 billion to its revenue between 2016 and 2018.
  • Increasing sales from both its core and IQIYI divisions is likely to add $3.9 billion in revenue over the next two years

(A) Revenue from Baidu Core Channel to increase 16% (about $1.8 billion) by 2020, with its share of Total Revenue expected to be about 70% by 2020

The growth in Baidu’s user base is likely to continue due to the limited participation of foreign search engines in China. Also, the increasing component of AI in Baidu’s offerings is likely to help drive up pricing (through more intuitive ad serving). Furthermore, Baidu’s growing focus on growing user monetization is likely to lead to faster ARPU growth relative to user growth.

  •  Overall, Baidu Core revenue increased from $8.5 billion in 2016 to $11.3 billion in 2018, driven by strength in online game services, education, franchising, personal care, and business services sectors in online advertising.
  • We expect revenue to grow by 16% to about $13 billion in 2020, likely to be driven by growth in the number of users and ARPU.
  • Core revenues contributed 76% of total revenue in 2018. This share is expected to go down to 70% in 2020.

(B) Revenue from iQIYI segment to increase 59% (adding about $2.1 billion) by 2020, with its share of Total Revenue expected to be about 30%

  •  Segment revenue increased from $1.6 billion in 2016 to $3.6 billion in 2018, driven by the growth of membership services of iQIYI and financial services.
  • We expect revenue to grow by about 59% to about $5.7 billion in 2020, driven by growth in brand advertising and iQIYI’s expanding library of self-produced and licensed content.
  • Other segment sales contributed 24% of total revenue in 2018. This share is expected to go up to 30% by 2020.

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