Shulou(Shulou.com)11/24 Report--

According to the news on the evening of February 22, Beijing time, Nasdaq:BIDU today released its results for the fourth quarter and full year of 2022, which ended on December 31. Baidu's total revenue in the fourth quarter was 33.1 billion yuan ($4.8 billion), roughly the same as a year earlier, according to the results. Net profit attributable to Baidu was 5 billion yuan ($718 million) and diluted income per American depositary share (ADS) was 13.59 yuan ($1.97). Excluding Non-GAAP, Baidu's net profit was 5.4 billion yuan ($779 million) and diluted income per American depositary share (ADS) was 15.25 yuan ($2.21).

After the announcement, Baidu Chairman and CEO Robin Li, CFO Luo Rong, Senior Vice President Shen Qiu and Senior Vice President and General Manager of Intelligent driving Group Li Zhenyu attended the subsequent earnings conference call to interpret the main points of the results and answer analysts' questions.

The following is an analysis of the Q & A session: JPMorgan analyst Alex Yao: a question about the online advertising business. Could you tell me the growth of the company's business after February? Which industries are growing fastest and which are slower? How is the growth of offline industries, including tourism, local services, chain stores and health care? How do these areas contribute to the company's revenue? What is the recovery like? In addition, given the low base in the second quarter of last year, how does the company predict online advertising growth in the next few months of this year, especially in the second quarter?

Li Yanhong: the recovery of various vertical industries is closely related to the growth of the company's business. The peak of COVID-19 infection in China ended in the first quarter. At present, the number of infection cases is on a downward trend. People's daily life is gradually returning to normal, and the operation of enterprises is also recovering. With the recovery of economic vitality, the revenue of our advertising business continues to improve, and the industries that make the greatest contribution to the company's advertising business, including health care, tourism, life services and chain stores, have also improved greatly. these are also representatives of the offline industry; the contribution of the online industry, such as online games, is still weak. From a regional point of view, because the peak of infection has already occurred in various places, the earlier the peak occurs, the faster it recovers. After the February festival, second-and third-tier cities recover faster than first-tier cities, because many people choose to spend more time with their families before returning to work in first-tier cities. The degree of recovery of the company's advertising business is also closely related to the recovery of those areas that contribute the most. As for the first quarter and later this year, the company's advertising business will benefit from China's economic restart and macroeconomic recovery, and we look forward to seeing the growth of advertisers' demand and promote the growth of the company's advertising business. I would also like to emphasize that in the economic and business recovery phase, customers still prefer effect advertising to brand promotion, and search is the best platform for showing effect advertising, and users have a clear intention when using search. Search advertising connects users' intentions with the most relevant products and services, and we will get more advertising budget from our customers. In the long run, the company will benefit from the continuous improvement of China's macroeconomic situation, e-commerce and short videos will also drive the growth of the company's advertising business, and Baidu's advertising revenue growth should also be higher than China's overall GDP growth rate. In addition, we are also looking forward to the generative artificial intelligence technology. The integration of Wenxin word, Baidu App, and Baidu search will enhance our user experience. The new function of Wenxin word will help us to obtain more new users, improve user participation, and enhance the attractiveness of the company's products to advertisers, thereby promoting the company's long-term revenue growth.

Citibank analyst Alicia Yap: a question about ChatGPT. You have great expectations for Baidu's progress in ChatGPT and artificial intelligence to generate content. Could you please tell us what new opportunities there are in this field? What is the company's market position in this field?

Robin Li: we are very much looking forward to the progress in the field of Chinese version of ChatGPT and artificial intelligence in the field of generating content, which represents a major trend that could lead to a lot of changes. Using our latest technology and big language model, the company will launch more new features of conversation services through Wenxinyuan. we will first embed the Wenxin Yiyan function into the search service and launch it in March. Baidu is a leader in technological innovation, launching Wenxin one word service in March 2019, and the number of participants has risen to well over 100 billion, trained through the search needs of billions of users and other aspects of education. From the perspective of Natural language Technology (NLT), Wen Xin Yi Yan is the most advanced Chinese model, not only the language, but also the understanding of Chinese culture. For the Chinese market, Wen Xin Yi Yan 3.0 is already a highly localized basic model of artificial intelligence, which means that the generative large language model we are engaged in will be more suitable for Chinese and Chinese market than other models developed overseas. In addition, our deep learning framework PaddlePaddle-- is also the framework on which Wen Xin's research and development is based-progress is also very rapid, millions of developers have completed their artificial intelligence works by using PaddlePaddle, and there is a close synergy between framework level and model level. As we all know, the cost of artificial intelligence pre-training is very high, so we believe that the company's one-stop artificial intelligence technology capabilities will help build the most efficient large language models, including search and content production. Vertical industries significantly improve the output rate and other applications. Based on Wen Xin's words, we are working hard to create a new version of Baidu search that is the most transformative. We will integrate generative artificial intelligence into the algorithm and content generation of search business, and will also add interactive functions. Users will soon be able to interact directly with the new generative large language model, which will become a supplement to the traditional search experience, or even upgrade to attract more users. Features similar to ChatGPT have the potential to become a new portal for Internet users, so expanding the market size of the search business may also help customers, content producers and merchants. Because of Baidu's strong artificial intelligence technology, we will continue to iterate and upgrade the model. Search is just an example, and many other applications will benefit from it. In terms of artificial intelligence cloud, we provide one-stop products at four levels: cloud infrastructure, deep learning open source framework, large basic model, and application. By opening the generative model to the public, that is, model after-sales service, the company will help many merchants and entrepreneurs build their own models and applications on Baidu Cloud, in terms of efficiency improvement, decision optimization, user experience improvement and other aspects to create more positive changes. We believe that artificial intelligence will rewrite the rules of the game in the field of cloud computing, artificial intelligence is also greatly changing many industries, we are full of expectations for the future. Baidu is building an artificial intelligence ecosystem around Wenxin, and so far, some institutions have decided to integrate Wenxin into their products and services, and this is just the beginning.

Morgan Stanley analyst Gary Yu: I have a few questions about the artificial intelligence cloud business. Will the poor recovery of revenue in the fourth quarter affect the results of the first quarter? What is the current growth of cloud business? How to predict the overall situation this year? What new products will be launched? What are the main drivers of growth? What will be the growth trend in the next few years? Another question, could you ask management to talk about the overall IT spending of enterprise customers in the public / private cloud segment? What new contracts will the company sign this year? Can the number of contracts rise before the macroeconomic recovery? Finally, what is the main bottleneck of this business growth at present?

Shen Qiu: we do see a gradual rebound in cloud business revenue, and our team has begun to contact more existing customers with the adjustment of epidemic prevention and control policies, but the reporting cycle of revenue from different projects varies from months to quarters. At the same time, we will gradually withdraw from the low-margin business and focus on improving the profit margin of the cloud business, which may also affect future revenue growth, but exceeding the industry growth rate is still our goal this year. In the long run, the general trend of cloud in traditional industries and the use of artificial intelligence to improve efficiency has not changed. Digitization is still a key driver of GDP growth, and we benefit most from Baidu's special market position. Compared with competitors, as Robin Li said, in artificial intelligence cloud, we provide one-stop products at four levels: cloud infrastructure, deep learning platform PaddlePaddle, large basic model, and application. Products at four levels can also work together seamlessly to provide end-to-end solutions to create the best results for users at a relatively low cost. If customers are in transportation, manufacturing, energy, utilities and other industries, Baidu Cloud can provide customers with the most efficient services, because in addition to the technical advantages I just mentioned, we also have a deeper understanding of the industry and its pain points, and have accumulated solid experience from previous cooperation. Most importantly, we plan to integrate Wenxin word into cloud services and artificial intelligence products to help many enterprises build innovative applications, explore new businesses and improve operations. this is of great significance to the transformation of Baidu's cloud business and the entire Chinese cloud industry. We will help more enterprises to realize the transformation from the digital era to the artificial intelligence era, and artificial intelligence will play a very important role in various industries.

Luo Jung: the company is constantly trying to improve the profit margin of the cloud business, such as increasing the application of artificial intelligence by reducing the number of low-margin sub-businesses. Baidu's artificial intelligence cloud business is actually divided into two parts, one is private cloud, its profit margin is high, and the other is enterprise cloud, this part is still in a state of loss, but both gross profit margin and operating profit margin continue to improve. If you look at our newly signed projects in the past few quarters, profit margins have been improving, and Robin Li also mentioned ways to improve profit margins in his previous statement. We also expect to be profitable in the cloud business in the next few years.

Bank of America Merrill Lynch analyst Eddie Leung: what are the company's investment plans for user acquisition and recruitment this year? How to look forward to the level of profit margin this year? What is the profit margin level of the core marketing business? What is the long-term goal of administrative expenditure on R & D and sales?

Luo Rong: the company began to cut expenses and costs at the end of 2021, which is earlier than other Internet companies. In the past few quarters, we have carefully re-examined and reconstructed various businesses, cutting out some businesses in the Baidu ecosystem that we do not have a competitive advantage. Or businesses that are not profitable in the long run, so the current Baidu ecosystem is healthier than it was a year ago, and its operation scale is much smaller than before. The number of employees in Baidu's core business decreased by 8%. In 2022, the operating expenses of Baidu's core business decreased by 9%, including 15% for sales administration and 3% for R & D. in the second half of last year, the operating profit margin of Baidu's core business, which is not calculated in accordance with US general accounting standards, increased year-on-year. The company's cost structure is healthier and better organized than it was a year ago. Looking forward to this year, our expenditure will remain cautious and continue to balance revenue and profit margin growth in order to achieve the long-term sustainable development of the company as a whole. For all promotional activities, we will monitor the return on investment, especially the rate of return on user acquisition. In other aspects, we will improve the efficiency of the R & D team and pay attention to the value of R & D results to users and businesses.

Wei Xiong, analyst at UBS Securities: a question about the company's self-driving taxi business. What is the current economic benefit of the unit of the business, and when is it expected to break even? Can the management share the technical roadmap of the company's self-driving taxi?

Li Zhenyu: on the question of unit economic benefits, the cost of self-driving taxis mainly comes from two aspects: manpower and vehicles. First of all, in terms of labor, there are no safe drivers in fully self-driving vehicles, which is conducive to further reducing costs. Last year, we made great progress in opening roads to provide fully self-driving taxi service. Baidu has launched this service in Wuhan and Chongqing. In Wuhan, our service area and fleet are constantly expanding. The length of operation is increasing. In December, we were allowed to test self-driving vehicles on open roads in Beijing, an important step in launching the service in the capital. This year, we plan to further expand the fleet and operations, reduce the number of safe drivers, and continue to reduce labor costs. Baidu continues to benefit from more and more domestic cities starting to support the operation of self-driving vehicles, and the expansion of operations can also help the company optimize its core technology, improve safety performance and increase the trust of regulators. Baidu Apollo Go remains the world's largest provider of self-driving taxi services, providing more than 1.5 million services to the public last year. In big cities like Beijing, self-driving taxis average more than 15 times a day, which is close to the number of services that traditional manned taxis can provide per day. We will continue to upgrade our technology and believe that more cities will allow self-driving taxis to enter.

Second, we have reduced the vehicle cost of Apollo RT6, and Baidu will use this model to provide a large-scale self-driving ride-hailing service, reducing the price of self-driving cars to the price level of mass market trams for the first time. With the rapid development of China's tram market and the high localization of the overall supply chain, we believe that its price will continue to decline in the future, and there is a lot of room for price reduction in the cost of vehicle parts. On the whole, these two reasons will promote the continuous improvement of the unit economic benefits of Apollo Go business.

Kenneth Fong, an analyst at Credit Suisse: a question about user traffic and usage time. Have these two parameters changed with the adjustment of epidemic prevention and control? What are the changes, especially in big cities?

Robin Li: after the adjustment of epidemic prevention and control, people spend more time outdoors, but in January, the overall use time of Baidu's major App increased by 6.6% compared with the same period last year, which is faster than that of the overall mobile market, because our wide variety of App can meet the various needs of users. After people return to work and study, they still need to know the development of the local epidemic, check test scores online, and so on. Over the past few years, we have continued to use technology to enrich content and services and provide users with a better experience in search, information flow and many other products. I also mentioned the traffic entry function of Wen Xin before, and the use of artificial intelligence to generate short videos is also one of the typical applications of generative artificial intelligence.

Goldman Sachs analyst Lincoln Kong: follow up a question about ChatGPT and Wen Xin. Many domestic companies have announced that they will cooperate with Baidu to use the Wenxin word function. Could you ask the management to introduce the relevant details of the cooperation? where are the commercial cash opportunities of the company? How much revenue can be created for the company? In addition, in terms of competition, will these companies launch similar services and challenge or affect their commercial cash realization opportunities?

Robin Li: of course, we are glad to see that many organizations have taken the initiative to contact us to express their strong interest in cooperating with Wen Xin. Some companies have announced plans to work with us to integrate Wenxin functions into their products, services or operations. More and more enterprises realize that generative big language models will change their industry, and they want to seize this opportunity. Wen Xin's words have attracted so much interest, which also shows that Baidu's leading strength in artificial intelligence has been widely recognized, and the era of artificial intelligence has really arrived. With regard to profit opportunities, Wenxin will be integrated into Baidu search to enhance the user experience. Users will rely more on us to complete a variety of tasks and meet various needs, so it will significantly expand the market size of the search business. We use artificial intelligence to generate content to expand content, including text, images or videos, to attract new users, increase user duration, improve user stickiness, and in the long run, win us a share of the online advertising market. For Baidu Cloud customers, they will be able to use our one-stop artificial intelligence technology to develop their own applications based on our artificial intelligence framework PaddlePaddle and Wen Xin Yiyan basic model, everything will become easier, more efficient, more powerful, and will drive the growth of our cloud business revenue. Our artificial intelligence technology is unique, including four levels of powerful services, Wenxin word training is completed by billions of user searches a day, the barrier is very high, and requires years of significant investment. We have a very strong first-mover advantage in this area. The technology behind Wen Xin's words is called reinforcement learning with human feedback, so human feedback is a very important part. As a pioneer in this field, we get growing human feedback, and our technological strength is unmatched by other companies. We are currently focused on preparing the release of Wen Xin, and continue to optimize its function after the release.

Related readings:

"Baidu's net profit of 4.953 billion yuan on Q4 in 2022 soared 189% compared with the same period last year, and the US stock market rose by more than 6% before trading."

Welcome to subscribe "Shulou Technology Information " to get latest news, interesting things and hot topics in the IT industry, and controls the hottest and latest Internet news, technology news and IT industry trends.