Baidu (BIDU), founded in 2000 as a Chinese search engine, has grown into an artificial intelligence (AI) company that offers a complete AI stack including AI chip infrastructure, core AI capabilities, a deep learning framework, augmented reality and an open AI platform.

The company also owns a controlling stake in iQIYI, a movie and video streaming website.

Baidu mainly generates revenue through Baidu Core, online marketing revenue and non-commercial revenue. Baidu Core consists of a mobile ecosystem, Cloud AI, smart driving, and other growth initiatives (OGIs).

The mobile ecosystem is a portfolio of more than a dozen applications, including Baidu App, Haokan and Baidu Post, which provides an open platform to aggregate a wide range of third-party content and services using the ‘AI from BIDU.

AI Cloud is a comprehensive suite of cloud services and solutions, while OGI includes autonomous driving services and Xiaodu smart devices.

First Quarter Results

In the first quarter, BIDU achieved total revenues of $ 4.29 billion, up 25% year-on-year. The company’s Baidu Core reported revenue of $ 3.13 billion, an increase of 34% year-over-year, while online marketing revenue reached $ 2.48 billion, in 27% year-on-year increase.

First-quarter non-marketing revenue was $ 646 million, up 70% year-over-year, with growth largely driven by BIDU’s cloud services and solutions. The company reported net income of $ 3.92 billion, with diluted profit of $ 11.26 per ADS.

After the results, Oppenheimer analyst Bo Pei reiterated a buy and a price target of $ 355 (up potential 86.6%) on the stock. Pei said in a note to investors: “Meanwhile, major e-commerce, mobile communication and content platforms have aggressively competed with each other for consumer attention, weighing on BIDU’s growth and margins.

“However, we are now seeing a decrease in competitive pressure and BIDU’s autonomous driving arm, Apollo, has shown good potential to tap into this emerging market, causing the stock to rise potentially,” added Pei.

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Outlook for the second quarter

In the second quarter, BIDU forecasts revenues of between $ 4.5 billion and $ 5 billion, indicating a year-over-year growth rate of 14% to 25%. The company noted in its press release that its outlook for the second quarter “does not include the potential contribution from an acquisition of YY Live.”

In November last year, BIDU announced the acquisition of YY Live, the live video entertainment streaming business of JOYY Inc. in China, for $ 3.6 billion as part of a fully-fledged deal. cash. The acquisition is expected to be finalized in the first half of this year.

Baidu Apollo

Apollo is the company’s autonomous driving brand. The company said in its call for results that Apollo had accumulated 6 million miles of “Level 4 autonomous driving test miles on the road and over 600 million miles of mock tests.”

BIDU’s Apollo Go, a robotaxi service, marketed its operations and started charging RMB 30 for trips to Shougang Park in Beijing. In March, Apollo Go began charging a minimum fare for trips to Cangzhou.

Robin Li, co-founder, chairman and CEO of Baidu, said on the company’s earnings conference call: “According to China Insights Consultancy, a market research and consulting firm, TAM [total addressable market] for Apollo’s Smart Driving, which includes robotaxi, electric vehicle and autonomous driving services for automakers, will reach $ 467 billion, nearly nine times the size of our $ 53 billion ad TAM in 2025. ”(See analysis of Baidu shares on TipRanks)

BIDU said in its results conference call that a dozen domestic and international automakers “have committed to Apollo to install ASD [Apollo Self Driving] in new vehicles.

IA Cloud Business

BIDU’s AI Cloud business offers a comprehensive set of solutions, including platform-as-a-service (PaaS), software-as-a-service (SaaS) and infrastructure-as-a-service (IaaS) solutions . However, the company is currently focusing on its AI PaaS services in order to differentiate its services from the market.

Baidu said on the first quarter earnings conference call, “We are seeing the implementation of our AI PaaS which is attracting repeat purchases. And in the long run, we expect our AI-powered business to have a higher margin as we rely on our PaaS and SaaS business versus pure IaaS players. “

Observing the company’s growing focus on the AI ​​industry, analyst Bo Pei commented, “Specifically, Cloud + 55% YoY in Q1 and is expected to accelerate in Q2 and in 21. While the rapid growth of AI companies will likely weigh on the core margin in the NT [near term], we are positive and believe this is justified by a significantly higher MAR and increased revenue.

The consensus among Wall Street analysts is a strong buy based on 16 buy and 3 take. BIDU analysts’ average price target of $ 308.13 implies upside potential of around 62% from current levels.

Disclaimer: The information contained in this document is for informational purposes only. Nothing in this article should be construed as a solicitation to buy or sell securities.