*Value-added tax has been reclassified from cost of revenues to net against revenues. Source: Company reports/Coresight Research

Baidu reported 1Q18 revenues of ¥20.9 billion ($3.33 billion), up 31% year over year. Revenues were boosted by the increase in revenue per online marketing customer and iQiYi’s significant increase in revenues. Non-GAAP diluted earnings per ADS was ¥16.3 in 1Q.

1Q18 RESULTS REVIEW

Total revenues in 1Q18 were ¥20.9 billion ($3.33 billion), a 31% increase from 1Q17. Mobile revenues represented 78% of total revenues, compared to 70% for 1Q17.

• Online marketing revenues for 1Q18 reached ¥17.2 billion ($2.74 billion), representing a 23% year-over-year increase. Baidu had approximately 475,000 active online marketing customers, an increase of 5% year over year.
• Revenue per online marketing customer for 1Q18 was approximately ¥36,100 ($5,800), up 19% year over year.
• Revenues from iQiYi reached ¥4.9 billion, up 57% year over year, boosting Baidu’s revenues.

Selling, general and administrative expenses (SG&A) was ¥3.1 billion ($501 million), an increase of 12% year over year. Content costs were ¥4.2 billion ($669 million), up by 59% year over year. The sharp increase was primarily due to iQiYi’s increased content costs. Operating income in 1Q18 increased by 128% year over year to reach ¥4.6 billion. Non-GAAP net income attributable to Baidu in 1Q18 was ¥5.7 billion ($914 million). Non-GAAP diluted earnings per ADS was ¥16.3 ($2.6).

Baidu’s AI Initiatives

As one of the pioneers in AI, Baidu has a wide range of initiatives focused on AI application. Over 1Q18, the company:

• Signed a cooperation memorandum with the Haidian district of Beijing to jointly develop an AI-based “Smart City Brain” to handle transportation, government administration, environmental protection and public safety.
• Begins using reinforcement learning, a branch of machine learning, in its Phoenix Nest online marketing system for its search and feed business. In addition, 20.2 billion malicious webpages were removed in 2017 using AI.
• Received the licenses to conduct open road tests for autonomous vehicles in the cities of Beijing and Chongqing, and in Fujian province. Baidu released Apollo 2.5 on April 19 and formed strategic partnerships with the leading auto manufacturers in China-Great Wall Motor and BYD-to cooperate on developing autonomous driving.
• DuerOS Assistant will be integrated into a variety of digital products, including TCL’s and Skyworth’s smart TVs, XGIMI’s smart projectors, Aineomo’s touchscreen smart speaker and BroadLink’s home electronics control devices.

Guidance and Future

Baidu expects revenues for 2Q18 to be between ¥24.91 billion ($3.97 billion) and ¥26.19 billion ($4.17 billion), representing a 26%–33% increase year over year. Excluding disposed businesses, such as mobile games and Baidu Deliveries, the guidance represents a 28%–34% increase year over year.