Baidu Inc Q2 reported a number of data that exceeded expectations, but this does not seem to satisfy the appetite of the market.

According to the financial report, Baidu Inc's Q2 revenue was 31.35 billion yuan, an increase of 20% over the same period last year and higher than the market expectation of 30.92 billion yuan.

The adjusted operating profit in the second quarter was 5.65 billion yuan, exceeding the market expectation of 4.23 billion yuan, and the adjusted profit per ADS in the second quarter was 15.41 yuan, exceeding the market estimate of 13.04 yuan.

Baidu Inc's performance mainly comes from two major parts: first, Baidu Inc's core, including advertising business (search / information flow advertising) and innovation business (Intelligent Cloud / DuerOS small speakers / Apollo, etc.); second, iQIYI, Inc. business, including membership, advertising and copyright authorization, etc.

In the second quarter, Baidu Inc's core income was 24 billion yuan, up 27% from the same period last year. Of this total, advertising revenue was 19 billion yuan, up 18% from the same period last year; and non-advertising revenue was 5 billion yuan, up 80% from the same period last year.

Baidu Inc's innovative business revenue growth is mainly driven by smart cloud and other businesses. Baidu Inc Q2's income from iQIYI, Inc. was 7.6 billion yuan, an increase of 3% over the same period last year.

Baidu Inc expects revenue in the third quarter of this year to be between 30.6 billion and 33.5 billion yuan, an increase of 8 per cent, 19 per cent year-on-year, of which Baidu Inc's core income is expected to grow 9 per cent and 20 per cent year-on-year.

Baidu Inc also said that there is still great uncertainty in the company's business expectations.

Before trading on Aug. 12, after Baidu Inc's earnings were released, US stocks opened down more than 3% and finally closed down 3.23%.

In fact, Baidu Inc shares have been on a downward path since late February, falling from a high of $354 to the current $157, and are now almost back to the starting point of the rally that began at the end of last year.

On February 9 this year, Baidu Inc's share price broke through US $300, and the total market capitalization returned to the US $100 billion mark. But it began to fall again in March, and today it has basically been hit back to the prototype. Is it that the capital market is unsentimental or that Baidu Inc has changed?

Negative and bright spots of Q2 financial report

Baidu Inc's performance in the second quarter, the overall momentum of the core business is insufficient, the growth is not strong enough; the growth rate is likely to slow down in the next quarter.

In the first quarter of this year, the overall revenue of Baidu Inc's core business was 20.4 billion yuan, up 34% from a year earlier, at the top of Baidu Inc's guidance of a year-on-year increase of 26%.

In the second quarter, Baidu Inc's core revenue was 24 billion yuan, up 27% from a year earlier, in the middle of the quarter's revenue guidance (20% up 33% from a year earlier) and slightly higher than market expectations.

Advertising business is the basic part of Baidu Inc's performance. In the first two quarters of this year, advertising business accounted for 79.5% and 79.1% of Baidu Inc's core revenue, respectively.

But advertising grew 18% in the second quarter from a year earlier, down from 27% in the first quarter.

Judging from Baidu Inc's performance guidance on Q3, the growth rate of advertising business will further slow down.

Baidu Inc estimates that Baidu Inc's core revenue in the third quarter grew by only 9%, 20% year-on-year, significantly lower than the actual growth rate of 27% in the second quarter. Because the advertising business is Baidu Inc's core main source of revenue, and the second half of the year is the peak revenue season, this guideline means that Baidu Inc lacks confidence in the advertising business.

On the profit side, Baidu Inc posted a net loss of 583 million yuan in the second quarter, compared with a net profit of 3.579 billion yuan in the same period last year. Of this total, Baidu Inc's other losses totaled 2.4 billion yuan, including a fair value loss of 3.1 billion yuan on long-term investment. Baidu Inc said that this is mainly due to the continuous decline in the share price of Kuaishou stocks in Hong Kong and the shrinking market value of Kuaishou, which makes Baidu Inc adjust the value of his long-term investment.

In March 2016, Kuaishou announced that it had received tens of millions of US dollars in round C investment, including Baidu Inc, Chinese Cultural Industry Fund and Light Source Capital Investment. According to the Kuaishou IPO prospectus, Baidu Inc holds 3.78 per cent of the shares in Kuaishou.

Since Kuaishou's listing, the share price has opened high and gone low, and its market capitalization has shrunk 80% from its peak; the key is that Kuaishou has not shown the ability to reverse the decline so far.

The share price of Kuaishou opened high and went low, plummeting all the way.

However, Baidu Inc's innovative business is still a bright spot in the financial report.

Revenue rose 80% in the second quarter from a year earlier. Last year's Q3, Baidu Inc disclosed non-advertising revenue for the first time, reaching 2.9 billion yuan, an increase of 14% over the same period last year.

Baidu Inc intelligent cloud is the revenue pillar and key growth momentum of Baidu Inc's innovative business at this stage. Baidu Inc's intelligent cloud has maintained high growth over the past few quarters, rising from 67% of Q4 last year to 71% of Q2 this year, with revenue reaching 3.8 billion yuan per quarter.

If advertising represents Baidu Inc's yesterday, car building and Apollo are Baidu Inc's tomorrow, intelligent cloud is Baidu Inc's business today.

Although Baidu Inc cloud business is a catch-up in the industry, it has found a clear path of differentiation: smart cloud, providing intelligent services for the industry in the form of cloud services, and deriving value from it. Baidu Inc's AI capability provides a continuous boost to the rapid growth of cloud business.

Behind the pullback of stock prices

From the end of last year to the beginning of this year, Baidu Inc's share price ended its long-term downturn and rose all the way; by mid-February, Baidu Inc broke through the market capitalization mark of 100 billion US dollars.

Behind this round of rise, on the one hand, it benefits from Baidu Inc's basic market-advertising business is the first to restore growth.

In November last year, Baidu Inc released its Q3 results for 2020, with both revenue and net profit substantially exceeding expectations, with Baidu Inc's total core revenue of 21.4 billion yuan, up 2% over the same period last year, and net profit of 13.7 billion yuan, up 282% from the same period last year.

Despite the impact, Baidu Inc's eye-catching performance shows management and the market that Baidu Inc will quickly benefit from China's economic recovery. Several Wall Street investment banks predict that Baidu Inc will come out of the inflection point in the second half of 2020.

On the other hand, this round of stock price rise also has a lot to do with the good news released by Baidu Inc.

In November last year, Baidu Inc announced a wholly-owned acquisition of YY Live, with a total transaction value of about $3.6 billion. The deal will accelerate Baidu Inc's layout in the live broadcast field and diversify Baidu Inc's revenue.

In January this year, Baidu Inc officially announced that he would build cars and enter the smart army automobile industry as a vehicle manufacturer. Geely holding Group will become the strategic partner of the new company. Prior to this, the news that Baidu Inc was building a car had been rampant.

In February, Kuaishou landed on the Hong Kong Stock Exchange and became the "first short video share in China". After listing, Kuaishou's share price was highly hyped in the capital market, with a market capitalization as high as HK $1.74 trillion, making it the fifth largest Internet listed company after Tencent, Ali, Meituan and Pinduo.

In March, Baidu Inc listed in Hong Kong under the label of "AI ecological company". Baidu Inc is telling the capital markets a new story: they want to seize huge market opportunities in cloud services, intelligent transportation, intelligent driving and other areas of artificial intelligence beyond advertising.

These super positive, it can be said that each is a sharp weapon to stimulate Baidu Inc's stock price to soar, especially the car-building and self-driving business Apollo has built the imagination space of Baidu Inc's market value.

Since Q3 last year, a number of Wall Street investment banks have independently valued Baidu Inc's AI business in research reports. After the 2020 results were released, CICC independently valued Baidu Inc Apollo at $53.9 billion.

However, in March this year, the Dolphin Investment Research team mentioned in an all-weather technology interview that the current market has given all the valuations that Baidu Inc's AI innovative business can give. If there is no continuous progress in car construction, this is an one-off valuation repair, and the market capitalization may be difficult to exceed 150 billion US dollars.

In March this year, Baidu Inc's share price turned downwards and launched a big pullback.

Baidu Inc has set up three business models for Apollo: a technology provider for OEM, an intelligent transportation infrastructure, and a ride-hailing service for self-driving cars.

In the second quarter, in terms of self-driving, the Apollo L4 accumulated self-driving test mileage of more than 12 million km, an increase of 152% over the same period last year. Baidu Inc Apollo has obtained 278 autopilot test licenses.

In June this year, Baidu Inc Apollo launched the fifth-generation shared unmanned car Apollo Moon, which will cut the cost per kilometer by a further 60 per cent. The company plans to land the unmanned car service in 30 domestic cities in the next 2-3 years.

Jidu Automobile will not be able to push close to the mass-produced "concept production car" during the 2022 Beijing Auto Show, and the first mass-produced car will be officially launched in 2023.

However, judging from Baidu Inc's latest financial report, car building and Apollo have not really landed commercially, and it is still a long way from becoming the second growth curve of performance.

In addition, since March this year, changes in the regulatory environment have made Chinese stocks in the United States, such as frightened birds, a large number of Chinese stocks, including Baidu Inc, Ali, Pinduoduo, showed a similar trend in the United States.

In March, Chinese stocks fell endlessly. On March 24, Chinese stocks ushered in a dark moment in US stocks. Of the more than 200 US stocks, only 45 stocks fell by 10% +. Baidu Inc, Ali, Pinduoduo, bilibili and others all suffered even greater declines, and the market capitalization of Chinese stocks wiped out trillions overnight.

The slump was triggered by an announcement by the US SEC that it would impose a series of regulatory measures on foreign companies listed in the US under the Foreign companies Accountability Act and face a ban on trading if they are on the list for three years in a row. This announcement has a direct impact on most US-listed companies.

In recent months, regulatory uncertainty has increased unabated, with a number of Chinese companies suspending the IPO process to the United States.

In such an environment, Baidu Inc's share price is unlikely to be spared.

Baidu Inc is underestimated again.？

According to the latest financial report, Baidu Inc currently owns mobile phone Baidu Inc and other App assets including 580 million MAU; as of the end of the first half of the year, Baidu Inc (excluding iQIYI, Inc.) had cash, cash equivalents and short-term investments totaling US $26 billion.

At present, Baidu Inc has a market capitalization of only US $56.4 billion in US stocks and HK $449.7 billion (US $57.7 billion) in Hong Kong stocks. Excluding US $26 billion from this means that the market values Baidu Inc's various assets at only about US $30 billion.

It should be said that Baidu Inc's current valuation is in an obvious depression.

When Baidu Inc returned to a market capitalization of US $10 billion at the beginning of this year, many people thought, "Baidu Inc who can fight is back."

Li Yanhong is Buddhist on the stock price. He once shared a view from individual investors within the company-"the stock price is not a ruler to measure the value of Baidu Inc's existence." "

To express the company's confidence, Baidu Inc bought back $556 million of shares in the first half of 2021 and accumulated $2.5 billion since 2020.

Robin Li has always stressed his and Baidu Inc's long-term doctrine in the field of science and technology. "this is an era that rewards climbers and favors dreamers," he said in an internal letter. "this is an era that re-crowns scientific and technological innovation. "

This means that if we want to reap the investment income of Baidu Inc's growth in the capital market, we also need long-term doctrine.

Baidu Inc's current valuation depression doesn't seem to make much sense to short-term investors.