■ what signal does Baidu financial report reveal?

■ why did Baidu choose AI?

■ what is the commercialization process of intelligent driving?

In 2021, companies such as education and training groups, game supervision and travel catering under the influence of the epidemic had a difficult survival, and the advertising industry was struggling. On March 1, 2022, Baidu, regarded by some investors as an advertising company, released its annual report for 2021, and its overall revenue increased by 16.3%.

Through this financial report, we can see that Baidu is turning around: it is getting farther and farther away from the advertising companies in the public’s mouth, and its scientific and technological attributes are becoming stronger and stronger. In addition, Baidu’s heavy investment in R & D is no longer a large asset light Internet factory that relies on scale to build a moat.

Baidu’s second growth curve has become more and more concrete, from heavy bets on AI, to the next car building, and then to the AI sign language anchor at the Winter Olympics.

Starting from the financial report, this paper will explore Baidu’s hard technology process, answer why baidu should overweight technology, and whether the current Baidu is underestimated.

How effective is the elephant turning around?

Throughout 2021, baidu achieved revenue of 124.5 billion yuan, a year-on-year increase of 16.27%.

As a result of the formation in the capital market, in the US stock market, baidu rose 6.84% after the release of the annual report, and the Hong Kong stock market opened high and closed up nearly 7%.

Investors voted for Baidu because of two signals in the financial report.

First, the change of revenue structure represents Baidu’s business shift and takes a further step forward.

In 2021, Baidu’s core revenue was 95.2 billion yuan, a year-on-year increase of 21%. Driven by advertising revenue of RMB 21.2 billion and non advertising revenue of RMB 74.1 billion, mainly driven by the year-on-year growth of advertising revenue of RMB 12.1 billion.

Let’s start with advertising. In 2021, the mass destruction of education and training, the comprehensive supervision of games, the contraction of travel, catering and other industries affected by the epidemic, and the significant impact on the advertising industry. Baidu can keep the basic market from shrinking, which is a very optimistic data.

Looking at the future, interconnection is good for Baidu. Goods and short videos can be aggregated through Baidu search.

Horizontally, baidu is cooperating with other apps, such as meituan, xiaohongshu, Zhihu and other more than ten enterprises to launch a wall breaking campaign to carry out connectivity cooperation at the three levels of traffic, technology and service ecology; Vertically, Baidu has reached interconnection with a number of mobile phone manufacturers, and Baidu smart applets will be able to run across platforms in their own browsers.

Look at Baidu Intelligent Cloud again. This is a business that sprint.

In 2021, the revenue of intelligent cloud was 15.1 billion yuan, with a year-on-year increase of 64%, which is an important engine driving revenue growth. The commercialization process in manufacturing, energy, transportation and other fields accelerated, and the revenue more than doubled in 2021.

According to IDC’s Research Report on 2021H1 China AI cloud service market, Baidu intelligent cloud has been the first time in five consecutive times in the AI public cloud service market.

The third business includes intelligent driving and other businesses. Intelligent driving is Apollo, and other businesses include small speakers, chips, etc.

Intelligent driving is a business of great concern to Baidu. In 2021, great progress has also been made in commercialization.

According to the annual report, the orders for unmanned vehicles supplied by turnip express in the fourth quarter of 2021 were 213000, nearly doubling month on month. In contrast, Google’s waymo Quarterly Orders range from 20000 to 40000 orders.

The second signal is to strengthen research and development.

In 2021, the R & D cost of Baidu’s core business was 22.143 billion yuan, a year-on-year increase of 31.4%, accounting for 23% of its core revenue. This proportion has been rising for many years.

AI layout itself requires huge capital investment in the early stage. For example, Amazon cloud and Alibaba cloud have endured losses for decades in exchange for the hope of profit.

The input and output of artificial intelligence is not linear, nor is it a gain without hard work. Before a critical point, it is hard work and no gain. After this critical point, there will be exponential growth. This accelerated cycle principle is also called Kurzweil’s law.

The best time to plant a tree was ten years ago. As early as 2010, baidu began to invest in the field of AI and continued to invest heavily.

Robin Li once said in a forum: “in the past ten years, Baidu’s annual R & D investment accounts for more than 15% of revenue, and AI technology research and development is one of the seeds planted by Baidu.”

The proportion of R & D investment continues to reach a new high, which also comes from Baidu’s determination to AI.

Overall, from the change of revenue structure in Baidu’s financial report, it can be seen that the advertising business belongs to a stable basic plate, and the Intelligent Cloud and automatic driving with increased R & D investment are the future.

For such a future business, growth is more important than profitability. The acceleration of the process of superimposed commercialization and the rapid growth of revenue is the underlying logic of the sharp rise of Baidu’s share price.

Baidu’s model has changed from making easy money to making long-term money. So why should Baidu bet on AI technology? Why did you choose the direction of intelligent transportation?

Why bet on AI?

China has been on the fast track of economy for 40 years. Now, we have reached a key time node.

Standing at this turning point, looking back, the driving force of China’s economic development is demographic dividend and land dividend. In the final analysis, it is factor driven and model driven. We have undertaken a large number of medium and low-end manufacturing industries with cheap labor and land resources, and driven economic growth with investment and export.

This is also the epitome of the initial stage of many countries. From the experience of other countries in the past, driving economic development with natural resources or population endowment is easy to fall into the “middle-income trap”.

The concept of “middle-income trap” comes from the report “East Asian Renaissance: a view on economic growth” issued by the world bank in 2007.

The report found that many countries, such as Mexico, Brazil and Argentina, and the Philippines in Southeast Asia, developed basic manufacturing with the comparative advantage of cheap labor, and finally realized the leap from low-income countries to middle-income countries.

After that, however, they were unable to further expand their economies of scale or achieve technological innovation, nor to compete with the products and services of high-income economies