$BIDU-SW(09888.HK)3Q24 earnings Quick Interpretation: Here we will discuss Baidu's core business as usual, excluding iQiyi.

The third-quarter performance concretely shows the pressures Baidu is currently facing—macroeconomic conditions, competition, and the impact of AI transformation on traditional search, reflected in the sluggish growth of mobile Baidu traffic, a 4.5% year-on-year decline in Baidu's core advertising revenue, and a 12% year-on-year increase in other revenues.

Since most institutions adjusted their expectations downward (including advertising and cloud) at the end of October, the final revenue results were largely in line with or slightly exceeded some relatively conservative institutional expectations. However, on the expense side, Baidu's R&D expenses for the period were significantly lower than usual. Dolphin Research believes this may be due to recent organizational optimization adjustments (department mergers, executive changes). For specifics, we can look to management's comments during the earnings call.

Ultimately, Baidu's core profitability exceeded market expectations, but operating net cash inflow fell by half year-on-year. Despite lower-than-expected capital expenditures in Q3, free cash flow was only 2.4 billion yuan, the lowest in nearly three years except for Q1 2022.

Dolphin Research notes that advertising cash flow has always been strong, so when Baidu's advertising business is under pressure, cash flow naturally takes a hit. Meanwhile, other businesses (smart cloud, smart hardware, autonomous driving, etc.) may show decent revenue growth but not necessarily immediate cash returns. Additionally, AI may involve investments in intangible assets like content. For details, we can also refer to management's explanations.