Baidu 1Q25 Quick Interpretation: The first-quarter performance slightly exceeded expectations overall (cloud, user numbers). Simply put, DeepSeek was a big help!

1. The main highlight was the Smart Cloud. After DeepSeek gained popularity at the beginning of the year, Baidu Cloud quickly integrated it, offering not only the lowest computing power prices on the market but also a free trial for a week. This drove Smart Cloud's growth rate to 42% in Q1, far exceeding the institutional expectation of 25%.

2. Advertising revenue continued to face pressure, but given that the macroeconomic situation in Q1 was not as bad as initially feared, some institutions later became slightly more optimistic about ad revenue (above Bloomberg consensus). However, the actual performance was still not great.

3. Thanks to the full version of DeepSeek's launch, the user base (monthly active users) of Baidu Mobile saw a significant boost, with a net increase of 45 million quarter-on-quarter—a much-needed relief. However, these returning users are likely more engaged with the AI search page, making it difficult for traditional ad models to directly benefit.

4. Gross margin declined by 7 percentage points due to changes in the business structure. However, in terms of operating expenses, while sales expenses increased year-on-year due to promotional needs, R&D expenses accelerated their decline. This is likely due to AI's efficiency improvements in internal R&D, effectively replacing some basic R&D staff. As a result, the decline in operating profit margin was less severe than the gross margin drop. From a business perspective, we also estimated through simple breakdowns that Smart Cloud, smart hardware, and other businesses like Robo-taxi showed improved loss reduction.

A detailed review will be published later in the community. Key points to focus on during the earnings call: 1) DeepSeek's contribution to cloud growth and its sustainability, as well as the profitability of the cloud business; 2) How AI search commercialization will gradually roll out and the company's phased goals. $Baidu(BIDU.US) $BIDU-SW(09888.HK)