Baidu, Inc. (BIDU) is a leading Chinese technology company that has been actively transforming its business to focus on artificial intelligence (AI). While it's widely known for its search engine, the company's core strategy is now centered on developing and applying AI across various services.

The Business Model (How They Make Money)

Baidu makes money primarily through two main parts of its business: "Baidu General Business" and "iQIYI."

1. Baidu General Business: This is the largest part of Baidu's operations, making up about 80% of its total revenue in the fourth quarter of 2025. This segment is further divided into:
   • AI-powered Business: This is Baidu's growth engine, encompassing its advanced AI technologies. It includes:
     • Mobile Ecosystem: This covers a suite of popular apps like the Baidu App, the AI chatbot ERNIE Bot, and other content platforms, where they generate revenue through online marketing and other services.
     • AI Cloud: Baidu provides cloud computing services powered by AI, offering infrastructure and platform services to businesses and government clients. This also includes AI applications like Baidu Wenku (a document sharing platform) and Baidu Drive (cloud storage). In the fourth quarter of 2025, revenue from Baidu Core AI-powered Business was RMB 11.3 billion, representing 43% of Baidu General Business revenue. By the second quarter of 2026, Baidu Core AI-powered Business revenue reached RMB 12.5 billion, accounting for half of Baidu General Business revenue.
     • Intelligent Driving & Other Growth Initiatives: This includes Baidu's self-driving taxi service, Apollo Go, and its smart assistant technology, DuerOS. Apollo Go delivered 3.4 million fully driverless operational rides in Q4 2025 and approximately 1 million fully driverless operational rides in Q2 2026.
   • Legacy Business: This primarily consists of traditional advertising services across Baidu's search engine and other content feeds. In the fourth quarter of 2025, this segment generated RMB 12.3 billion in revenue.
   • Other: This category includes various other revenue streams, which amounted to RMB 2.5 billion in Q4 2025.
2. iQIYI: This is Baidu's online video entertainment service, similar to a streaming platform. It contributed about 20% of Baidu's total revenue in the fourth quarter of 2025.

In the second quarter of 2026, Baidu's total revenue was RMB 31.3 billion.

The Metrics That Matter Most

For Baidu, given its strategic shift towards AI and its diverse business lines, these are the most important numbers to watch:

1. Revenue: This metric tells you the total amount of money Baidu brings in from all its services before subtracting any costs. It's crucial for Baidu because it shows if their big bet on AI is actually translating into more business. As they transition from traditional advertising to AI-powered services, watching overall revenue, and especially the growth in their AI-powered segments, helps us understand if their new strategies are successfully attracting customers and generating sales. In Q2 2026, total revenue was RMB 31.3 billion.
2. Operating Income: This number shows how much profit Baidu makes from its core business operations after covering everyday costs like salaries and rent, but before accounting for things like interest payments or taxes. For Baidu, with its significant investments in AI research and development, operating income helps us see if their main businesses are running efficiently and profitably. A healthy operating income indicates that their AI initiatives are not just generating revenue but also contributing positively to the company's bottom line. In Q2 2026, Baidu reported an operating income of RMB 3.0 billion.
3. R&D Expenses (Research & Development Expenses): This metric represents the money Baidu spends on creating new technologies, improving existing products, and innovating in areas like AI. For a company like Baidu, which explicitly states it's an "AI-first" company, R&D expenses are a direct measure of its commitment to innovation and future growth. High and consistent R&D spending suggests they are actively pushing the boundaries of AI, which is vital for their long-term competitiveness. In the fiscal year 2025, Baidu's R&D expenses were RMB 20.4 billion.
4. Operating Cash Flow: This tells you how much cash Baidu's regular business activities generate. It's different from profit because it focuses on actual cash coming in and going out. For a company undergoing a major transformation and investing heavily, having strong operating cash flow is essential. It means the company can fund its growth, pay its bills, and potentially return money to shareholders without relying too much on borrowing or selling off assets. Baidu's operating cash flow was RMB 3.4 billion in Q2 2026.
5. Cash and Investments: This metric represents the total amount of readily available money and easily convertible assets Baidu holds. For a company like Baidu, which is investing heavily in cutting-edge AI technologies and expanding into new, capital-intensive areas like autonomous driving, a substantial amount of cash and investments provides financial flexibility. It allows them to fund long-term projects, make strategic acquisitions, and weather economic uncertainties. As of June 30, 2026, Baidu had RMB 283.1 billion in total cash and investments.

How to Value This Company

The ONE most relevant valuation metric for Baidu is EV/EBITDA.

EV/EBITDA (Enterprise Value to Earnings Before Interest, Taxes, Depreciation, and Amortization): This metric helps you figure out if a company's stock is cheap or expensive by looking at its total value (Enterprise Value) compared to its operating earnings before certain accounting adjustments (EBITDA).

Here's why it's great for Baidu:

• Focuses on Core Operations: EBITDA strips out things like interest payments, taxes, and the cost of assets wearing out (depreciation and amortization). This is helpful for Baidu because it has a mix of mature businesses (like traditional search advertising) and rapidly growing, capital-intensive AI businesses (like AI Cloud and autonomous driving). By looking at EBITDA, you get a clearer picture of the cash-generating ability of its core operations, regardless of its debt structure or how it accounts for its many assets.
• Accounts for Debt and Cash: Enterprise Value considers both the company's stock market value and its debt, then subtracts its cash. Baidu often holds a significant amount of cash and investments, and like many large companies, it has debt. EV/EBITDA gives a more complete picture of the company's total value, not just its stock price, relative to its operational earnings. This is especially useful for a company that might be using debt to fund its AI expansion.

In simple terms, EV/EBITDA helps you compare Baidu's operational performance to its total value, giving you a better sense of whether you're paying a fair price for the underlying business, especially when the company is investing heavily and transforming its operations.