Kate Lin: Welcome to Morningstar. Chinese tech and internet firms have been in the news of late, often for being undervalued. But now, these firms are focused on relatively new revenue streams like cloud services and autonomous driving. For example, Baidu Inc. (09888) recently shared with investors a solid roadmap to grow its new business. Will others follow suit? Kai Wang, senior equity analyst at Morningstar, is here to tell us.
Hi, Kai. What is important in Baidu's announcement?
Kai Wang: Hi. So, we are finally seeing a concrete timeline for Baidu's Robotaxi business. They are announcing a global launch starting in 2025. So, we should be able to see some formal monetization in the business. While that's still long ways away, at least we have an idea of what Baidu is thinking in terms of a tangible roadmap laid out rather than anything conceptual. At some point, we will have a better idea of number of cars, number of rides and the fees that can put a better perspective on its valuation for that business.
Lin: So, Baidu's rivals like Alibaba (09988) and Tencent (00700) are also exploring newer areas of revenue streams. So far, who is leading the race?
Wang: So, Baidu is the leader in autonomous driving along with Waymo (a self-driving cars arm owned by Alphabet Inc. (GOOG)). They trail Alibaba and Tencent in cloud for now. Alibaba has the largest market share. They're having about 35% to 40% in China. It has exposure into a little bit of everything and has a lot of exposure to enterprise companies, especially in manufacturing and healthcare business industries, not to mention it has a large personal cloud presence as well. Tencent is more in the gaming retail industries. It has about 20% of market share in China, and Baidu has about 10% market share.
Lin: So, Baidu has a wide economic moat rating. How will its existing competitive edges help it forge ahead?
Wang: So, Baidu has about 10% market share, but it's rapidly gaining share, and part of that is the wide moat of the AI that it has, and that's part of the core competency. So, they're leveraging the smart AI capabilities to gain more enterprise clients. And part of that is that they're specializing in transportation, energy and water supply. So, these are large industrial enterprises that are going to be part of China's infrastructure. So, for now, they gained market share in the first quarter in 2022, and that we expect them to continue to do so for the rest of the year.
Lin: Right. Thank you so much, Kai. For Morningstar, I'm Kate Lin.
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