(Bloomberg) -- Baidu Inc.’s revenue dipped, reflecting the difficulties of transitioning from search ads to AI during China’s economic downturn.
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Revenue for the three months ended June dropped 0.4% to 33.9 billion yuan, compared with projections for 34.1 billion yuan. Net income came to 5.5 billion yuan, versus an estimated 5.06 billion yuan. Baidu’s shares gained about 1% in pre-market trading in New York.
The underperformance shines a spotlight on the challenge of translating Baidu’s lead in generative AI into significant revenue. Baidu’s “Ernie” large language model has increasingly contributed additional sales through ad and cloud services, though it’s embroiled in an AI price war against the likes of Alibaba Group Holding Ltd. and Tencent Holdings Ltd. It could take years before the Beijing-based firm can comfortably cut its reliance on advertising, one of the biggest casualties of China’s faltering post-Covid recovery.
“Baidu’s business seems to be at a crossroads,” TH Data Capital analyst Tian Hou wrote in a note before the results. “Its AI initiatives have not yet delivered the expected results to become BIDU’s growth driver, and China’s economic downturn has further hindered its search advertising growth.”
The world’s second-largest economy is grappling with prolonged issues ranging from a property crisis to youth employment, denting corporate and consumer spending. Chinese tech earnings have been a mixed bag so far — Tencent, Alibaba and JD.com Inc. all beat earnings estimates, but their results illustrated persistent weakness in areas from payment to e-commerce.
Baidu’s billionaire founder, Robin Li, has high hopes of creating China’s equivalent of ChatGPT. But he faces an uphill battle against fellow big-tech firms as well as up-and-coming startups. Last year Baidu took up roughly a fifth of the country’s $250 million generative AI market, IDG estimated.
But that leadership is fast eroding. TikTok-owner ByteDance Ltd., for instance, fired up its Doubao chatbot this year, which now regularly surpasses Ernie in terms of popularity.
What Bloomberg Intelligence Says
The rising availability of domestically developed AI accelerator chips should bolster the developments of Alibaba, Tencent and Baidu, yet it’s unlikely to affect their profit outlooks given the sector’s immature monetization and price war. Huawei’s Ascend 910C AI chip will start shipping in October, the Wall Street Journal reported, offering similar performance to Nvidia’s banned H100. Huawei’s efforts will likely cause the US further tighten chip-export controls.
- Robert Lea and Jasmine Lyu , analysts
Click here for the research.
That said, Baidu’s broader ambitions in AI are gradually paying off — albeit after years and billions of dollars of investment.
The company has said its autonomous ride-hailing arm, Apollo Go, should turn profitable on a unit-economics basis by 2025, and it now operates a growing fleet of robotaxis covering the city of Wuhan.
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