Baidu Inc. recorded its biggest revenue drop in more than two years after China’s economic malaise undermined its push into generative AI.
Revenue for the three months ended September slipped 3% to 33.6 billion yuan ($4.6 billion), in line with analysts’ projections. Net income came to 7.6 billion yuan. Its shares fell more than 3% in pre-market US trading.
The results reflect how the Chinese internet search leader’s AI-first growth strategy has delivered underwhelming returns so far. The company hopes its Ernie artificial intelligence model — now handling 1.5 billion daily queries — could become a game-changer for businesses like search and the cloud, but it will take time for monetization to fully kick in. Its Ernie Bot has fallen behind ByteDance Ltd.’s Doubao in China usage, while the core business is losing eyeballs to newer social platforms like Xiaohongshu and Douyin.
Baidu’s broader AI effort encompasses autonomous vehicles, an arena in which it’s regarded as a pioneer. On Thursday, Baidu said it has begun operating the latest generation of Apollo Go driverless taxis in several cities, taking the cheaper model beyond the testing stage. Fully driverless vehicles — those without safety personnel behind the wheel — now account for 70% of Baidu’s robotaxi rides across the country, it said.
Baidu is among the companies most vulnerable to China’s downturn, as its key advertisers span industries from automakers to real estate. Rivals Tencent Holdings Ltd. and Alibaba Group Holding Ltd. said they saw some improvement in the broader economy last week after posting mixed results, though neither offered a forecast for when a rebound might take hold.
“So far in Q4, we have not observed a notable improvement in advertisers’ spending patterns, and consumer spending remains subdued,” long-time CFO Luo Rong, who’s started a new role to head Baidu’s mobile ecosystem, told analysts on a call. “Having said that, we are particularly encouraged by the strength and timeliness of recent stimulus policies which continue to be rolled out.”
Despite a head-start in China’s AI frenzy, Baidu has struggled to hang on to leadership. Aside from no longer having the country’s most popular AI chatbot, the company faces an all-out price war among AI infrastructure providers to entice more developers and startups as customers. Even after generative AI products contributed a bigger 11% of cloud revenue for the third quarter, Baidu’s biggest growth engine slowed because of intensifying competition.
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