Chinese AI Pioneer Baidu Posts Biggest Sales Fall Since 2022
- Revenue fell 3%, the deepest decline in more than two years
- Baidu is investing heavily in AI and autonomous driving
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's Shares Have Given Up All Gains From China Stimulus News
Source: Bloomberg
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.”
Read More: Tencent Signals Gradual China Recovery After Gaming Arm Revives
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.
“Despite the near-term pressures, we remain steadfast in our AI-focused strategy and are confident in our long-term trajectory,” founder Robin Li said in a statement.
Baidu's Growth Has Dwindled With China's Economic Downturn
Source: Bloomberg, company filings
The billionaire unveiled a set of tools and add-ons for Ernie users last week at his company’s annual product event in Shanghai, though he stopped short of launching a more powerful version of the AI model. That could come early next year, he said Thursday. Li called AI agents — chatbots customized to perform tasks on the user’s behalf — the centerpiece of Baidu’s strategy, as the company seeks to broaden its content offerings on search.
“Baidu isn’t aiming to launch a super-app,” Li said at the event. “Instead, we aim to help more people and businesses create millions of super useful applications.”
Read more: Baidu Readies AI Smart Glasses to Rival Meta’s Ray-Bans
What Bloomberg Intelligence Says
Baidu’s weak 3Q results underscore the scale of its challenges, with adjusted net income down 19% vs. 3Q23 and 5% below estimates. Though cost-cutting drove adjusted operating profit 10% ahead of consensus, this is moot given the hefty net profit decline. Baidu’s core sales fell 0.2% on a continued lack of revenue traction from its AI ventures. A 6% drop Ad sales contrasts sharply with peers, highlighting pressures in search, which we expect to continue.
- Robert Lea and Jasmine Lyu, analysts
Click here for the research.
The company also revealed its AI smart glasses, a product akin to Meta Platforms Inc.’s Ray-Bans, will be available for sale in the first half of 2025.
Baidu and Alibaba are among the leading suitors for a potential chatbot tie-up with Apple Inc., as the Silicon Valley giant is required to find a local partner to provide AI features in its latest generation of iPhones.
(Updates with shares, execs’ comments from the third paragraph)
