Baidu Posts Fifth Straight Revenue Drop After AI Lag Widens

Baidu Inc.’s revenue fell for a fifth consecutive quarter, reflecting a weakening position in ads as well as AI development against rivals like Moonshot.

Revenue for the three months ended June fell 4% to 31.3 billion yuan ($4.6 billion), just shy of the average analyst projection. And net income plunged 68% to 2.32 billion yuan after the company tripled investments in AI data centers and computing. Its shares slid more than 4% in pre-market US trading.

China’s internet search leader faces a two-pronged existential fight in the post-ChatGPT era. Its high-margin advertising business is losing eyeballs not only to social media rivals like ByteDance Ltd., but also to a fledgling crop of AI chatbots. Baidu’s Ernie model has also fallen behind open-weight rivals such as Moonshot AI that perform on par with OpenAI and Anthropic PBC on key metrics.

Billionaire founder Robin Li is betting the battle will shift to AI agents and applications, spawning a new land-grab that could propel his nascent cloud computing business. The segment has notched high double-digit growth even as traditional marketing revenue dwindles. A 19% plunge in ad sales for the June quarter was offset by a 50% jump in revenue from AI cloud infrastructure, after clients rushed to rent accelerators.

“While our online marketing business remains under pressure, the growing momentum in our core AI-powered business reaffirms Baidu’s transition from an internet-centric company to an AI-first company,” Li said in the earnings statement.

Like Alibaba Group Holding Ltd. and Tencent Holdings Ltd., Baidu is ramping up spending on the computing power needed to train and host AI models – both internally and for clients. Excluding its streaming offshoot iQiyi Inc., Baidu’s capital expenditures tripled to 11.4 billion yuan in the second quarter from 3.78 billion yuan a year ago.

What Bloomberg Intelligence Says Baidu’s long-term prospects rest on its ability to monetize its expertise and guide its money-losing AI businesses to profitability. Though AI promises to deliver productivity savings across a range of sectors, we doubt Baidu can capitalize on the opportunity, as it lacks the scale to compete with China’s large technology platforms — which we expect to ultimately dominate the industry. Rising competition has progressively eroded Baidu’s lead in China’s AI sector at a time when its monetization push has yet to generate meaningful revenue.- Robert Lea, analystClick here for the research.

Beyond software, Baidu is leaning into autonomous driving and hardware to reclaim its edge. Its robotaxi service is expanding rapidly at home and abroad, while its plan to spin off chip unit Kunlunxin via a dual listing in Shanghai and Hong Kong seeks to tap surging demand for local Nvidia Corp. alternatives.

A high-profile Baidu fleet outage in the central Chinese city of Wuhan triggered an industry-wide safety review by regulators in April. The government has since resumed issuing new robotaxi permits following a three-month freeze, Bloomberg News has reported. Baidu’s robotaxi operations in Wuhan, suspended during an investigation into the incident, have started to resume, based on social media posts by local residents.

Baidu has overhauled its reporting structure since the December quarter to break out the performance of AI businesses spanning cloud, applications and marketing. That segment contributed more than half of Baidu’s core sales for the first time in the March quarter.

The Beijing-based company in February announced plans to issue its first dividend alongside a three-year stock buyback program of as much as $5 billion – signs of a maturing business returning capital to shareholders.

It’s also pursuing a dual-primary listing in Hong Kong alongside its US listing — which the company said Wednesday it expects to take effect this year — allowing mainland investors direct access to its shares via Southbound trading links.