China’s Baidu revenue climbs after AI helps it weather China downturn

BAIDU’S revenue rose 6 per cent after its ChatGPT-style service began to augment advertising sales, helping the Chinese AI leader weather a severe economic downturn.

The company reported sales of nearly 35 billion yuan (S$6.5 billion) for the three months ended December, broadly in line with analysts’ projections. Net income slid 48 per cent to 2.6 billion yuan.

Baidu’s results follow disappointing numbers from Alibaba Group Holding, underscoring how the private sector that once drove the world’s No. two economy has run out of steam.

To rekindle growth, Baidu has joined Silicon Valley peers from Microsoft to Google in seeking ways to monetise generative AI. The Chinese company has attracted more than 100 million users to its ChatGPT-style service – now including a premium tier that charges a monthly subscription – giving it a headstart against peers like Tencent Holdings and ByteDance. But revenue generated by the AI model, known as Ernie, is a drop in the bucket for Baidu, which still relies mainly on search ads.

Billionaire founder Robin Li has warned against China’s so-called “war of a hundred models,” where big tech firms and venture investors alike pour billions of US dollars into startups building AI platforms from scratch – many of them leveraging the same open-source code. Baidu is instead pitching local developers to create AI-native applications atop Ernie, including by doling out US$140 million to fund such projects.

If successful, Ernie could put Baidu at the core of an AI ecosystem similar to what the GPT Store is to OpenAI. But its long-time rivals Tencent and Alibaba are also vying for what’s likely a winner-takes-all market, as both firms command bigger warchests and user pools thanks to super apps like WeChat and Taobao.

GET BT IN YOUR INBOX DAILY

Start and end each day with the latest news stories and analyses delivered straight to your inbox.

Sign UpVIEW ALL

“Consensus expects Baidu’s earnings growth to slow to just 4.6 per cent in 2024, in spite of a bigger contribution from the ERNIE Bot generative-AI tool, as rising promotional and investment costs in the AI business hurt margins,” Robert Lea, Bloomberg Intelligence analyst says.

“We expect Baidu’s AI ventures to remain loss-making this year, with rising caution in China’s corporate sector a risk to profit in the core search business.”

Near term, Baidu still counts on advertising sales as its bread and butter – and that doesn’t bode well during China’s downturn. The world’s No. two economy is grappling with a property slump and deflation, forcing Chinese leaders to resort to wide-ranging policies including rate cuts and direct fund injections to boost investor confidence.

Once the runaway leader in desktop search, Baidu has over the years tried to adapt its business to the mobile era, albeit with mixed success. In January, the Beijing-based company walked away from a US$3.6 billion deal to acquire Joyy’s streaming service YY, citing the lack of regulatory approval.

Its shares have dropped roughly 30 per cent since July in Hong Kong, underperforming peers as the high costs of AI development compound investor concerns over the weak economy. BLOOMBERG