Robin Li, chairman and CEO of Baidu, speaks at the opening ceremony of the World Artificial Intelligence Conference 2021 in Shanghai in July 2021.
Wu Jun/VCG via Getty Images
Chinese search giant Baidu’s core advertising business shrank in the second quarter, a trend analysts say may continue for the rest of this year amid China’s sluggish economic recovery and the company’s struggle to monetize its own of artificial intelligence technologies.
Shares in the dual-listed company fell as much as 7% in Hong Kong on Friday after falling 4.4% on the Nasdaq overnight. Investors were reacting to Baidu’s results for the three months ended in June. Its bread-and-butter online marketing business, which typically accounts for more than half of total sales, fell 2 percent year-on-year to 19.2 billion yuan ($2.64 billion).
The contraction was partially offset by a 10% year-over-year increase in its cloud business, a relatively smaller contribution. Baidu also faces weakness in video streaming arm iQIYI.
Total sales were flat at 33.9 billion yuan, although net income rose 5 percent to 5.5 billion yuan from the same period a year ago.
Stan Zhao, an analyst at Shanghai-based research firm Blue Lotus Capital Advisors, says he does not have a positive outlook for Baidu in the second half. He points to factors such as China’s slowing growth momentum and intensifying competition for ad spend from short-form video sites such as Douyin, TikTok’s sister app in China.
The challenges were echoed by Baidu CEO Robin Li, who now has a fortune of $5.2 billion based largely on a company stake, according to Forbes estimates. During an analyst call Thursday, the billionaire highlighted “particularly weak” ad spending from sectors ranging from autos to real estate. He also spoke of intense competition as advertisers turn to social media platforms because users spend more time on them.
“Thus, on the macro front, the recovery in consumer spending has been sluggish, leading many advertisers, especially small and medium-sized advertisers that rely heavily on offline activities, to take a very cautious approach to their ad spending,” says Li. .
Meanwhile, the company hasn’t figured out how to make more money from AI. During the analyst call, Li said Baidu’s artificial intelligence technologies are generating about 18% of search results, up from 11% in May. However, as Ernie’s long-tongued model, first released in March 2023, helps gather information, the places to show ads are actually shrinking. That’s because users now tend to read AI-generated answers that come in a few paragraphs, rather than scrolling through web pages and potentially seeing and clicking on ads placed everywhere, Zhao says.
“The company is still investigating,” he says. “They’re trying to see how to drive traffic from AI, but without limiting monetization opportunities. The process can take a long time.”
The AI experiment could cause Baidu’s ad sales to fall 4% year-on-year next quarter, Jefferies analyst Thomas Chong wrote in a research note Thursday. But he also believes the monetization potential is huge, as the company may completely overhaul its ad system.
On another front, Baidu has made progress with its arm, Apollo Go. The unit, which operates fully autonomous robot taxis in the city of Wuhan, provided 899,000 rides in the second quarter, up 26% year-on-year. The company has previously said it expects Apollo Go to become profitable next year.
