(Bloomberg) — Baidu Inc.’s revenue grew at the slowest pace in more than a year, as China’s flagging economy put pressure on its core advertising business.
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Revenue for the three months ended March edged up 1% to 31.5 billion yuan ($4.4 billion), compared with the 31.4 billion yuan average estimate. Net income for the same period came to 5.4 billion yuan, versus a projection of 4 billion yuan.
China’s internet search leader is betting on generative AI to seed future growth that could bring it to the top tier of global technology conglomerates. Its Ernie model has generated subscription fees as well as ad dollars, giving it a headstart against peers like Tencent Holdings Ltd. and ByteDance Ltd.
But it could take years before Baidu can comfortably reduce its reliance on search ads, one of the biggest casualties of China’s economic downturn. After an initial rally around the time Ernie emerged, Baidu’s shares have struggled to sustain their momentum.
The world’s second-largest economy hasn’t fared well post-pandemic. A property meltdown and youth unemployment is sapping consumer sentiment, which is in turn fueling deflation.
Still, Baidu expects Ernie to contribute several billion yuan of additional sales through advertising and cloud services this year. With 200 million registered users, its offering is one of China’s most popular and advanced AI models among some 100 domestic competitors, founder Robin Li said at a Shenzhen event last month. That’s thanks to “countless trials and errors” over the past year, he said.
Baidu has made it clear it wants developers to build apps for Ernie, which it likens to a new computer operating system. But it’s contending with well-funded AI startups and open-sourced models like Alibaba Group Holding Ltd.’s Qwen, which is free and popular among Chinese developers.
“China faces a long road to AI profitability,” Bloomberg Intelligence analysts Robert Lea and Jasmine Lyu wrote in a note before the results. “An industry shake-out could drive the sector into profit, though this looks unlikely to happen any time soon in a sector awash with excess capital.”
Baidu’s AI push in autonomous driving could see a quicker payoff. Its robotaxi service — with a fleet of hundreds of fully self-driving cars in big cities like Shenzhen and Wuhan — is on the cusp of reaching break-even. Baidu will also provide navigation and mapping tools to Tesla Inc.’s assisted-driving system in China.
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