Equities

Baidu's 1% Revenue Rise Amid China's Economic, AI Shift

Baidu's revenue grows 1% to 31.5 billion yuan amid economic downturn, with AI and robotaxis poised for future growth.

By Mackenzie Crow

5/16, 06:07 EDT
Baidu, Inc.
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Key Takeaway

  • Baidu Inc. reports a marginal revenue increase of 1% to 31.5 billion yuan in Q1, marking its slowest growth in over a year due to China's economic downturn.
  • The company is pivoting towards generative AI technology with its Ernie model, aiming to reduce dependency on search ads amidst economic challenges.
  • Baidu's Apollo Go robotaxi service nears profitability, with plans for extensive deployment of its 6th generation vehicle in Wuhan by 2025.

Sluggish Revenue Growth Amid Economic Challenges

Baidu Inc., a leading internet search provider in China, reported a marginal revenue increase of 1% to 31.5 billion yuan ($4.4 billion) for the quarter ending in March, barely surpassing the average estimate of 31.4 billion yuan. This period marked the slowest revenue growth for Baidu in over a year, attributed to the downturn in China's economy impacting its core advertising business. Despite these challenges, Baidu's net income exceeded expectations, reaching 5.4 billion yuan against a forecast of 4 billion yuan. The economic slowdown in China, characterized by a property crisis and rising youth unemployment, has dampened consumer sentiment and fueled deflation, further straining the advertising sector.

Generative AI: A Beacon of Hope

In response to the sluggish growth in its advertising revenue, Baidu is pivoting towards generative AI technology, particularly its Ernie model, to seed future growth and elevate its status among global tech conglomerates. The Ernie model has not only attracted subscription fees but also generated advertising revenue, positioning Baidu ahead of its competitors like Tencent Holdings Ltd. and ByteDance Ltd. Despite the promising start, Baidu acknowledges that reducing its dependency on search ads—a significant casualty of China's economic downturn—will be a long-term endeavor. Founder Robin Li emphasized the potential of Ernie, which has amassed 200 million registered users, making it one of China's most popular AI models. Baidu's strategy includes encouraging developers to create applications for Ernie, likening it to a new computer operating system.

Robotaxi Unit Eyes Profitability

Baidu's foray into autonomous driving, particularly its Apollo Go robotaxi service, presents a nearer-term opportunity for profitability. The service, which operates hundreds of fully self-driving cars in major cities like Shenzhen and Wuhan, is nearing a break-even point. Baidu announced that its 6th generation Apollo robotaxi, priced significantly lower than its predecessor, will be deployed extensively in Wuhan. This cost reduction, coupled with an increase in driverless rides, is expected to propel Apollo Go towards profitability by 2025. The robotaxi unit's progress is a testament to Baidu's commitment to innovation and operational efficiency in the face of skepticism from some industry players regarding the viability of fully driverless cars.

Street Views

  • Bloomberg Intelligence Analysts Robert Lea and Jasmine Lyu (Neutral on China's AI sector):

    "China faces a long road to AI profitability... 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."

Management Quotes

  • Robin Li, Founder of Baidu:

    "With 200 million registered users, its offering is one of China’s most popular and advanced AI models among some 100 domestic competitors... That’s thanks to countless trials and errors over the past year."