Baidu Reports Q3 Revenue Drop, but AI Growth Fuels Optimism

Chinese tech giant Baidu on Thursday reported third-quarter earnings that beat market expectations despite a 3% year-over-year decline in revenue. The company’s robust AI-driven cloud business offset ongoing weaknesses in its core online marketing stream, showcasing its potential for long-term growth.

For the quarter ending September 30, Baidu reported revenue of $4.78 billion (approximately RMB 34.45 billion) and net income of $1.09 billion (approximately RMB 6.68 billion), a 14% increase compared to the same period last year. Non-online marketing revenue surged 12% to $1.1 billion, largely driven by the company’s artificial intelligence cloud business. However, Baidu’s U.S.-traded shares dipped nearly 4% in premarket trading following the results.

Analyst Expectations (via LSEG Data):

Revenue: $4.63 billion

Net Income: $857.17 million

The rise in non-online marketing revenue helped balance the “continued softness” in online marketing, according to CEO Robin Li. He highlighted the strong growth in the company’s AI cloud segment and the increasing adoption of its Ernie generative AI model and chatbot.

“Our robust AI capabilities are gaining broader market recognition, with the adoption of Ernie continuing to accelerate,” Li said.

Positioned as a local alternative to ChatGPT, Baidu’s Ernie Bot has seen significant traction, with 430 million users as of last week. Programs are now accessing its underlying AI model 1.5 billion times daily, more than double the 600 million daily calls in August.

“Despite short-term pressures, we are steadfast in executing our AI-focused strategy and are confident in our long-term trajectory,” Li added. “Scaling AI further inspires us to explore how it can drive innovation and deliver value to consumers, businesses, and society at large.”

New Product and Business Highlights

Baidu recently announced that its Xiaodu AI Glasses, featuring at least one camera and leveraging Ernie AI capabilities alongside Baidu Maps and search functions, will launch in the first half of next year. Though pricing details are yet to be revealed, the glasses are anticipated to be a Chinese alternative to Meta’s popular Ray-Ban smart glasses.

In September, Baidu also introduced leadership changes. Junjie He, formerly head of the Mobile Ecosystem Group, was appointed interim CFO, while former CFO Rong Luo transitioned to lead the Mobile division.

Baidu’s Apollo Go robotaxi service saw impressive growth, with ride numbers up 20% year-over-year in the third quarter. According to CNBC calculations, average monthly rides increased to 329,333, up from 287,500 in the first half of the year.

“AI Cloud demonstrated healthy and sustainable development in the third quarter,” the company noted in its earnings release. “Meanwhile, Apollo Go made steady operational progress, reinforcing our confidence in the fully autonomous ride-hailing business model.”

Analyst’s Perspective

I believe Baidu’s Q3 results underscore its long-term potential in the AI space. While weaknesses in online marketing have weighed on total revenue, the strength of its non-online marketing and AI cloud segments, along with the rapid adoption of Ernie Bot, highlights the company’s resilience during its transformation. The growth of Apollo Go and the upcoming launch of Xiaodu AI Glasses further enhance Baidu’s outlook in technological innovation and commercialization.

Although the market’s initial reaction has been cautious, with shares trading down nearly 3% premarket at $84.50, I see a strong case for recovery. Maintaining key support at $79.68 will be critical, but if Baidu continues to deliver on its revenue-driving capabilities, the stock could break higher over the long term. Let’s wait and see.