Chinese AI pioneer Baidu posts biggest sales fall since 2022

(Bloomberg) — Baidu Inc. (BIDU) recorded its biggest revenue drop in more than two years after China’s economic malaise undermined its push into generative AI.

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Revenue for the three months ended September slipped 3% to 33.6 billion yuan ($4.6 billion), in line with analysts’ projections. Net income came to 7.6 billion yuan. Its shares fell more than 2% in pre-market US trading.

China’s internet search leader has much to prove with its AI-first growth strategy, which has delivered underwhelming returns to far. The company hopes its Ernie artificial intelligence model — now handling 1.5 billion daily queries — could become the game-changer for businesses like search and the cloud, but it will take time for monetization to fully kick in. Its Ernie Bot has fallen behind ByteDance Ltd.’s Doubao in China usage, while the core business is losing eyeballs to newer social platforms like Xiaohongshu and Douyin.

Its broader AI effort encompasses autonomous vehicles, an arena in which Baidu is regarded as a pioneer. On Thursday, Baidu said it has begun operating the latest generation of Apollo Go driverless taxis in several cities, taking the cheaper model beyond the testing stage. Fully driverless vehicles — those without safety personnel behind the wheel — now account for 70% of Baidu’s robotaxi rides across the country, it said.

Baidu is among the companies most vulnerable to China’s downturn, as its key advertisers span industries from automakers to real estate. Rivals Tencent Holdings Ltd. and Alibaba Group Holding Ltd. said they saw some improvement in the broader economy last week after posting mixed results, though neither offered a forecast for when a rebound might take hold.

Despite a head-start in China’s AI frenzy, Baidu has struggled to hang on to leadership. Aside from no longer having the country’s most popular AI chatbot, the company faces an all-out price war among AI infrastructure providers to entice more developers and startups as customers.

“Despite the near-term pressures, we remain steadfast in our AI-focused strategy and are confident in our long-term trajectory,” founder Robin Li said in a statement.

The billionaire unveiled a set of tools and add-ons for Ernie users last week at his company’s annual product event in Shanghai, though he stopped short of launching a more powerful version of the AI model. He called AI agents — or chatbots customized to perform tasks on the user’s behalf — the centerpiece of Baidu’s strategy, as the company seeks to broaden its content offerings on search.

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