Baidu makes profit from AI business but not enough for the market

On 28 February, Chinese tech giant Baidu released its latest financial report. The report showed that for Q4 2023, Baidu’s revenue grew 6% year-on-year (YOY) and reached 34.95 billion RMB (4.86 billion USD) while non-GAAP earnings increased a staggering 44% YOY, reaching 7.76 billion RMB (1.08 billion USD). For the whole year of 2023, revenue reached 134.60 billion RMB (18.70 billion USD), growing 9% YOY and non-GAAP earnings grew 39% to reach 28.70 billion RMB (3.99 billion USD). Both revenue and profit exceeded market expectations.

Baidu’s effort in AI has shown to be profitable in its advertising and smart cloud businesses. Advertising revenue grew 6% YOY in Q4, mostly from travel, healthcare and financial services. While smart cloud services such as Baidu Cloud Compute earned 840 million RMB (116.69 million USD), and large language models (LLMs) provided 660 million RMB (91.68 million USD) of growth. The monthly active users of the AI-equipped Baidu app reached 667 million as of December 2023, ERNIE bot also had over 100 million users by the end of December.

However, the stock markets didn’t seem to be impressed with the report. On the same day as the release of the financial report, Baidu’s stock plummeted 8.5% on Nasdaq and dropped 6.6% in Hong Kong the next day.

Analysts say that as Baidu has been “all in” in the AI sector, the current profit generated by AI is hardly enough return on the investment. AI remains a long-term investment before we can see significant returns. Commentators have also spotted that although Baidu’s AI has been growing healthily in B2B businesses like smart cloud and auto-driving services, the growth in AI-related business on the B2C front has been slow. Advertising revenue, driven by the updated ERNIE model, has been lower than Q2 and Q3. How Baidu can provide more reassurance to investors that their focus on AI will make enough return, then, is the key question for the Fortune-listed AI innovator.


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