China's Baidu revenue drops as AI returns fail to offset ad decline
The company reported total revenue of 32.71 billion yuan ($4.56 billion) during the three months ended June 30, down 4% from the same period a year earlier. Analysts on average estimated quarterly revenue at 32.76 billion yuan, according to data compiled by LSEG.
On an adjusted basis, Baidu made a profit of 13.58 yuan per American Depositary Share, beating expectations of 13.12 yuan.
Baidu's U.S.-listed shares were down 3% in early trading.
Hit by a property market downturn, weak employment rates and choppy consumer demand, companies in China, the world's second-largest economy, have reined in advertising spending to cut costs and protect their margins.
The squeeze has spilled over to affect Baidu, which relies heavily on advertising in its search engine. Its core online advertising business, which typically makes up 60% of overall company revenue, saw revenue decrease 15% to 16.2 billion yuan during the April-June quarter.
Cloud business revenue grew 27% to 6.5 billion yuan, but failed to offset the advertising decline.
"In the short term, AI will not fully offset advertising headwinds," said Eric Shen, analyst at consultancy Third Bridge. "While AI tools like Ernie Bot can slow the decline by retaining users, they have not yet translated into meaningful ad revenue."
Baidu has invested heavily in artificial intelligence in recent years. Last month, it launched a redesigned search interface that it called the biggest overhaul in a decade.
By July, 64% of mobile search result pages contained AI-generated content.
Chief Executive Robin Li said on a post-earnings call that the company would take a prudent approach to monetising AI features, keeping user experience as its top priority.
($1 = 7.1784 Chinese yuan renminbi)
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