Baidu dips after sales miss as online marketing revenue falls; AI search in transition

Update: The story was updated with stock movements.

Baidu’s (NASDAQ:BIDU) stock fell about 5% on Thursday following its mixed second-quarter results.

Baidu’s non-GAAP earnings per American depositary share, or ADS, fell 7% year-over-year to RMB21.02, or $2.89, beating estimates. Meanwhile, total revenue was flat year-over-year at RMB33.93B, or $4.67B, missing analysts’ estimates.

Compared to the first quarter of 2024, revenue rose 8% wherein it generated RMB31.51B, or $4.37B.

“AI Cloud continued to accelerate in the second quarter, offsetting the ongoing macro headwinds for online marketing revenue and resulting in modestly positive topline growth for Baidu Core. Operationally, we fast-tracked the renovation of Baidu search, which we believe will drive long-term success despite the short-term impact on monetization.”

Earlier this month, Bernstein highlighted how Baidu’s AI search strategy and rollout compare with that of global leader Google. The firm noted that Baidu’s AI strategy ‘will bear fruit’ but noted that the company has seen a different path of monetization, one that is slower and more staggered, potentially reflecting the inherently more competitive digital ad market in China.

Baidu said on Thursday that it expanded the Ernie family of large language models, or LLMs, by launching Ernie 4.0 Turbo in June 2024.

The Chinese internet search giant added that PaddlePaddle and Ernie developer community grew to 14.7 million in June 2024.

Baidu App’s monthly active users reached 703 million, up 4% year over year.

Baidu’s autonomous ride-hailing service provided about 899K rides in the second quarter of 2024.

For the second (April to June) revenue from Baidu Core rose about 1% year-over-year to RMB26.7B ($3.67B).

Online marketing revenue declined 2% year over year to about RMB19.2B ($2.64B), while non-online marketing revenue was RMB7.5B ($1.03B), up 10% year over year, mainly due to the AI cloud business.

China’s cloud services market is seeing a price war with players such as Baidu, Alibaba (BABA), ByteDance (BDNCE), Tencent (OTCPK:TCEHY) (OTCPK:TCTZF) and iFlytek cutting prices of their LLMs, which power AI chatbots.

“As we speeded up the AI-native transformation of our products in the second quarter, we continued to optimize our operations and maintained a healthy margin,” said Baidu’s CFO Rong Luo. “For AI Cloud in particular, we expect growth to maintain a strong momentum.”

Online entertainment service iQIYI (IQ) saw revenue decrease by 5% year-over-year to RMB7.4B ($1.02B). Baidu owns a majority stake in the company.

Shares of iQIYI (IQ) tumbled about 16% on Thursday following its quarterly results.

Stock Buyback: Baidu said it bought back shares worth $301M since the start of the second quarter of 2024, bringing the cumulative buyback to about $1.2B under the 2023 share repurchase program.

Other Chinese stock on Thursday: Alibaba (BABA) -2%, JD.com (JD) -3%. Meanwhile, shares of NetEase (NTES), whose second quarter results missed estimates earlier today, fell about 12%.