(Bloomberg) — Baidu Inc. saw a 6% increase in revenue after its ChatGPT-style service started boosting ad sales, helping China’s AI leader survive a deep economic downturn.
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The company reported sales of nearly 35 billion yuan ($4.9 billion) for the three months through December, roughly in line with analysts’ expectations. Net profit decreased by 48% to 2.6 billion yuan.
Baidu’s results follow disappointing numbers from Alibaba Group Holding Ltd., and highlight how much momentum the private sector that once drove the world’s second-largest economy is losing momentum. To reignite growth, Baidu is joining Silicon Valley peers from Microsoft to Google in exploring ways to monetize generated AI. The Chinese company has attracted more than 100 million users to its ChatGPT-style service, which now also includes a premium tier that charges a monthly subscription, and is ahead of peers such as Tencent Holdings and ByteDance. We have a head start against. But AI models are generating revenue. Baidu, known as Ernie, still relies primarily on search advertising.
Billionaire founder Robin Li has warned against China’s so-called “100 Model War”. In this war, big tech companies and venture investors alike are pouring billions of dollars into startups building AI platforms from scratch, many of them using the same open source code. Instead, Baidu is offering local developers to create AI-native applications on Ernie, and he has committed $140 million to fund such projects. ing.
If successful, Arnie could put Baidu at the core of an AI ecosystem similar to the GPT store to OpenAI. But long-time rivals Tencent and Alibaba are also competing in what is likely a winner-take-all market, as both companies command larger armies and user pools thanks to super apps like WeChat and Taobao.
Bloomberg intelligence statement
The consensus is that Baidu’s profit growth rate in 2024 will be only 4.6%, as rising promotion and investment costs in the AI business are weighing on profit margins, despite the significant contribution of the AI generation tool ERNIE Bot. I expect it to slow down. Baidu’s AI venture is expected to remain in the red this year, raising concerns in China’s corporate sector that profits from its core search business are at risk.
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In the short term, Baidu will still rely on ad sales, but that doesn’t bode well during China’s economic downturn. The world’s second-largest economy is suffering from a real estate recession and deflation, forcing Chinese leaders to resort to a wide range of policies, including interest rate cuts and direct capital injections, to boost investor confidence.
Baidu, once the undisputed leader in desktop search, has been trying to adapt its business to the mobile age for years, with mixed success. In January, the Beijing-based company canceled a $3.6 billion deal to acquire Joyy Inc.’s streaming service YY, citing a lack of regulatory approval.
The company’s stock price has fallen about 30% since July in Hong Kong, underperforming its peers as high AI development costs compound investors’ concerns about the economic downturn.
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