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(Bloomberg) -- Baidu Inc. reported its third straight quarterly revenue drop, underscoring concerns its internet search and artificial intelligence businesses are buckling under fierce competition.
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Revenue for the three months ended December shrank 2% to 34.1 billion yuan ($4.7 billion), versus an average estimate of 33.4 billion yuan. The results were better than feared but failed to outweigh a 29% dive in operating income. Its shares slid more than 7% in in New York.
Baidu kicks off a closely watched earnings season for China’s trillion-dollar tech industry, which is captivating investors after Hangzhou startup DeepSeek stunned Silicon Valley by releasing AI models rivaling or surpassing Western peers. Shares in sector heavyweights from Tencent Holdings Ltd. to Alibaba Group Holding Ltd. have surged since — a broad rally that Baidu largely missed.
The generative AI boom showed up via a 26% jump in Baidu’s December-quarter cloud revenue — more than twice the pace of growth in the previous three months. But that rise, driven by services provided to startups and developers chasing computing power, was overshadowed by sliding margins and other signs of weakness in Baidu’s core business.
Baidu ADRs Fall as Results Show Weaker Revenue: Street Wrap
On search, it’s losing eyeballs and advertising dollars to social apps including Xiaohongshu and ByteDance Ltd.’s Douyin, while combating an economic downturn. And in AI, DeepSeek’s breakthrough — built on top of open-source models and ultra-low training costs — undercuts Baidu’s yearslong approach to push proprietary technology.
Last week, the Beijing-based company made a surprise move to open-source its models too. It also integrated DeepSeek’s newest R1 model into its flagship chatbot, mirroring a move by Tencent.
Baidu may be squandering its leadership in AI. The company was first among Chinese tech leaders to roll out large language models to the public, and was quick to commercialize its ChatGPT-style Ernie — with an $8 monthly subscription fee. It’s refunding users after making the app free.
What Bloomberg Intelligence Says
Baidu’s weak metrics underscore the size of its challenges, as adjusted operating profit fell 29% annually to $5 billion, driven by a hefty 7% decline in Baidu Core Ad sales. Baidu Core margin fell 400 bps annually, depressed by rising AI Cloud sales and falling behind estimates, despite the 21% downward revision in consensus EPS in the last three months. Strengthening momentum in Baidu’s AI Cloud business provides encouragement, though lower margin in this business won’t offset the weakness in Ads.