Baidu Inc, one of the biggest Chinese technology companies, reportedly experienced a 48% decline in profit, a figure worse than anticipated. According to a report in Bloomberg, this drop underscores the mounting expenses associated with training and developing artificial intelligence (AI) systems to fend off competitors in the rapidly growing AI field.
In the last quarter of 2023, Baidu reported a net income of 2.6 billion yuan (equivalent to $361 million). While these projections missed, a significant portion of the shortfall resulted from equity accounting for preferred shares. Despite this setback, Baidu managed to achieve a 6% increase in revenue. The boost reportedly came as Baidu’s ChatGPT-style service began enhancing advertising sales, helping the company navigate a challenging economic climate. However, Baidu’s shares dipped by 2% in New York.
Disappointing numbers
These results follow disappointing numbers from Alibaba Group Holding Ltd., highlighting how the private sector, which once drove the world’s second-largest economy, is now facing headwinds. Baidu, which used to consistently achieve double-digit percentage growth, now grapples with macroeconomic and market uncertainties.
To rejuvenate its business, Baidu has joined forces with Silicon Valley counterparts like Microsoft Corp. and Google in exploring ways to monetize generative AI. The company’s ChatGPT-style service has attracted over 100 million users, including a premium tier with a monthly subscription fee. This head start position Baidu ahead of competitors like Tencent Holdings Ltd. and ByteDance Ltd..
Downloads, but little revenue
However, revenue generated by Baidu’s AI model, known as Ernie, remains relatively small compared to the company’s primary revenue source—search ads. Ernie, as per the report, is expected to contribute “several billion yuan” in additional revenue through advertising and cloud services in 2024, according to billionaire founder Robin Li. Meanwhile, Baidu’s pivotal cloud arm saw an 11% growth in revenue, reaching 5.7 billion yuan during the quarter.
Despite these efforts, research and development costs surged by 11% in the last quarter. These expenses primarily cover server fees to support the development of generative AI. Baidu’s founder, Robin Li, expressed confidence that the company has sufficient high-end resources to continue its AI efforts