China's Baidu revenue falls as AI cloud growth fails to offset ad weakness

By Liam Mo and Deborah Mary Sophia

Feb 26 (Reuters) – China’s largest search engine operator Baidu reported a 4% revenue drop for its December quarter on Thursday, ‌as persistent weakness in its mainstay advertising business offset strong growth in its ‌cloud business.

Baidu, like other tech giants in China, has invested heavily in building out its artificial intelligence capabilities, helping the tech firm capture enterprise demand as companies increasingly adopt AI to speed up operations and productivity.

However, the strength in its cloud business was not enough to cushion the blow from declines in its advertising unit – its primary revenue generator — which has struggled to rebound in a highly ‌competitive ad market.

Weak consumer demand ⁠and a prolonged property-sector crisis have hobbled China’s economy, denting advertiser spending.

U.S.-listed shares of Baidu fell more than 4% in early trading, even as ⁠the company rejigged its reporting segments to focus more on its AI-powered businesses and assuage investor concerns around ad market challenges.

Revenue from Baidu’s core AI-powered business, which includes its cloud unit, AI applications and robotaxi division, exceeded 11 billion yuan ($1.61 billion) in the fourth quarter and accounted for 43% ‌of the company’s general business revenue.

AI has become the “new core of Baidu,” said CEO Robin Li, adding that the company’s cloud services were gaining increasing enterprise recognition while its AI apps, such as the Miaoda vibe-coding platform, have gained traction among users.

Baidu’s finance chief Henry He said on a post-earnings call that the company would maintain its pace of AI investment, ‌which has totalled more than 100 billion yuan over the past three years.

The company reported total revenue of 32.74 billion yuan for the fourth quarter, compared with analysts’ estimate of 32.62 billion yuan, according to data compiled ‌by LSEG.

Adjusted earnings per share was 10.62 yuan, compared with analysts’ estimate of 9.25 yuan.

Earlier this month, Baidu announced a new $5 billion share repurchase program and its first-ever dividend policy, highlighting increased focus on shareholder returns. The company said on Thursday it expects to ‌pay out its first dividend by the end of this year.

($1 = 6.8395 Chinese yuan renminbi)

(Reporting by Liam Mo in Beijing and Deborah Sophia in Bengaluru; Editing by Alan Barona, Mrigank Dhaniwala and Louise Heavens)