Baidu’s Revenue Beats After China Recovery Fuels Advertising

(Bloomberg) — Baidu Inc.’s revenue rose a stronger-than-expected 10% after its advertising and cloud businesses benefited from China’s post-pandemic reopening.

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China’s internet search leader reported revenue of 31.1 billion yuan ($4.5 billion) for the three months ended March, versus the 30 billion yuan average of analysts’ projections. Net income came in at 5.8 billion yuan, beating estimates thanks to fair value gains on investments.

Baidu’s results suggest China’s largest internet firms are making some headway in revival efforts after two years of regulatory crackdowns and Covid restrictions. The company this year delivered China’s first major riposte to OpenAI’s ChatGPT, igniting a race by domestic rivals from Alibaba Group Holding Ltd. to SenseTime Group Inc. to show off their own generative AI platforms.

Baidu’s “advertising business saw a nice rebound in demand especially post Chinese New Year, and the recovery might have accelerated as we are heading into 2Q,” Barclays analysts wrote ahead of the results. “We remain optimistic on China’s economic recovery and on advertising industry outlook for 2023.”

Beijing-based Baidu has in past years sought to move beyond its roots as a search and marketing firm toward a provider of technology like AI and autonomous driving. The cloud computing arm became a growth engine during China’s downturn, while its driverless taxis expanded into more cities like Wuhan and Chongqing.

Baidu’s ChatGPT-style service, called Ernie Bot, could now become the crown jewel of its AI endeavors, permeating into major business lines from search to smart speakers and self-driving.

“We can buy computing power but not the ability to innovate,” Baidu’s billionaire founder Robin Li said in an internal speech this month. “It’s just the beginning of this arena for tech competition.”

In March, Li introduced Ernie using a prerecorded demo at a Beijing event, initially underwhelming investors and analysts who were hoping for a more lively interaction. But the Chinese chatbot then scored positive reviews among Baidu’s selected testers, lifting the company’s stock.

It’s still too early to tell whether Ernie Bot could rise to the level of so-called “killer apps” like Tencent Holdings Ltd.’s ubiquitous WeChat. China’s top internet regulator has said it will require security reviews of generative AI tools before they can be put into action. And US sanctions have deprived Chinese tech firms of the best chips to train their AI models, which could widen gaps between services like Ernie and their Western counterparts.

Investors had bet that the tech sector would rebound as Beijing lifted years of sweeping restrictions that hammered consumer spending and business activity. China’s economy expanded 4.5% in the first quarter of 2023, the fastest pace in a year, with economists expecting growth this quarter to be even stronger. Slowing trade, however, is one of several signs that the nascent recovery may be losing steam.

For now, Baidu still counts on its bread-and-butter advertising sales to generate cash and fund riskier projects. Its smart-speaker unit is set to unveil a new phone this week, building out a hardware ecosystem to complement its internet services.