AI Wars | Baidu’s AI transformation has not yet realized advertising revenue declines

[ad_1]

Contents

Last quarter, profit was 8% lower and online revenue decreased by 2%Continue to upgrade the Wenxin flagship model Support EJ Tech

The macro economy is weak, and the search business has not yet realized its transformation towards artificial intelligence (AI). Baidu, the largest search engine in China,09888) advertising revenue fell for the first time in six quarters. In the second quarter of this year, online marketing revenue fell 2% year-on-year to 19.2 billion yuan (RMB, the same below), dragging the group’s overall revenue to only remain flat year-on-year, recording 33.9 billion yuan, slightly lower than the estimated 34.1 billion yuan. Although adjusted profit decreased 8% year-on-year to 7.4 billion yuan, it was still better than the estimated 6.7 billion yuan.

Last quarter, profit was 8% lower and online revenue decreased by 2%

When talking about the AI market landscape, CEO Robin Li admitted that competition will be very fierce in the next two to three years, and only a few large AI models will survive in the end. Currently, there is strong demand for Baidu’s generative AI products, and he is confident that the Wenxin large model can maintain its market leadership.

Baidu closed up 1.7% yesterday at HK$86.45 before the results were released. After the quarterly results were released, Baidu’s American Depositary Shares (ADS) fell before the market opened, and fell more than 4% in the early US market. As of 1:10 this morning, it was converted to HK$83.4, 3.6% lower than Hong Kong.

Baidu Core (excluding iQiyi) saw revenue increase slightly by 1% year-on-year to RMB 26.7 billion last quarter, while adjusted profit fell by 5% year-on-year to RMB 7.3 billion. Among them, online marketing revenue fell by 2% year-on-year to RMB 19.2 billion last quarter after growing for five consecutive quarters, accounting for about 57% of the group’s total revenue. For iQiyi, revenue fell by 5% year-on-year to RMB 7.4 billion during the period, and adjusted profit fell sharply by 58% to RMB 250 million.

One of the reasons for the decrease in advertising revenue is Baidu’s promotion of the transformation of its search business to AI. Robin Li revealed that currently about 18% of Baidu’s search results are generated by AI, but such new functions have not yet been officially commercialized. This proportion will continue to expand in the future. It is expected to have an impact on monetization in the short term, but in the long run it can bring users a richer and more effective AI ecosystem.

(Photo courtesy of Hong Kong Economic Times)

Li Yanhong also mentioned that from the perspective of external factors, the current macroeconomic weakness and slow recovery of consumer spending have led advertisers, especially small and medium-sized enterprises, to be very cautious about advertising spending, especially in industries such as real estate and automobiles. In addition, mainland Internet users are more likely to use social platforms such as short videos, and the change in user time is also not conducive to the company’s online advertising business.

On the other hand, Baidu’s non-online marketing revenue last quarter was 7.5 billion yuan, up 10% from the same period last year. Among them, the growth of intelligent cloud revenue accelerated, increasing by 14% year-on-year to 5.1 billion yuan.

Baidu executive vice president and president of Baidu Intelligent Cloud Group Shen Dou said that the intelligent cloud business is mainly driven by the rapid growth of generative AI and large model-related revenues, and AI’s contribution to intelligent cloud revenues increased from 6.9% in the first quarter of this year to 9% last quarter. Various industries have shown strong demand for generative AI products and large language model services, such as the Internet, online education, automobiles, and financial services.

Continue to upgrade the Wenxin flagship model

Shen Dou continued that in order to encourage users to use it, three lightweight models, ERNIE Speed, ERNIE Lite and ERNIE Tiny, were made free, and the two flagship models, Wenxin Model 3.5 and 4.0, were significantly reduced in price. These measures have greatly increased the number of API calls to Wenxin Model. The average daily call volume of Wenxin Model has exceeded 600 million times, and the average daily processing of Tokens text is about 1 trillion, both of which are the highest in the mainland. He estimated that the smart cloud business will maintain a strong growth momentum in the next few quarters.

When asked about AI competition, Robin Li said that Baidu released Wenxin Big Model 4.0 Turbo in June, which is faster and cheaper than Wenxin Big Model 4.0. In the future, the flagship model will be further upgraded. At the same time, Baidu will expand its competitive advantage by using application-driven AI development methods. In addition, the continuous reduction of model inference prices and optimization of development tools are expected to help Baidu maintain its leading position.

Due to the decline in personnel-related expenses, Baidu’s R&D expenses fell 8% year-on-year to 5.9 billion yuan last quarter. As of the end of June, the group had cash, cash equivalents, restricted funds and short-term investments of 162 billion yuan.