Robin Li, chairman and CEO of Chinese search engine operator Baidu, said that despite the billionaire’s recent rise in the hot generative AI market, The company is having a hard time convincing investors about its growth prospects.
Dual-listed Baidu’s stock plunged 8% overnight on the Nasdaq market, and by more than 7% in Hong Kong on Thursday. Investors were reacting to the company’s fourth-quarter results, with sales up 6% year over year, but net income down 48% to $366 million.
While some of the plunge is due to accounting changes in the value of certain preferred shares, investors are clearly concerned that Baidu isn’t growing fast enough. Revenue growth of 6% in the last three months of 2023 is on par with the previous quarter, but much slower compared to the 10% and 15% in the first and second quarters of last year. is.
Kenny Ng, a Hong Kong-based securities strategist at Everbright Securities International, said investor enthusiasm is unlikely to be reignited until at least early 2024. The Chinese search giant relies on online advertising for more than half of its total revenue, which was at the beginning of 2024. The company had sales of 35 billion yuan ($4.9 billion) last quarter, but faces weak demand as companies cut spending amid a slowing Chinese economy.
Meanwhile, Baidu’s advances in generative AI, the technology that powers chatbots such as OpenAI’s ChatGPT, have yet to generate revenue. Baidu announced its latest AI model, Ernie 4.0, in October, and at the time, OpenAI’s Ernie He said that it is an excellent product equivalent to GPT-4.
But the Ernie chatbot, which has attracted more than 100 million users, only contributed “incremental” revenue in the past quarter, executives said on a conference call with analysts Wednesday. Li, who saw his net worth fall by $510 million to the current $6.2 billion on Wednesday as the value of his company’s shares fell, said Baidu is helping other companies build their own AI models. , said its customers saw an additional hundreds of millions of yuan in revenue as they served better customized ads. .
Arnie’s contribution is expected to increase to “billions of RMB” by 2024, according to Arnie, who reiterated his firm commitment to investing in AI-related technologies in the future. But his plans may not be enough to satisfy investors who have high expectations for OpenAI’s technology following its successive breakthroughs, including the February launch of Sora, a text-to-video conversion model. do not have.
Baidu’s Silicon Valley rival has reportedly hit $2 billion in revenue in 2023 and a recent funding deal that brings its valuation to $80 billion, showing investor confidence. . By comparison, the market capitalization of Chinese search engine companies currently stands at $36 billion.
“Arnie’s current progress is not enough to cause investors to rush into the stock,” said Zhang Xuel, an analyst at Shanghai-based research firm 86 Research.
But analysts say it’s too early to fire Baidu, which remains a leader in the sector. In Wednesday’s conference call, Li also said Baidu is working to revamp Baidu’s core search platform by integrating various generative AI-related features. This change could help Baidu users improve their experience and could result in people spending more time on the company’s apps.
Additionally, the company’s focus on AI could help it gain an edge in cloud computing. This is another key growth driver that was the main reason why non-online marketing revenue increased 9% to $1.2 billion in the December quarter. The company’s ability to provide AI-based tools, such as analytics tools, to businesses could give it a competitive advantage as competitors, including Alibaba Cloud, cut prices aggressively to win over customers.
“Baidu could return to double-digit growth in 2024,” Everbright’s Ng said. “The biggest opportunity still comes from Ernie.”
