Baidu Struggles with Ad Revenue Due to AI Challenges

Baidu, the leading Chinese search engine, reported a contraction in its core advertising business during the second quarter, a trend analysts predict may persist throughout the year. The company's shares fell significantly, dropping as much as 7% in Hong Kong and 4.4% on the Nasdaq, reflecting investor concerns over its financial performance. The online marketing segment, which typically constitutes over half of Baidu's revenue, saw a 2% year-on-year decline, totaling 19.2 billion yuan ($2.64 billion). Overall sales remained flat at 33.9 billion yuan, although net income rose by 5% to 5.5 billion yuan compared to the previous year. Baidu's CEO, Robin Li, attributed the advertising downturn to a sluggish recovery in consumer spending, particularly affecting small- and medium-sized advertisers reliant on offline activities. Li noted that these advertisers are adopting a cautious approach to their ad expenditures. Despite challenges, Baidu's generative AI technologies have begun to play a more significant role, now accounting for 18% of search results, an increase from 11% in May. However, this shift has led to fewer opportunities for ad placements, as users increasingly engage with AI-generated content rather than traditional web pages. Analysts, including Jefferies' Thomas Chong, predict that Baidu's advertising sales could decline by 4% year-on-year in the upcoming quarter due to these dynamics. Nonetheless, there is optimism regarding the potential for monetization as Baidu explores upgrades to its advertising system. In a positive development, Baidu's autonomous ride-hailing service, Apollo Go, reported a 26% increase in rides, providing 899,000 rides in the second quarter, indicating growth in its non-advertising ventures.