TMTPost -- Baidu, Inc. posts mixed quarterly results as the Chinese internet giant continues to leverage artificial intelligence (AI) technology to upgrade offerings amid lackluster economic recovery.

Credit:Baidu

Baidu's revenue for the quarter ended March 31, 2024 edged up just 1% year-over-year (YoY) to RMB 31.5 billion (US$4.37 billion), slightly higher than Wall Street expected RMB31.43 billion. That is the slowest pace of revenue growth in more than a year for the Beijing-based company, compared with a 6% YoY increase in the previous quarter. Baidu Core, which accounts for more than 75% of overall revenue in the first quarter, generated RMB23.8 billion with a 4% YoY growth. Revenue from iQIYI, an online entertainment video services provider, fell 5% YoY to RMB7.9 billion.

Despite sales slowdown, Baidu's bottom line beat estimates with much stronger growth in the March quarter. Non-GAAP net income surged 22% YoY to RMB7.01 billion, versus a 48% YoY plunge for the last quarter of 2023. Non-GAAP earnings per American depositary share (ADS) climbed 24% YoY to RMB19.91, better than expected RMB15.59, and adjusted EBITDA,or earnings before interest, taxes, depreciation, and amortization, grew 1% YoY to RMB8.24 billion with a EBITDA margin flat at 26%. Non-GAAP operating income added 4% YoY to RMB6.67 billion in the first quarter, in which RMB5.59 billion came from Baidu Core, topping analysts projected RMB5.14 billion.

Baidu Core sales cooled in the beginning quarter of this year compared with a 7% YoY increase in revenue three months ago. Nevertheless, as a segment provides online marketing services and non-marketing value added services along with offerings from new AI initiatives, Baidu Core still benefited from AI push, especially AI Cloud, a full suite of cloud services and solutions, including PaaS, SaaS and IaaS and uniquely differentiated by our AI solutions. Online marketing brought RMB17 billion with a 3% YoY growth, while revenue from non-marketing services up 6% to RMB6.8 billion, driven by AI Cloud. "Baidu Core's online marketing revenue remained stable, while the end-to-end optimization of our AI technology stack continued to propel the growth of our AI Cloud revenue during the quarter," said Baidu CEO Robin Li at a statement on Thursday.

Baidu is the first major company in China to launch its own AI chatbot Ernie Bot. It unveiled the initial version of Ernie in March 2023, and got regulatory approval for mass rollout late August. It expanded the Ernie family of models by launch of several lightweight large language models (LLMs) in the past first quarter,making the AI model more affordable. Baidu's revenue growth was mainly driven by generative AI and foundation models, and such revenue accounted for 6.9% of total AI cloud revenue the first quarter, CEO Li said at an earnings conference call.

"Currently, the majority of this revenue is from model training, but revenue from model inferencing has been growing quickly. We believe revenue from generative AI and foundation models will continue to rise as customer adoption improves," Li told analysts, noting 15% of the payments to the AI cloud group are allocated to generative AI and foundation model. Business customers choose Baidu AI cloud to train and host their models because they believe Baidu has the most powerful and efficient AI infrastructure for model training and inferencing in China, Li said.

With the proprietary four-layer AI architecture and its strong ability in end-to-end automation, Baidu has lowered Ernie's inference cost to only 1% over the variant in March last year, and Ernie handles about 200 million API calls or approximately 250 billion tokens daily this month, said Dou Shen, Executive Vice President of AI Cloud Group. He said Baidu feels confident that Ernie's expanding adoption will continue to enhance its performance, boosting efficiency, and then further reduce costs.