Baidu Inc. (BIDU) reported better-than-expected fourth-quarter earnings, but its stock still sank nearly 8% following concerns over declining advertising revenue and intensified competition in China’s AI sector.
The company’s revenue for the quarter fell 2% year-over-year to $4.68 billion, surpassing analysts' estimates of $4.56 billion. Meanwhile, Baidu’s adjusted earnings per ADS came in at $2.63, well above the projected $1.78. However, investors remained cautious due to a 7% drop in online marketing revenue, which declined to $2.46 billion. The stock’s slump reflects worries about Baidu’s weakening grip on its core business amid rising challenges from social media and AI upstarts.
AI Cloud Gains Momentum, But Margins Decline
Despite setbacks in online marketing, Baidu’s AI Cloud business emerged as a bright spot, growing 26% year-over-year. This surge, driven by increasing demand for AI-powered computing services, underscores the company’s strategic shift toward artificial intelligence.
However, AI Cloud’s lower margins failed to offset the broader revenue weakness, contributing to a 29% annual decline in Baidu’s adjusted operating profit to $5 billion. The company’s adjusted EBITDA margin dropped by 600 basis points to 20%, while its Core adjusted EBITDA margin fell to 24%.
CEO Robin Li remained optimistic, stating that Baidu’s AI investments will yield more significant results in 2025. The company recently announced that it would make its Ernie chatbot free for all users starting in April, in a bid to gain traction in China’s AI race.
Competition and Political Uncertainty Add Pressure
Baidu faces stiff competition from rising AI players like DeepSeek, which has developed cost-efficient AI models that rival Western technology. Additionally, the company has struggled to retain its dominance in the search market, as social media platforms like Xiaohongshu and ByteDance’s Douyin continue to capture more advertising dollars.
Further adding to investor concerns, CEO Robin Li was notably absent from a high-profile meeting with Chinese President Xi Jinping and the country’s top tech leaders. This raised speculation over Baidu’s standing with Beijing, an increasingly crucial factor for businesses operating in China’s evolving regulatory landscape.
Despite these challenges, Baidu remains a significant player in China’s AI revolution, with its collaboration with Apple Inc. (AAPL) on AI-driven search features highlighting its ongoing efforts to stay relevant. However, with mounting competitive pressures and economic uncertainty, the road ahead for Baidu appears far from smooth.
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