Baidu stock fell Wednesday after the China search engine giant reported second-quarter earnings that beat expectations but showed declining sales. An uncertain economy in China has weighed on the market for digital adverting, which is Baidu's top revenue source.
The Beijing-based Baidu said it earned an adjusted 13.58 yuan per American depositary share for the June-ended quarter, down 35% from a year earlier. That beat the 13.24 yuan per ADS that analysts polled by FactSet were forecasting. Sales decreased 4% to 32.71 billion yuan, or $4.55 billion, compared to analyst estimates of 32.8 billion yuan.
Online marketing, Baidu's main source of revenue, continues to struggle. Sales for the category fell 15% year-over-year to 16.2 billion yuan, or $2.26 billion. Meanwhile, what the company categorizes as "non-online marketing revenue" within its core business grew 34% year-over-year to 10 billion yuan, or $1.39 billion. The growth was led by Baidu's AI cloud business, the company said.
"Our AI Cloud business continued to deliver robust and healthy revenue growth, supported by our strengthening full-stack AI capabilities and comprehensive end-to-end AI products and solutions," Chief Executive Robin Li said in a news release. "This performance helped mitigate the near-term pressure on online marketing business, as we intensified the AI transformation of Baidu Search to elevate user experience and establish a stronger foundation for long-term growth."
Baidu was one of the quickest Chinese tech companies to embrace AI, launching a ChatGPT-style AI bot called Ernie late in 2023. It's up against fellow tech giants like Alibaba and WeChat parent company Tencent to win users for its AI offerings. It also is facing off with startups like DeepSeek.
Baidu Chief Financial Officer Haijian He said Biadu is focused on delivering an AI transformation for its "mobile ecosystem," while sustaining momentum for its cloud business and Apollo Go self-driving cars.
"While navigating near-term challenges, we believe these strategic priorities will drive significant long-term value," He said in a news release.
On the stock market today, Baidu stock fell 2.6% to close at 86.76.
Baidu Stock Up 5.7% This Year
Meanwhile, Baidu stock entered trading Wednesday ahead about 5.7% year-to-date and roughly flat compared to 12 months ago. Baidu derives much of its revenue from advertising and has seen a pullback in spending with the wobbly Chinese economy. It is also investing heavily to be an AI leader in the country and offer self-driving cars.
Coming into the report, Baidu stock had an IBD Composite Rating of 55 out of 99, according to IBD Stock Checkup. The score combines five separate proprietary ratings into one rating. The best growth stocks have a Composite Rating of 90 or better.
And Baidu's IBD Relative Strength Rating was 45 out of 99. The RS Rating means that shares of China tech giant have outperformed just 45% of stocks in IBD's database over the past year.
