The Chinese search engine giant Baidu reported a decline in net profit in the first quarter, but was able to exceed revenue and profit estimates. This was supported by stable revenues from online marketing and increasing sales from the AI cloud business.
The Beijing-based company announced on Thursday that net profit for the first quarter fell 6.5% to 5.45 billion yuan ($754.9 million) compared to the previous year. This was above the 4.11 billion yuan expected by analysts in a FactSet survey. Although operating income was higher, the bottom line was weighed down by a decrease in fair value gains from long-term investments.
The adjusted net profit increased by 22% to 7.01 billion yuan, significantly exceeding analysts' expectations of 5.64 billion yuan. This closely watched metric excludes the impacts of share-based compensation expenses, fair value changes in long-term investments, as well as gains and losses from disposals.
Revenue increased by 1.2% to 31.51 billion yuan, slightly above the analyst estimate of 31.22 billion yuan.
Baidu stated that revenue from online marketing services, which account for more than half of total sales, increased by 2.9%. Revenue from core businesses outside of online marketing grew by about 6%, mainly driven by the AI cloud business. However, the sales of Baidu's video streaming service iQIYI fell by about 5%.
Once regarded as one of China's most brilliant technology companies alongside Alibaba and Tencent, Baidu has seen slower growth in core advertising revenues in recent years. This led the company to search for new growth drivers in areas such as autonomous driving, cloud computing, and artificial intelligence.
In April, the company announced that the user count of its Ernie Bot, China's most popular ChatGPT-like bot, had doubled to over 200 million in the last few months. The chatbot, introduced in March 2023, competes with many large language models in China, including Alibaba's Tongyi Qianwen and Tencent's Hunyuan.
On Thursday, Baidu stated that it is working to make its Ernie model family more cost-effective and efficient. The launch of several lighter LLMs in the first quarter has already made Ernie more affordable.
Alibaba and Tencent reported single-digit revenue growth in the quarter ending March this year. Alibaba's adjusted profit fell by 11%, while Tencent recorded a 54% increase in adjusted profit.
