Aug 23, 2023

Baidu shares rose on Tuesday after reporting a 15 percent increase in revenue from a year earlier.

BIDU–Weekly-Chart-Revenue-Beat

BIDU – Weekly chart

Baidu shares rose 4% to trade at $127.55, but the $117.50 support level is poised to withstand negative sentiment.

The Chinese search engine and artificial intelligence company reported second-quarter revenue on Tuesday that beat expectations, thanks to strong growth in its advertising business. After China was exposed to Covid restrictions, companies began to increase digital advertising spending, with most of Baidu’s profits coming from advertising.

Baidu has also been shifting its business focus to its generative artificial intelligence big language model (LLM) robot, Ernie.

Robin Li, co-founder and CEO of Baidu, said: “In the second quarter of 2023, Baidu’s core business accelerated revenue and profit growth, benefiting from the solid performance and operational leverage of its online marketing business.”

He added that the company is committed to building a “new engine” for the business around its AI tools. Revenue for the quarter ended June 30 was RMB 34.06 billion ($4.67 billion), compared with analysts’ expectations of RMB 33.28 billion.

The company’s online marketing revenue increased 15% year-over-year, while operating margin increased 3%. Robin Li told analysts on the conference call: “In the second half of the year, our online marketing business should continue to see a fairly obvious recovery trend.”

Another bright spot is the growth of the company’s robotaxi service, with self-driving rides up 149% in the past year. The company currently offers more than 3 million robotaxi services.

While the company’s earnings were strong, they were also an improvement in a period of weakness in China’s economy. The rebound after the end of Covid restrictions was weaker than expected, and investors are now concerned about the state of China’s property market.

Since then, Alibaba and Tencent have also joined the field of big language models, raising questions about whether Baidu can maintain its current leading position. The CEO said the company is waiting for government approval to roll out ChatGPT’s competitors to the public. There is some uncertainty due to regulations implemented in August that require a safety review before AI services are put on the market.

Vey-Sern Ling of Union Bancaire Privee said before the earnings report: “Baidu is considered to be a leader in generative artificial intelligence because the investments it has made in this space over the years are more obvious. “But the development of generative AI applications is still in its early stages.”

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