Baidu under pressure to maintain pace of growth amid macro challenges and tough advertising market
- Baidu beats estimates but its transformation into AI champion – along with heavy investments needed – will be tough amid slowing economy
Amid a slowing economy, as search fades in importance and with AI still in its infancy, Baidu is under pressure to maintain its growth pace, say analysts.
China’s largest search engine and national AI champion posted fourth quarter results on Thursday that beat estimates, as its full-year net profit surged 51 per cent year-on-year to 27.6 billion yuan (US$4 billion) on total revenue of 102.3 billion yuan. But analysts pointed to slipping margins as evidence of the current tough times.
Operating margin declined for the fourth consecutive quarter in the three months to December, meaning the full year margin slipped to 15 per cent from 20 per cent in 2017.
Connie Gu, an analyst with Bank of Communication International Holdings, said a slowdown in China’s economy along with fading user reliance on search functions were part of the reason for the decline. “With slower-than-expected search ad industry growth and AI monetisation at an early stage, Baidu has a sizeable challenge to achieve continuous growth,” said Gu.
Baidu played up its strengths though on a Friday earnings call.
“We have entered a new stage in China’s internet, where the population and penetration dividend has gone,” said Robin Li Yanhong, the billionaire founder and chief executive of Baidu, on the call. “Technology transformation” will take the lead in driving future growth, he said.