This move was “not totally unexpected, given investors have been waiting for more details in past years”, Jefferies equity analysts Thomas Chong and Zoey Zong said in a research note on Monday following Baidu’s announcement. They indicated that China’s internet sector “has been undergoing changes”, which reflects Baidu’s focus on generative AI.
“For Baidu, Ernie Bot [has already] achieved a milestone in user base and [helps] reconstruct all [of the company’s] products with AI,” the Jefferies analysts said in their report, citing an announcement made during the Baidu World 2023 conference in Beijing last October.
Baidu last November launched the paid version of its ChatGPT-like service, Ernie Bot, enabling subscribers to make 100 inquiries every three hours. The company’s more basic artificial intelligence chatbot, Ernie 3.5 remains free of charge to the public. Photo: Shutterstock
By cancelling the YY Live deal, Baidu could put more teeth into its AI-centric business and product strategy, which co-founder, chairman and chief executive Robin Li Yanhong said in the firm’s third-quarter earnings report was setting “the stage for sustained multi-year revenue and profit expansion within our Ernie and Ernie Bot ecosystem”.
In the company’s earnings call in November, Li said Ernie Bot was handling tens of millions of queries daily three months into its public roll-out, while thousands of enterprises have adopted Baidu’s AI services. As of December 28, Ernie Bot already amassed more than 100 million users, according to Baidu.
Still, Baidu aims to discuss with Joyy the next steps after the termination of the YY Live share purchase agreement. Baidu’s Hong Kong-listed shares edged down 0.7 per cent to HK$115.3 (US$14.76) on Tuesday.
Joyy, however, “is seeking legal advice” and “will consider all options at its disposal”. The company claims that the deal, which was entered into in November 2020, was “substantially completed” in February 2021, with certain matters to be completed in future.
The market cap of Nasdaq-listed Joyy has shrunk by a third over the past three years. The firm’s shares closed at US$39.7 on December 29, which was lower than its November 2020 level of around US$60.
On microblogging service Weibo, Beijing-based angel investor Timothy Guo Tao said in a post that “fierce competition and tougher regulation on live streaming” services on the mainland could have also played a part in Baidu’s decision to bring the YY Live deal to an end.
In November, YY Live’s monthly active users totalled 16 million, lower than Douyu International’s 31 million and Huya’s 23 million, according to market intelligence firm Analysys. In July 2021, the Chinese government blocked the US$5.3 billion merger of video game streamers Douyu and Huya.
Even though YY Live is a pioneer of China’s live-streaming sector, it has been overtaken by younger market players like ByteDance-owned Douyin and Kuaishou Technology, which are China’s top two short video platforms that also provide live- streaming features.
Joyy’s YY Live had also been the target of criticism from US hedge fund Muddy Waters, which labelled Joyy “a multibillion-dollar fraud” in a report just days after Baidu entered the deal to buy YY Live. The American short seller claimed that up to 90 per cent of YY Live’s live-streaming revenue was fraudulent. Joyy refuted the report, asserting that it “contained numerous errors, unsubstantiated statements and misleading conclusions”.
With Baidu’s deal cancelled, YY Live must now “rethink its competition strategy”, said Chen Yuxin, analyst at LeadLeo Research Institute.
YY Live, according to Chen, has become a laggard in the live-streaming industry, where it has neither expanded into e-commerce nor transformed into a strong social media platform in China.
Tighter scrutiny by mainland regulators on live-streaming services could also be more challenging for YY Live to compete. Chen said the arrest of Douyu chief executive Chen Shaojie in November on suspicion of opening a casino “rang a bell to the entire industry that the authority will further strengthen regulation of the live-streaming industry”.
