Baidu’s profit soars to soothe concerns over rising investments in artificial intelligence

Internet giant Baidu reported an 82.9 per cent year-on-year jump in second-quarter net profit to surpass analysts’ expectations, soothing concerns over its escalating investments in artificial intelligence (AI) technologies.

The world’s largest Chinese search engine operator said on Friday that earnings in the three months ended June 30 reached 4.4 billion yuan (US$651 million), up from 2.4 billion yuan in the same period last year, on higher online marketing revenue and lower traffic acquisition cost.

That smashed the consensus analysts’ estimates of a 21 per cent year-on-year increase to 3.4 billion yuan.

Total second-quarter revenue rose 14.3 per cent to 20.9 billion yuan which is in line with analysts expectations, up from 18.3 billion yuan a year earlier.

Its online marketing revenue grew 5.6 per cent year-on-year to 17.9 billion yuan, despite a 20.9 per cent decrease in active online marketing customers to about 470,000.

Revenue per online marketing customer in the second quarter climbed 32 per cent year-on-year to 37,500 yuan.

Traffic acquisition cost reached 2.5 billion yuan, representing 11.9 per cent of total revenue in the second quarter, down from 15.9 per cent in the same period last year.

Nasdaq-listed Baidu forecast its third-quarter revenue to range from 23.1 billion yuan to 23.7 billion yuan, representing a year-on year increase of 26.7 per cent to 30.1 per cent.

The company’s shares climbed 4.63 per cent to US$210.30 in after-hours trading.

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The second-quarter results provide a stark contrast from July last year, when Baidu dealt with the aftermath of public outrage over the death of university student Wei Zexi linked to a cancer treatment he found online.

Baidu was ordered by regulators in May last year to strictly limit advertising per page and clean up its medical-related paid-search business.

A regulatory filing made by Baidu last month disclosed that its first-quarter search revenue fell 6 per cent year on year, following its rigid customer verification process last year to remove so-called low-quality advertisers.

Robin Li Yanhong, Baidu’s chairman and chief executive, said in a statement on Friday that the company’s mission is to “make a complex world simpler through technology”, which it will execute on the strength of its mobile operations and lead in AI development.

“We will use AI as a fundamental driver to elevate our current core business, specifically our core products of Mobile Baidu, search and feed,” Li said.

He pointed out that Baidu will continue to build out its new AI-enabled initiatives “through an open platform and ecosystem approach to capture long term economic opportunity”.

Earlier this month, Li stressed the importance of opening up the company’s AI platform to developers.

That approach would help Baidu’s DuerOS, a conversation-based AI technology, to become the Android operating system for the AI era. DuerOS is targeted for use in smart home appliances, cars and wearable devices.

“Management indicated that commercialisation of DuerOS may come in the form of personalised advertising, licensing fee and channel distribution revenue,” Jefferies equity analyst Karen Chan said on Friday.

Baidu recently launched its Apollo 1.0 autonomous driving platform with more than 50 industry partners, including major car makers and automotive component suppliers.

At the Beijing-based company’s inaugural AI Developer Conference early this month, Baidu chief operating officer Lu Qi said the company is well positioned to help China “become the worldwide leader in autonomous driving in the coming three to five years”. Lu also sai Baidu will set up subsidiaries in the United States and Singapore to further expand Apollo’s development.

Apollo is expected to launch in cars for simple intra-city scenarios by December this year and all-scenarios driving — including high-speed road and intra-city — by December 2020, according to an HSBC research report.

Jefferies’ Chan last week said Baidu is expected to add 3 billion yuan this year to its annual research and development budget of about 10 billion yuan. The incremental increase will be mostly spent on AI initiatives, Chan said.

Last month, Baidu announced the pricing of its public offering of US$1.5 billion notes. That consisted of US$900 million notes due on 2022 and US$600 million due on 2027. It would receive US$1.49 billion as net proceeds that will be used to repay existing debt and for general corporate purposes.