Baidu reported second-quarter revenue of 31.33 billion yuan ($4.62 billion) on Tuesday, falling short of analyst expectations as a steep decline in online advertising outpaced growth in its AI cloud business.
Revenue fell 4% from a year earlier. Analysts had forecast 31.96 billion yuan, according to Reuters. Baidu stock dropped 3.5% in premarket trading.
Online marketing services brought in 13.1 billion yuan during the April-to-June period, a 19% drop compared with the same quarter last year. Reuters attributed the trend to China’s protracted real estate slump and sluggish consumer demand, which have pushed companies to scale back their advertising outlays.
Baidu’s AI-linked businesses provided a partial offset. Its Core AI-powered Business segment, covering cloud infrastructure, AI applications, and AI-native marketing services, generated 12.5 billion yuan, a 25% increase from the prior-year period and roughly half of Baidu’s overall general business revenue. AI cloud infrastructure revenue grew 50% year over year to 7.3 billion yuan, while GPU cloud revenue grew 283% year over year. AI applications revenue rose 3% to 2.5 billion yuan, and AI-native marketing services were roughly flat at 2.6 billion yuan.
“While our online marketing business remains under pressure, the growing momentum in our core AI-powered Business reaffirms Baidu’s transition from an internet-centric company to an AI-first company,” Baidu co-founder and CEO Robin Li said in a statement.
Net income attributable to Baidu was 2.3 billion yuan for the quarter, with a net margin of 7%. Non-GAAP net income attributable to Baidu was 2.6 billion yuan. Operating cash flow was 3.4 billion yuan, positive for the fourth consecutive quarter, the company said.
Cost of revenue rose 4% year over year to 19.1 billion yuan, driven by increases in AI cloud-related costs. Research and development expenses were 4.6 billion yuan, down 10% from a year earlier. The company has returned $259 million to shareholders since the start of the first quarter through share repurchases.
Baidu also said it submitted an application to convert to a dual-primary listing on the Hong Kong Stock Exchange and expects the conversion to take effect within the year, subject to shareholder and exchange approval. An extraordinary general meeting of shareholders is scheduled for August 26.