Baidu Surges After Sales Beat Signals AI Push Is Paying Off

(Bloomberg) -- Baidu Inc.'s shares surged in Hong Kong after its revenue and profit beat estimates, signaling the Chinese internet giant's efforts to monetize artificial intelligence technology is paying off.

The stock gained as much as 9.3% in early trading on Wednesday following a 6.8% advance in its U.S. shares. Revenue for the December quarter rose a better-than-expected 9% to 33.1 billion yuan ($5.2 billion). Adjusted earnings per American depositary receipt came at 11.60 yuan, 25% above estimates.

China's internet search leader is in the midst of a transition from an online marketing company to a hard-tech supplier in arenas from self-driving vehicles to the cloud and chips. The country's weakening economy, coupled with Beijing's crackdown on private sectors from education to property, has hammered Baidu's core search-advertising division. That's given extra importance to its efforts to commercialize AI tech.

Revenue from non-advertising businesses, including its cloud segment, surged 63% in the three months ended December, versus growth of just 1% in online marketing. Baidu's AI cloud revenue rose 64% to 15.1 billion yuan for fiscal 2021, helped by clients in industries like transportation and energy, executives said on a conference call.

Baidu Gains on Revenue Beat; Recovery Seen on Track: Street Wrap

“Our new AI business has been growing at a pace faster than industry average,” founder Robin Li said on the call. “Despite the uncertainties caused by macro, by geopolitical tensions, and other factors, there is one thing for sure. That is, the world is moving towards AI.”

Baidu is planning to mass-produce its electric vehicles in 2023, with a prototype to be unveiled next month. It's also testing a driverless ride-hailing service in big cities like Beijing and Guangzhou, while expanding a nascent chip business beyond just in-house applications. Those efforts coincide with President Xi Jinping's call to make China self-sufficient in key technologies, at a time when his administration has grown weary of a decade of heady expansion in consumer internet.

While Baidu isn't a major target of China's tech crackdown, regulatory uncertainties as well as intensifying competition with online content hubs offered by the likes of Tencent Holdings Ltd. and ByteDance Ltd. could weaken the prospects for Baidu's search-feed app and Netflix-style offshoot IQiyi Inc. In December, the streaming service raised subscription fees by up to 20% after user growth plateaued.

IQiyi reported little changed but better-than-expected revenue, and predicted it would reach breakeven on a non-GAAP operating income basis in fiscal 2022. Its U.S. shares jumped 21% on Tuesday, the biggest single-day advance since June 2020.

Baidu's net income for the December quarter plunged to 1.7 billion yuan from 5.17 billion yuan a year earlier, affected by higher operating and development costs as well as a 891 million yuan impairment loss from long-term investments.

“The weakness in China's economy has negative impacts on its short-term growth,” TH Capital analyst Tian X. Hou said in a note before Baidu's results. “However, looking beyond the current quarter, we believe BIDU's autonomous EV initiatives are likely to bring new growth and better valuation to the stock.”