(Bloomberg) — Baidu Inc. announced a $5 billion share buyback after reporting better-than-expected revenue, reflecting how its cloud computing service is offsetting an advertising lull during China’s economic downturn.
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Its shares gained 6% in pre-market US trading. Sales held steady at 33.1 billion yuan ($4.8 billion) for the three months ended December, compared with expectations for 32.1 billion yuan. Net income almost tripled to about 5 billion yuan during the quarter, boosted by gains in its investments.
Baidu is now embracing anticipations of an economic rebound as China’s giant internet sector emerges from a two-year drought underscored by a steady stream of regulatory investigations and far-reaching pandemic curbs. In December, Xi Jinping’s government dismantled most of its Covid restrictions and opened the Chinese borders for travelers a month later, buoying hopes that the world’s No. 2 economy has turned the corner.
China’s Big Tech firms may be back in spending mode after a year of cost cuts and cautious expansion to shore up the bottom line. Baidu, for its part, is leading a race to create China’s answer to OpenAI’s red-hot ChatGPT. The Beijing company is planning to roll out “Ernie Bot” and embed the AI in its flagship search services in March, while partners from automakers to news sites declare they’ll use Baidu’s tool in their businesses.
Baidu plans to make Ernie an integral part of all major business lines from search and smart speakers to cloud and automobile software platforms, founder Robin Li said in an internal memo viewed by Bloomberg News.
“The development of AI technology is at a turning point, where it will inevitably change all kinds of businesses and industries,” Li said. “Baidu is the best example of long-term growth for China’s AI market.”
It’s too early to tell – even before considering censorship or content quality on China’s internet – whether Ernie could rise to the level of Tencent Holdings Ltd.’s ubiquitous WeChat or Alibaba Group Holding Ltd.’s dominant Taobao. While Baidu over the years sank billions of dollars into AI technology, its bigger rivals dominated the mobile era with more consumer-friendly products.
In the near term, Baidu still counts on the bread-and-butter online marketing service to generate cash. Its still-nascent cloud unit, meanwhile, is targeting clients including smart-city projects and industrial groups to find a niche against bigger foes such as Huawei Technologies Co. and Alibaba.
Baidu’s Netflix-style offshoot iQiyi Inc. reported 3% revenue growth, in line with estimates, as a slump in online ad sales proved smaller than feared.
“Baidu aims to maintain faster growth for its marketing business than China’s GDP,” Daiwa Capital analysts led by John Choi wrote in a note before the results. “Some pocket share gains in ecommerce and retail advertisers will support the above-GDP growth.”
(Updates with CEO’s comments from the 5th paragraph)
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