Baidu's core revenue and advertising revenue decline, while intelligent cloud revenue grows, and ERNIE Bot and Robotaxi services show promising data

On November 21, Baidu released its Q3 2024 financial report, reporting total quarterly revenue of 33.6 billion yuan, down 3% year-on-year, with Baidu's core revenue at 26.57 billion yuan, slightly down from 26.69 billion yuan in the same period last year.

In terms of business segments, Baidu's online marketing revenue (commonly understood as advertising revenue) was 18.8 billion yuan, down 4% year-on-year, while non-online marketing revenue was 7.7 billion yuan, up 12% year-on-year, mainly driven by intelligent cloud services.

The situation is equally grim for subsidiary iQIYI, with Q3 revenue of 7.2 billion yuan, down 10% year-on-year.

Baidu Chairman Robin Li said, "Baidu's core revenue in Q3 was flat year-on-year, reflecting continued weakness in our online marketing business, offset by growth in intelligent cloud services." Despite short-term pressures, Baidu remains committed to its AI-centric strategy and is exploring how AI can drive innovation.

In other financial data, Baidu's cost of sales and selling, general, and administrative expenses increased by 1% and 2% year-on-year, respectively, while research and development expenses fell by 12% year-on-year. Baidu attributed the increase in costs to higher traffic acquisition and cloud business costs, while the decrease in R&D expenses was due to reduced personnel-related expenses.

This suggests that Baidu may have experienced significant declines in personnel salaries or layoffs, resulting in a 12% reduction in R&D expenses, which have been significant for years.

In other data, as of November, the number of developers in Baidu's ERNIE Bot ecosystem reached 18.08 million, with an average daily call volume of 1.5 billion for the ERNIE Bot large model, a significant increase from 600 million in August. In intelligent driving, Baidu's autonomous driving service Robotaxi provided 988,000 orders in Q3 2024, up 20% year-on-year.

At Baidu's Q3 earnings call, Robin Li revealed that over 20% of search result pages on Baidu Search now include AI-generated content. In comparison, in the previous quarter, Baidu disclosed that 18% of search results were generated by AI.

The decline in Baidu's core advertising business, often referred to as its "cash cow," has led many international investment institutions to express a bearish outlook on Baidu's current situation.

Investment bank Jefferies downgraded Baidu's target price from $134 to $126.

UBS also downgraded Baidu's H-share target price from HK$139 to HK$119. UBS analysts noted that Baidu's recent core advertising revenue outlook is weak, with advertisers in different sectors still downbeat, and long-tail SMEs remaining cautious about advertising spending. It is expected that the year-on-year decline in Baidu's core advertising revenue will widen to 8% in Q4. However, due to improved AI monetization and a low base, the group may record positive growth starting from Q3 next year.

The capital market also voted with its feet, with Baidu's U.S. shares falling 5.9% last night and another 3.86% during the after-hours trading session. Baidu's Hong Kong shares have plummeted 9.42% so far, hitting a two-year low since November 2022.