Baidu reports a 3% decline in third-quarter earnings, surpassing forecasts.

• On Thursday, Baidu, a Chinese tech company, announced better-than-anticipated revenue and profit for the third quarter.
• Baidu's non-online marketing revenue increased by 12% to $1.1 billion, primarily due to its artificial intelligence cloud business.

Despite a 3% decline in annual revenue during the third quarter, the Chinese tech giant surpassed market expectations due to the growth in AI cloud.

The quarterly revenue was $4.78 billion, while net income increased by 14% to $1.09 billion.

Baidu's non-online marketing revenue increased by 12% to $1.1 billion, primarily due to its artificial intelligence cloud business.

The company's U.S.-listed shares dropped 2.3% at 08:42 a.m. ET after the release of its financial results.

According to LSEG estimates, analysts predicted the company's quarterly report.

• Revenue: $4.63 billion
• Net income: $857.17 million

In the third quarter of 2023, Baidu reported revenue of 34.45 billion yuan ($4.75 billion) and net income of 6.68 billion yuan.

Baidu, a Beijing-based company, operates a major web browser search engine in China, a popular maps app, cloud computing services, and generates significant revenue through online marketing.

Despite weak online ad spend from small and medium-sized businesses in the third quarter, management expects China's stimulus announcements, which began in late September, to eventually have a positive impact.

Baidu's CEO, Robin Li, stated in the earnings release that the growth in the AI cloud business helped to offset the "ongoing weakness" in the company's online marketing stream. Additionally, Li commented on the performance of the Ernie generative AI model and chatbot.

As Ernie's adoption increases, our AI capabilities are gaining broader market recognition, he stated.

Baidu has marketed Ernie chatbot as a localized version of OpenAI's ChatGPT, which is unavailable in China. Currently, Ernie bot has 430 million users, and its underlying AI model is accessed 1.5 billion times daily, a significant increase from the 600 million rate in August, as per Baidu's recent announcement.

"Although we face immediate challenges, we remain committed to our AI-centric approach and are optimistic about our future growth. As we expand our AI capabilities, we are excited to explore how it can drive advancements and generate benefits for all stakeholders."

He stated during an earnings call that he anticipates generative AI will make Baidu search the "new dominant app in the era of AI."

One-third of Baidu's code is now generated by AI, as stated by Li.

Baidu's AI cloud business has seen a significant increase in revenue from generative AI, reaching 11% in the third quarter, up from 9% in the previous quarter and 5% in the fourth quarter of last year, when Baidu began tracking revenue from this technology.

This month, the company announced that its Xiaodu AI Glasses will be available for purchase in the first half of next year. The wearable features at least one camera and leverages Ernie's AI capabilities and Baidu's maps and search functions. Although Baidu has not disclosed a price, the product is anticipated to be a Chinese alternative to Meta's popular Ray-Ban smart glasses.

Last month, Baidu announced a management rotation, with Junjie He, the former head of the mobile ecosystem group, becoming the company's interim Chief Financial Officer, while Rong Luo, the former CFO, assumed leadership of the mobile division.

"In the third quarter, AI Cloud exhibited robust growth, while Apollo Go made significant progress, strengthening our belief in the viability of the autonomous ride-hailing business model."

In the third quarter, Apollo Go, which manages Baidu's robotaxi business, experienced a 20% increase in rides compared to the same period last year. The average number of rides per month increased to 329,333 during the third quarter, up from 287,500 in the first half of the year, according to CNBC calculations.

Li informed investors that the company is actively considering expanding internationally with Apollo Go, but did not disclose any specific locations or a timeline.