(Yicai) Feb. 19 -- Baidu’s shares fell after its latest earnings report revealed strong growth in the Chinese tech giant’s artificial intelligence and cloud computing business, but a third straight quarterly drop in revenue weighed on investor sentiment.

Baidu [HKG: 9888] ended 2.1 percent lower at HKD88.35 (USD11.36) a share in Hong Kong today, after its New York-listed stock [NASDAQ: BIDU] shed 7.5 percent yesterday to end at USD90.16.

Revenue fell 2 percent to CNY34.1 billion (USD4.7 billion) in the three months ended Dec. 31 from a year earlier, the Beijing-based company’s fourth-quarter financial report showed yesterday. Net income doubled to CNY5.2 billion (USD711 million).

AI cloud business revenue surged 26 percent, driving non-online marketing revenue up 18 percent to CNY9.8 billion, while the firm's income from traditional online marketing sank 7 percent to CNY17.9 billion.

For the full year, Baidu reported a 1 percent decline in revenue to CNY133.1 billion (USD18.3 billion), while Baidu Core -- its main business segment -- edged up 1 percent to CNY104.7 billion. Most of that came from online marketing, which fell 3 percent to CNY73 billion, while the rest was non-marketing income, mainly driven by AI cloud, which jumped 12 percent to CNY31.7 billion.

Annual net income climbed 17 percent to CNY23.8 billion, with Baidu Core contributing CNY 23.4 billion at a 22 percent profit margin, according to the report.

“2024 marked a pivotal year in our transformation from an internet-centric to an AI-first business," said founder and Chief Executive Officer Robin Li. "With our strategic foresight increasingly validated, we expect our AI investments to deliver more significant results in 2025.”

Earnings Outlook

But Morgan Stanley forecasts Baidu's advertising earnings to shrink 5 percent this quarter due to macroeconomic challenges, AI search transformation, and seasonal factors. The US investment bank notes that monetizing generative AI in internet searches will take longer to boost user engagement, but sees Baidu Cloud ’s revenue growing 20 percent in the quarter.

Baidu is still the most widely used internet search engine in China.

CMB International expects the company’s ad revenue to rise in the second half and improve quarter over quarter, driven by accelerated AI search commercialization. Baidu Cloud is expected to achieve 20 percent growth this year, up from 16 percent in 2024, while Baidu Core revenue is forecast to grow 4 percent to CNY109.2 billion, with advertising income remaining stable.

Baidu continues to forge new partnerships. Careers platform Zhaopin has brought out Keyue, an AI-powered customer service system based on Baidu's Ernie Bot large language model, for campus recruitment, Li said.

Keyue's natural conversational abilities have increased job fair invitation acceptance rates by 50 percent, while reducing labor costs by 70 percent. Baidu also pointed out that leading companies, including phone maker Xiaomi and car brand Zeekr, have formed deep ties with the firm.

A Top Choice

During an earnings call, management noted that Baidu is becoming the top choice for mid-tier AI customers. Baidu Smart Cloud leads China in LLM use, serving over 60 percent of state-owned enterprises and numerous private companies.

Ernie Bot processed almost 1.7 billion daily application programming interface calls in December, with external calls nearly tripling from the previous quarter. The number of monthly active users using the AI features in document editor Baidu Wenku reached 94 million, more than triple the number of a year earlier.

The company's autonomous driving unit Apollo Go provided over 1.1 million rides in the fourth quarter, up 36 percent. It launched fully driverless operations across China this month and secured permits to test robotaxis in Hong Kong last November, marking its first entry into a right-hand drive market.

"While navigating near-term pressures, we are confident that our strategic AI investments will drive meaningful progress and foster long-term success," said Interim Chief Financial Officer He Junjie.

Editors: Zhang Yushuo, Emmi Laine