Baidu (BIDU) reported a decline in second-quarter revenue as weakness in its core advertising business, pressured by China’s slowing economy, outweighed solid growth in cloud services. Notably, revenue for the three months ended June 30 came in at ¥32.71 billion ($4.56 billion), down 4% from a year earlier and just below analysts’ average estimate of ¥32.76 billion. Following the results, BIDU stock fell over 2% in pre-market trading.
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Baidu’s Q2 Results Snapshot
On an adjusted basis, Baidu reported earnings of ¥13.58 per American Depositary Share (ADS), topping expectations of ¥13.12.
However, a slowdown in China’s property market, weak job growth, and uneven consumer demand have led companies to cut back on advertising to save costs. This has hurt Baidu, which depends heavily on ad revenue from its search engine. In Q2, its core online advertising business, normally about 60% of total revenue, fell 15% to ¥16.2 billion. The decline overshadowed strong growth in Baidu’s AI cloud division, which lifted its non-advertising business by 34%.
Baidu’s Big Bet on AI Faces Hurdles
Baidu is banking on generative AI to fuel future growth. However, it is under growing pressure from fast-improving open-source models like DeepSeek and a surge of AI-first apps challenging its market share.
Interestingly, Baidu’s Ernie chatbot was among the first chatbots launched in China’s massive internet market, but it has since lost ground to rivals like ByteDance, Tencent (TCEHY), and open-source models such as Alibaba’s (BABA) Qwen. Facing competitive pressure, Baidu has dropped its paid subscription plan and even open-sourced its Ernie models.
Robert Lea, senior analyst at Bloomberg Intelligence, said Baidu faces a tough road ahead, with its AI initiatives expected to lose money for at least the next three years.
Is Baidu Stock a Buy Now?
According to TipRanks, Wall Street has a Moderate Buy consensus rating on BIDU stock, based on eight Buys and five Holds assigned in the last three months. The average Baidu stock price target of $102.8 implies 15.40% upside potential.
These ratings and price targets will likely change as analysts update their coverage following today’s earnings report.
