Baidu 'confident' AI will sustain growth after sluggish first quarter

By Liam Mo and Yuvraj Malik

(Reuters) -China's Baidu said on Thursday it was confident artificial intelligence would help drive future sales and profits after reporting first-quarter revenue growth of just 1% as weak Chinese economic growth kept advertisers cautious.

The company has touted the current fourth version of its GPT-like large language model Ernie - which has undergone several iterations since it was unveiled in March last year - as rivaling OpenAI's GPT-4.

"While we operate our legacy business in a challenging environment and (expect) slower revenue growth in the near term, we remain confident that AI will help us sustain growth in revenue and profit in the long run," said co-founder and CEO Robin Li in a call to analysts.

The company, China's largest search engine provider, still generates the majority of its revenue from online ad sales, which are under pressure due to slower Chinese economic growth.

It reported on Thursday revenue of 31.51 billion yuan ($4.37 billion) for the three months ended March 31, compared to analysts' average estimate of 31.21 billion yuan as per LSEG data.

"The weak micro economy contributes to the softness of our ad business," Li said.

"Our advertisers come from a wide range of industries with the majority being SME (small and medium-sized enterprises). This means our advertising revenue is highly sensitive to the micro environment."

Baidu's U.S.-listed shares were down 4.8% on the U.S. market opening

During the earnings call on Thursday, Li said daily usage of Ernie by cloud clients had reached 200 million, up from 50 million in the last quarter of 2023.

AI-related revenue contributed 6.9% of the total reported by the cloud business, which rose by 12% to 4.7 billion yuan.

Last month, the company said its AI chatbot Ernie Bot had garnered more than 200 million users, roughly doubling since the company's last update in December.

Baidu started charging users 59.9 yuan per month in November and also seeks to use AI to augment its online search and cloud computing services.

The company's online marketing revenue increased by 3% to 17 billion yuan for the quarter.

In addition to AI, Baidu's diversification efforts away from online search also involve ramping up its autonomous driving business.

Baidu this week announced the launch of a new version of its robotaxi service, the sixth generation, in Wuhan. CEO Li reiterated that the firm aims to achieve profitability next year with its autonomous vehicle business.

The company reported adjusted net income of 7 billion yuan for the quarter, beating the analysts' average estimate of 5.57 billion yuan, according to LSEG data.

($1 = 7.22 Chinese yuan renminbi)

(Reporting by Yuvraj Malik in Bengaluru; Editing by Pooja Desai, Varun H K, Toby Chopra and Jan Harvey)