Chinese technology giant Baidu reported a 68 percent drop in second-quarter net profit on Tuesday as declining search advertising revenue weighed heavily on earnings.
Net profit for the three months ended June fell to 2.32 billion yuan ($344.2 million), down from the same period last year. Total revenue for the quarter decreased 4.2 percent year-on-year to 31.325 billion yuan, continuing a revenue slide that has lasted for more than a year.
Both figures missed financial market expectations. Wall Street analysts surveyed by consensus firm FactSet had projected a net profit of 2.82 billion yuan on total revenue of 31.34 billion yuan.
The weak results mark the third consecutive quarter in which Baidu's net profit has dropped by more than half, underlining persistent weakness in its legacy online advertising operations.
Shift Toward Artificial Intelligence
The Beijing-based internet firm, historically known as China's answer to Google due to its dominant web search platform, has been diverting significant capital toward artificial intelligence, autonomous driving, and semiconductor development. However, these costly investments have been slow to show up in financial performance.
Baidu said its core AI-driven business continues to account for roughly half of overall business revenue. Revenue in this primary AI segment grew 25 percent year-on-year in the second quarter, although growth decelerated and fell 8 percent compared to the first quarter.
Robin Li, co-founder and chief executive officer of Baidu, said the AI-driven business was now firmly established as the core of the company. He said Baidu was strengthening foundations for the next phase of its AI-guided growth.
Analysts at investment bank Citi noted prior to the earnings release that demand for computing capacity remained strong during the second quarter.
Rating Downgrade and Market Competition
The financial slump coincides with a credit rating downgrade by Fitch Ratings last week. The agency cut Baidu's long-term credit rating from A to A-, citing a structural decline in its traditional search advertising model.
Fitch said it expects AI-enabled search tools and rival chatbots to place continued pressure on Baidu's search monetization. The rating agency added that reduced profitability reflects both the weakening of the traditional core business and narrower margins in non-marketing segments.
Baidu faces fierce domestic competition in China. Established internet conglomerates Alibaba Group and ByteDance, the owner of short-video platform TikTok, are expanding aggressively in AI, while specialized startups including DeepSeek and Moonshot AI are competing for artificial intelligence market share.
Stock Drop and Chip Unit Listing
Investor sentiment has soured alongside the weakening core business. Baidu's Hong Kong-listed shares have lost more than a fifth of their value this year, underperforming the broader equity market.
Market analysts and investors are closely following the planned initial public offering of Kunlunxin, Baidu's semiconductor unit focused on AI chips. The listing is scheduled to take place in Hong Kong later this year.
