Baidu misses Q2 revenue forecast as online ads drop 19%

Baidu reported Q2 revenue of RMB31.3 billion, down 4% from a year earlier and missing the RMB31.96 billion consensus as online advertising slumped.

"While our online marketing business remains under pressure, the growing momentum in our core AI-powered Business reaffirms Baidu's transition from an internet-centric company to an AI-first company," co-founder and CEO Robin Li said.

Online marketing services revenue fell 19% to RMB13.1 billion, reflecting weak advertising demand as China's real estate slump and sluggish consumer spending pushed companies to cut budgets. Baidu Core AI-powered Business revenue rose 25% to RMB12.5 billion, accounting for half of Baidu General Business for a second straight quarter. AI Cloud Infra grew 50% to RMB7.3 billion, with GPU Cloud revenue up 283% year over year, while AI Applications rose 3% to RMB2.5 billion and AI-native marketing services were flat at RMB2.6 billion.

Net income attributable to Baidu fell 68% to RMB2.3 billion, with a net margin of 7%. Non-GAAP net income was RMB2.6 billion, and diluted earnings per ADS came to RMB5.74. Operating cash flow was RMB3.4 billion, positive for a fourth consecutive quarter, and total cash and investments stood at RMB283.1 billion. Cost of revenue rose 4% to RMB19.1 billion on higher AI cloud costs, while research and development spending fell 10% to RMB4.6 billion.

Capital expenditure jumped to RMB11.4 billion in the quarter from RMB5.8 billion in the first quarter, according to Morgan Stanley, as Baidu invests in AI infrastructure. The bank downgraded Baidu to Underweight from Equalweight and cut its price target 38.5% to $80 from $130, citing a slower-than-expected recovery in offline advertising and early-stage AI monetization. Baidu's US-listed shares fell 3.5% in premarket trading, while Hong Kong-listed shares dropped 11.8%.

Baidu is converting to a dual-primary listing on the Hong Kong Stock Exchange, expected to take effect within the year, and has returned $259 million to shareholders through buybacks since the start of the first quarter. iQIYI, its video unit, generated RMB6.3 billion in revenue, down 5% year over year.

The results show Baidu's AI expansion has yet to offset the contraction in its legacy advertising business, and rising AI investment may keep pressuring margins. Content platforms including Douyin, Xiaohongshu and the WeChat ecosystem continue to pull general search demand away from Baidu, squeezing its core advertising franchise. Investors will watch the extraordinary general meeting on Aug. 26, where shareholders vote on the dual-primary listing conversion.

This article is for informational purposes only and does not constitute investment advice.