Baidu’s HK shares fall 5% as Q4 earnings underwhelm

Investing.com-- Hong Kong shares of Chinese search engine giant Baidu Inc (NASDAQ:BIDU) fell on Thursday as an increase in its quarterly revenue was largely overshadowed by higher AI-related expenses and a sharp drop in its profit.

Baidu’s Hong Kong shares (HK:9888) fell 6.6% to a two-week low of HK$99.60. The firm’s American Depository Receipts (ADR) slid 8% on Wednesday. 

Baidu’s Q4 revenue rose 6% to RMB 34.95 billion ($4.92 billion), with a bulk of earnings still coming from its core online advertising business. Its non-core revenue, however, did grow 9% to RMB 8.3 billion on its increased AI offerings, particularly the ChatGPT rival Ernie Bot. 

But it clocked higher expenses during the quarter, as it ramped up development of more AI products. Baidu’s R&D expenses grew 11% in Q4 to RMB 6.3 billion.

The firm’s GAAP earnings per ADS shrank 50% to RMB 6.77, hit chiefly by a loss on equity in changes to how it accounts preference shares. Non-GAAP earnings per ADS grew 43% to RMB 21.86, beating market expectations.

Baidu has leaned heavily into AI to help weather a slowdown in its core market, as a Chinese economic recovery faltered over the past year.

The firm has a first-mover advantage over its rivals Alibaba Group (NYSE:BABA) and Tencent Holdings Ltd (HK:0700), who are also racing to roll out their own AI offerings.

But its AI ambitions may face headwinds in the coming years, especially in the face of U.S. restrictions on the export of key AI chips to China. The firm, along with other Chinese internet giants, were seen stockpiling NVIDIA Corporation (NASDAQ:NVDA)chips through 2023 before the imposition of the ban. 

CEO Robin Li said in a post-earnings call that the firm should have enough chips on hand to power Ernie’s development for the next one to two years. 

Baidu’s revenue growth also slowed drastically over the past three years amid persistent headwinds from slowing growth in China.