(Bloomberg) -- Baidu Inc. recorded its biggest revenue drop in more than two years after China's economic malaise undermined its push into generative AI.
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Revenue for the three months ended September slipped 3% to 33.6 billion yuan ($4.6 billion), in line with analysts' projections. Net income came to 7.6 billion yuan.
China's internet search leader has much to prove with its AI-first growth strategy, which has delivered underwhelming returns to far. The company hopes its Ernie artificial intelligence model -- now handling 1.5 billion daily queries -- could become the game-changer for businesses like search and the cloud, but it will take time for monetization to fully kick in. Its Ernie Bot has fallen behind ByteDance Ltd.'s Doubao in China usage, while the core business is losing eyeballs to newer social platforms like Xiaohongshu and Douyin.
Baidu is among the companies most vulnerable to China's downturn, as its key advertisers span industries from automakers to real estate. Rivals Tencent Holdings Ltd. and Alibaba Group Holding Ltd. said they saw some improvement in the broader economy last week after posting mixed results, though neither offered a forecast for when a rebound might take hold.
Despite a head-start in China's AI frenzy, Baidu has struggled to hang on to leadership. Aside from no longer having the country's most popular AI chatbot, the company faces an all-out price war among AI infrastructure providers to entice more developers and startups as customers.
Billionaire founder Robin Li unveiled a set of tools and add-ons for Ernie users last week at his company's annual product event in Shanghai, though he stopped short of launching a more powerful version of the AI model. He called AI agents -- or chatbots customized to perform tasks on the user's behalf -- the centerpiece of Baidu's strategy, as the company seeks to broaden its content offerings on search.
"Baidu isn't aiming to launch a super-app," Li said. "Instead, we aim to help more people and businesses create millions of super useful applications."
The company also revealed its AI smart glasses, a product akin to Meta Platforms Inc.'s Ray-Bans, will be available for sale in the first half of 2025.
Baidu and Alibaba are among the leading suitors for a potential chatbot tie-up with Apple Inc., as the Silicon Valley giant is required to find a local partner to provide AI features in its latest generation of iPhones.