Shares of Baidu (NASDAQ: BIDU) fell sharply on Tuesday, falling as much as 11.6%. ET, the stock was still down 11.4%. The catalyst that sent the Chinese tech giant lower was news that its heavy investment in artificial intelligence (AI) isn't paying off quickly enough for Wall Street.
This Rare Signal Is Flashing Again. In 2009, a "Double Down" signal flashed for a little-known chipmaker called Nvidia. For the first time in years, that same "Total Conviction" signal is flashing for a company 1/100th the size of Nvidia.
Continue » Baidu reported its second-quarter results, and to say investors were disappointed might be putting it mildly. Revenue of RMB 31.3 billion (roughly $4.62 billion) fell 4% year over year, with declines across the major operating units. Revenue from its general business declined 3% to $3.71 billion, while revenue from iQIYI -- its majority-owned streaming service -- slipped 5% to $927 million.
If the top-line results were disappointing, the bottom line was doubly so. Diluted earnings per American Depository Share (ADS) of RMB 5.74 (about $0.85) plunged 72%. For context, analysts' consensus estimates called for revenue of RMB 31.95 billion and earnings per ADS of RMB 9.84, so Baidu missed expectations by a country mile.
Perhaps most concerning was that the company's legacy ad business continued to struggle, as online marketing revenue fell 19% year over year. There were some green shoots, as Baidu's AI-powered core business grew 25% year over year, driven higher by its AI cloud, which jumped 50%. AI applications edged 3% higher, while its AI-based marketing services were flat.
Baidu continues to invest heavily in its AI-powered future, with capital expenditures (capex) of RMB 11.4 billion (about $1.68 billion), triple the RMB 3,800 it spent in the prior-year quarter. It's clear investors had hoped that spending of that magnitude would yield more impressive results. At 71 times trailing-12-month earnings, Baidu is selling for a premium.
Extract — continue reading at the source.
