New areas fortify Baidu finances, sharpen focus on tech investments

Nasdaq-listed Chinese internet giant Baidu Inc delivered better-than-expected fourth-quarter financial results on Thursday, with revenue rising 5 percent year-on-year to 30.3 billion yuan ($4.7 billion), yielding a non-GAAP(generally accepted accounting principles) net profit of 6.9 billion yuan.

Full-year revenue, however, stayed flat at 107.1 billion yuan, generating a non-GAAP net profit of 22 billion yuan, up 21 percent year-on-year, mainly due to the impact of the COVID-19 situation on the larger picture.

In the run-up to Thursday's results (China time), Baidu shares fell more than 5 percent on Nasdaq in the United States on Wednesday to $308.68, but their level was more than double that of a year ago.

In the pre-market session on Thursday, however, as results started trickling in, its shares once recovered more than 4 percent, and are expected to reflect buoyancy in normal trading.

Industry experts such as Zhang Shule interpreted the full-year flat revenue and profit surge as a commendable achievement, and attributed Baidu's strong financial performance to a recovery in its search engine business, healthy growth of its app, and new artificial intelligence and cloud computing businesses.

They said that after years of heavy investment in AI, including smart cloud and autonomous driving, Baidu appears to be looking for new engines of long-term growth now, in order to reduce its reliance on its previous core web search advertising business.

Robin Li, co-founder and CEO of Baidu, confirmed such talk. "As we enter 2021, Baidu is well positioned as a leading AI company with a strong internet foundation to seize the huge market opportunities in cloud services, autonomous driving, smart transportation and other AI opportunities. We also hope to capitalize on our huge internet reach with more non-marketing services.

"Baidu ended 2020 on a solid note with our business benefiting from improving macroeconomic environment and the digitalization of industrial internet."

Li said Baidu's focus on innovation through technology is paying off. Baidu's non-marketing revenue grew 52 percent year-on-year in the fourth quarter to 4.2 billion yuan, driven by cloud and other services. Total Baidu revenue increased 6 percent year-on-year to 23.1 billion yuan.

Herman Yu, chief financial officer of Baidu, explained the strategic nous underlying the company's investment philosophy. "Through years of investment in research, AI chip design, developer community, patents and talent development, we are turning AI into innovative use cases."

For instance, in the fourth quarter, Baidu AI cloud services generated $2 billion in annualized rate of returns (a measure of the rate of return on investments for any length of time, calculated by averaging the returns into a yearlong time frame), up 67 percent year-on-year.

Zhang said: "Baidu has made considerable progress in powering content-driven and AI-driven businesses. Baidu still remains China's largest search engine presence, and its competition with new rivals Toutiao and WeChat also helps cultivate users' habits of searching online with the use of mobile devices. And Baidu's longterm investment in AI technologies to explore frontier fields has also enhanced its AI business."

Baidu has a partnership with automaker Zhejiang Geely Holding Group to establish an intelligent electric vehicle company. It marks a key step for Baidu to capitalize on its AI capabilities to seek new growth opportunities, he said.

Baidu said it has decided on a brand as well as a new CEO for the EV venture with Geely, but did not disclose the person's identity.

Zhang Xiaorong, director of the Cutting-edge Technology Research Institute, said Baidu's strategic partnership with Geely strongly boosted market confidence and it will also leverage Baidu's AI capabilities to make smart cars.

During the fourth quarter, Baidu spent 5.7 billion yuan on research and development, up 19 percent year-on-year, with much of it going into hiring top-end talent.

At the 2020 Annual ABC Summit, an AI industry event organized by Baidu, the company announced its plan to begin mass production of the Kunlun II AI chip later this year, for use in online search, industrial AI and smart transportation.

When it comes to the mobile ecosystem, the company said the Baidu App has 544 million monthly active users, with daily logged-in users exceeding 70 percent of the total as at the end of 2020, up 18 percentage points from a year earlier.

Looking forward, the company will continue to invest heavily in technology to optimize its longterm growth, Baidu CFO Yu said.

Baidu said it expects first quarter revenue this year to be between 26 billion yuan and 28.5 billion yuan, representing a growth rate of 15 percent to 26 percent year-on-year, which assumes that Baidu's revenue will grow between 26 percent and 39 percent year-on-year.