TMTPost -- The American depositary receipts (ADRs) of Baidu, Inc. fell as much as 5.4% before settling 4.4% lower Thursday, underperforming the U.S. stock market as the broad index S&P 500 slipped around 0.9%. Shares sold off after  China’s dominant internet search engine posted mixed results for the second quarter of the year.

Credit：Baidu

Baidu largely stagnated on the top line while its decline in the bottom line less deeper than expected. Revenue for the quarter ended June 30 edged down about 0.4% year-over-year (YoY) to RMB33.93 billion (US$4.67 billion), just shy of Wall Street expected RMB34.11 billion. That is Baidu’s first YoY decrease in revenue since the third quarter of 2022, representing the weakest pace in more than a year. The bottom line further slowed following a 1% YoY rise in the previous quarter.

Baidu Core, which accounts for nearly 79% of overall revenue in the June quarter, brought RMB26.7 billion with a 1% YoY increase, versus a growth rate of 4% three months ago. Out of the mainstay segment, online marketing revenue decreased 2% YoY to RMB19.2 billion, and non-online marketing revenue was RMB7.5 billion, up 10% YoY, mainly buoyed by artificial intelligence (AI) cloud business. Revenue from iQIYI, an online entertainment video services provider, was RMB7.9 billion, recording the same 5% YoY increase with the first quarter.

Baidu’s profit beat analysts’ estimates for another quarter, suggesting AI related business partially offset headwinds from a sluggish economy in China. Net income for the second quarter gained 5.3% YoY to RMB5.49 billion, compared with RMB5.13 billion estimated by analysts. On Non-GAAP basis, adjusted net income fell 8% YoY to RM7.4 billion following a 22% YoY surge from January to March, still better than analysts’ forecast of RMB6.45 billion. Non-GAAP earnings per American depositary share (ADS) was RMB21.02 with a 7% YoY decrease, and adjusted EBITDA, or earnings before interest, taxes, depreciation, and amortization, was flat YoY with RMB9.15 billion, versus expectation of RMB18.54 and RMB8.93 billion, respectively. Adjusted EBITDA margin of 26% in the second quarter also stalled.  Non-GAAP operating income added 2% YoY to RMB7.5 billion, in which RMB7.0 billion came from Baidu Core. The operating income topped analysts projected RMB6.79 billion, though slowing from the first quarter that saw a 4% YoY increase.

AI Cloud, one of the three growth engines of Baidu Core, helped drive non-online marketing revenue in the second quarter up 10% YoY, a stronger force compared with a 6% YoY increase in revenue for the preceding quarter. It also played a key role in Baidu Core’s modest growth. “AI Cloud continued to accelerate in the second quarter, offsetting the ongoing macro headwinds for online marketing revenue and resulting in modestly positive top line growth for Baidu Core,” Baidu CEO Robin Li said in a statement Thursday,”Operationally, we fast-tracked the renovation of Baidu search, which we believe will drive long-term success despite the short-term impact on monetization.”

“As we speeded up the AI-native transformation of our products in the second quarter, we continued to optimize our operations and maintained a healthy margin,” said Rong Luo, Chief Financial Officer (CFO) of Baidu. “For AI Cloud in particular, we expect growth to maintain a strong momentum.”

Li also highlighted new breakthroughs with Apollo Go, Baidu’s autonomous ride-hailing service.  The intelligent driving business started offering 100% fully driverless ride-hailing services in practically the entire Wuhan municipality, its largest operational city, on June 19. Baidu has started scalable testing of its sixth-generation of autonomous vehicle, the RT6. During the second quarter, Apollo Go provided about 899,000 rides, up 26% YoY, and the cumulative rides provided to the public as of July 28 exceeded 7 million.