Baidu has had a rough year, with negative comments from the market and media climbing to the highest level in its history in 2019. On the night of January 22, 2019, an article titled “Search engine Baidu is Dead” on we-media “News Lab” went viral, and the author of the article, Fang Kecheng, became famous overnight.
In the article “Search engine Baidu is Dead”, more than half of the search results were directed to Baidu’s own products, especially Baijia, which was flooded with marketing and poor quality content, leading to a sharp decline in the quality of baidu’s search results. This is baidu to encounter in addition to “2016 medical accident”, the most serious public opinion crisis.
But shortly before that, in the early hours of Nov. 7 Beijing time, Baidu reported third-quarter earnings that far exceeded market expectations. Subsequently, Baidu’s stock price soared for two consecutive trading days. On November 7, the stock price rose 13.52%, and on November 8, it rose another 2.21%. However, in general, baidu’s stock price remained at a relatively high level since September.
And Baidu this financial statement itself, and now and then revealed a trifling problem. Unavoidably will let many investors have “east sunrise west rain, the road is not sunny but sunny” confused feeling.
Baidu financial results in doubt
For Baidu’s performance in the third quarter, Robin Li showed a very satisfied appearance.
In an internal letter of financial results, Li said: “Such performance was achieved in the context of a variety of uncertain factors, so it is all the more commendable. This also shows that the positive changes we have made some time ago have shown initial results. We have better grasped the balance of innovation, speed and efficiency, which has enabled the company to continue to grow, making us more confident about the coming year of 2020.”
“Such performance” refers to net profit attributable to Baidu of 4.4 billion yuan, net profit attributable to Baidu core of 6.3 billion yuan and total revenue of 28.08 billion yuan under non-US GAAP. The Wall Street investment bank had expected Revenue of 27.6 billion yuan and net profit attributable to Baidu of 3.467 billion yuan (non-US GAAP) in its earnings outlook.
It can be seen that Baidu Q3 performance in key indicators are achieved beyond Wall Street expectations of steady change. It’s also worth noting that baidu’s shares rose 4.64 percent in after-hours trading following the release of the results, reflecting investors’ overall approval of the results.
But under a closer look, it is not difficult to find that in this win market recognition, seemingly good Baidu financial statements, also shrouded in some doubts.
First of all, baidu’s revenue did beat Wall Street’s expectations in the third quarter, reaching 28.08 billion yuan, which is very rare. But in terms of growth rate, the year-on-year increase of -0.44% was another low point after medical accidents in 2016 and the lowest level since 2017.
This stagnating state of revenue growth, to Baidu, is not a good omen. But compared with profits, it is already worth celebrating.
Baidu’s gross operating profit has been declining for a year. Baidu’s gross operating profit reached 11.7 billion yuan in the third quarter, up 14.61 percent from the previous quarter, a marked improvement from 9.97 percent in the previous quarter. The year-on-year decline of 16.32 per cent has indeed narrowed, but the picture is still grim.
(Data from Baidu earnings)
Baidu’s operating profit for the first three quarters totaled 1.652 billion yuan, its lowest level since 2010. This is a corollary of Baidu’s declining operating profit since the second half of 2018.
In fact, under U.S. GENERAL accounting standards, the net profit attributable to Baidu was in the red in the third quarter, and the loss was quite large.
Net loss attributable to Baidu in the third quarter under U.S. GAAP was 6.373 billion yuan.
(Data from Baidu earnings)
On a non-GAAP basis, Net profit attributable to Baidu was 4.4 billion yuan in the third quarter, According to Li’s earnings letter.
Under different two sets of accounting standards, ascribe to Baidu’s net profit actually can differ more than 10 billion yuan, enveloped in baidu’s third quarter financial results on the biggest fog, from this.
Of course, For this situation, Baidu has its own explanation. Baidu said the loss was not related to the company’s main business operations, but related to the earlier sale of Ctrip shares. “Due to the decline in the valuation of some equity investments over a long period of time, we recorded an unrealized loss of 8.9 billion yuan,” baidu said.
To put it simply, because of the declining market value of Baidu’s ctrip shares, “the continued low market price caused the company to recognize a non-cash impairment loss of 8.9 billion yuan in the third quarter of 2019.”
This matter has some origins to tell.
In 2015, Baidu traded shares in its controlling subsidiary Qunar for a minority stake in Ctrip, and then continued to invest in Ctrip to raise shares, generating non-cash accounting gains of 24.4 billion yuan at one point. But since then, Ctrip’s stock has been falling in value. Baidu said its loss of 8.9 billion yuan in the third quarter was the result.
On September 26, Ctrip announced that shareholder Baidu planned to issue 31.304 million American depositary shares (ADS), each ADS representing 0.125 common shares, valued at about $1 billion. “In October 2019, the company sold its shares in Ctrip,” Baidu said in its earnings statement. After the sale, Baidu reduced its stake in Ctrip’s outstanding shares from 19% to 12%.
The real curiosity is that the losses can be blamed on Ctrip, but what will Baidu do with the $1 billion (about 7 billion yuan) it made from selling Ctrip shares? Of course, it’s not a mystery, and is likely to be used to embellish the fourth-quarter results.
Although Baidu said that “the loss of the third quarter and the company’s main business operations have nothing to do with Ctrip.” But even if Baidu turns a loss in the fourth quarter, even the optimistic expectation that the mother net profit has achieved more than 4 billion yuan to more than 5 billion yuan at the normal level of profit, the whole 2019 fiscal year attributable to Baidu’s net profit (GAAP) is still very likely to be in the red.
Unfortunately, from the actual point of view, it is difficult to Baidu Q4 performance is too optimistic forecast. Baidu’s revenue from online marketing services, or advertising, fell 9.11% to 20.434 billion yuan in the third quarter.
Internet advertising industry “winter” is not what new topic. Advertising industry demand has been weak for more than a year amid strong downward pressure. Meanwhile, all service providers, including Tencent, are still under pressure from ByteDance’s continued inventory liquidation. In Q4 2019, it is still difficult to see a more favorable change in the industry environment for Baidu.
Baidu forecast revenue for the fourth quarter of 27.1 billion yuan to 28.7 billion yuan, up one to six points. For that growth to happen, the $7 billion in cash clearly needs to play a role.
However, it is clear that the cash is not purely to embellish the financial results. Baidu must have had other, more realistic and urgent intentions for the money it paid so dearly for.
The intention is not hard to guess, probably to increase investment in the field of artificial intelligence. Because Baidu is in artificial intelligence this race track, can never be left behind by competitors.
Bet AI, missed mobile Internet bonus
On December 10, 2018, Harvard Business Selected the “10 most Watched AI leaders in the world”, among which Robin Li, CEO of Baidu, ranked third, and he is the only Chinese entrepreneur on the list.
Among them, Harvard Business appraised Robin Li as follows: “The enlightenment and designer of China’s AI industry; He first put forward the trinity standard, believing that enterprises in the future should be AI-based; It is the first company in the world to build an open platform for driverless driving, which has greatly promoted the development of intelligent driving industry in China and the world. He is the only CEO in China with a full set of AI technologies and industrial capabilities. In his domain, the promotion of AI for industrial upgrading, as well as the construction of intelligent transportation and smart city has entered the application stage.”
Can Robin Li live up to the title of “enlightened and designer of China’s AI industry”? From the reality of the past, well deserved.
Search engine is one of the most important technologies in the Internet industry, which appeared in the 1990s. An important step in search engine technology came in 1994 when Infoseek began allowing webmasters to submit web sites. Robin Li is one of Infoseek’s core engineers.
In September 1998, Google was officially founded. At that time, Robin Li had already invented hyperlink analysis technology. In 2000, Robin Li returned to China with his patented search engine technology and founded Baidu. This year, Google added both simplified and traditional Chinese versions. The decade from 2000 to 2010 was one in which Google repeatedly challenged Baidu’s dominance of the Chinese market.
Google pulled out of China in 2010. After the Chinese search engine market, only one left baidu alone. After 2010, Baidu looked like a very unambitious company. Baidu Japan was set up in 2007, a year after Google China. After Google pulled out of China in 2010, Baidu’s overseas expansion began to fade.
At the same time, around 2010, the rise of smart phones, 3G communication technology into the commercial stage, the rise of mobile Internet.
And miss the dividend of the Internet era, it is baidu fell out of the “BAT” circle of the fundamental reason.
In fact, Li, a true technology guru in the Internet industry, missed the mobile Internet only because he was too distracted by other technology trends. And that trend is artificial intelligence.
Currently, we are in the third wave of the development of artificial intelligence. This wave of AI has been growing since the 1990s, with the rise of Internet technology. But the real milestone came around 2010.
In 2010, TSMC and other international chip manufacturing giants have broken through the 28nm process, and the basic computing power has been improved by leaps and leaps, making the research and application development of various artificial neural networks a good trend.
Since 2010, search engines have to process countless corpus and information every day. In the Internet industry, Baidu and Google have taken the lead in increasing the use of ARTIFICIAL intelligence technology.
Baidu’s massive investment in ARTIFICIAL intelligence has yielded fruitful results
Baidu set up a natural language processing department in 2010 and decided to set up an ARTIFICIAL intelligence lab in 2012. Every year after that, we have to invest a lot of resources in artificial intelligence.
Therefore, although it seems that they do not want to make progress, they also missed the bonus of the mobile Internet era. But since 2010, Baidu’s r&d investment has been growing rapidly every year.
The question is, with all the resources invested, how much is being produced? After all, it was Google’s deep learning algorithm, which had nothing to do with Baidu, that shocked the world in 2016 when AlphaGo beat Lee Sedol.
In fact, Although Baidu’s achievements are not dazzling, but also enough to call rich.
Qi Lu, who left Microsoft in 2017, announced that he will join Baidu as president and chief operating officer. Soon after taking office, Lu Qi carried out a drastic reform of the whole Baidu, and combed baidu’s ai development in detail. Baidu AI Developer Conference (Baidu Create 2017), Baidu AI platform architecture diagram was fully unveiled for the first time, and more than 60 core capabilities were opened.
Many things happened before and after the 3rd Baidu AI Developer Conference this year, including Qi Lu’s departure and the bottle of water. Of course, the conference is focused on the significant issue of “industry intelligence”, and nothing else. At the meeting, Baidu showed the application prospects of AI in a variety of scenarios, including autonomous driving, intelligent transportation, smart home, smart education, smart medical care, smart finance and smart city.
In its third-quarter earnings report, Baidu said there were more than 4.2 billion voice queries per month on its Chinese-language assistant DuerOS, whose skills store now offers more than 3,200 skills. The more than 36,000 developers behind DuerOS are still churning out ideas for it. According to data from technology market analysis firm Canalys, IDC and Strategy Analytics, in the second quarter of 2019, low-degree smart speakers using DuerOS technology retained the no. 1 position among smart speaker shipments in China.
Baidu has also made substantial progress in autonomous driving. Baidu announced in Changsha on September 26 that Robotaxi, a self-driving taxi fleet, officially started trial operation. The first batch of 45 “Hongqi EV” Robotaxi team jointly developed by Apollo and FAW Hongqi began trial operation in part of changsha test road. So far, Baidu has obtained 150 autonomous driving licenses, accounting for more than half of all autonomous driving licenses in China.
By the end of September, Baidu AI Open platform had been widely adopted by more than 1.5 million developers. This means that Baidu still holds the most dynamic AI development platform in China, which can contribute new AI research ideas and even relevant achievements to Baidu in an endless stream. At present, Baidu also shows a more and more positive attitude towards the commercialization of artificial intelligence.
It takes ten years to sharpen a sword.
Baidu’s decade-long dedication to artificial intelligence has given it a unique technology and application heritage among Chinese Internet players. What is needed now is further education and development of the market.
With the continuous advancement of the industrialization process of artificial intelligence, baidu’s development will get a new driving engine.
Will AI create a new Baidu in the next two or three years?
On November 5, Meituan issued a notice to all employees via its Intranet, encouraging them to participate in an internal debate called “A Better decade”. Wang Xing hopes to form a consensus among meituan staff on corporate culture and development in the next ten years through the discussion. He believes that Meituan’s development in the next two years will lay the foundation for the company in five to 10 years.
Not from the perspective of corporate culture, but from the perspective of 5G+IOT+AI technology development, the development of the entire Internet industry in the next two to three years may also have a decisive impact on the pattern of the Internet field in the next five to ten years.
Baidu, currently China’s sixth-largest listed Internet company by market capitalization, remains one of the giants. But compared with The two top giants, Alibaba and Tencent, the market value has been about 10 times the gap.
Have to ask Baidu to return to the top giant camp possibility?
Baidu’s 2019 results so far have been dismal, and the Q4’s financial performance may not even be stellar.
But in the longer term, since Li said he was confident about the coming year 2020, it is likely that Baidu will make more intensive big moves in 2020.
Given baidu’s huge investment in AI, it has become one of the few Chinese companies that truly penetrate the ai industry ecosystem from the technology layer to the application layer. As long as the ai industrialization process progresses steadily in the next two or three years, Baidu’s reappearance of “BAT” glory will not be just an illusion.
In reality, the scale of China’s AI market is in a phase of rapid growth. The market size of China’s AI industry reached 41.55 billion yuan in 2018, with a compound annual growth rate of 54.6 percent from 2015 to 2018, according to the China Academy of Information and Communications Technology.
The scale of THE AI industry is expected to explode after 2020 as the political and industrial sectors are increasingly investing in ai. According to the prediction of the scale of China’s ARTIFICIAL intelligence by a number of authoritative institutions at home and abroad by Qianzhan Industry Research Institute, it is optimistic that the scale of China’s artificial intelligence market is expected to break 160 billion in 2020. Neutral forecast of China’s AI market size in 2020 around 70-100 billion yuan.
In other words, it is optimistic that in the next two to three years, the market size of China’s ARTIFICIAL intelligence industry can reach 200-300 billion yuan. In 2018, the total revenue of the Internet advertising market was 369.423 billion yuan, and 81.9 billion yuan of Baidu’s 102.3 billion yuan revenue came from online marketing (advertising) services. Simply from the perspective of market prospects, in the next two to three years, ARTIFICIAL intelligence is enough to create another Baidu.
It can be said that Baidu is now in the dark before the dawn, but need to survive the test at present.