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Baidu to fund AI expansion with video streaming listing

Chinese web company seeks fresh income streams as it chases Alibaba and Tencent

Chinese search provider Baidu has been working with automakers and tech peers to develop automated driving technology.

BEIJING -- Chinese online search provider Baidu plans to ramp up artificial intelligence research with funds raised by listing its video-streaming unit in the U.S., it was learned Wednesday.

Accelerating R&D in fields such as automated driving and conversational AI is part of Baidu's effort to expand its income base beyond online advertising and catch up to its stronger-earning rivals, online retailer Alibaba Group Holding and chat app operator Tencent Holdings.

Baidu has filed with the U.S. Securities and Exchange Commission for an initial public offering of the unit that operates the iQiyi service, which has been likened to a Chinese Netflix. The subsidiary could be valued at close to $10 billion, according to U.S. media. Baidu intends to remain the parent.

iQiyi is the country's biggest such service, drawing more eyes than a rival offering from Tencent, for instance. Its active user base in December reached 76 million viewers on PCs and 158 million on smartphones, according to Chinese media. Its users reportedly spent 22% more time watching videos that month than a year earlier.

Listing the unit "would likely benefit both the video-streaming service and Baidu as a whole," said an analyst at a firm familiar with the Chinese web sector. Spending on iQiyi's video content reached 13.4 billion yuan ($2.11 billion) in 2017, and the service contributed 16% of Baidu's revenue, up from 11% in 2016. Funds from the IPO would let iQiyi broaden its streaming catalog.

The resulting boost to Baidu's overall profitability would enable it to channel much more capital into AI research and development. Others suggest the company could use the proceeds of a partial sale of the unit toward automated driving and other technologies.

Baidu sped up its AI work in 2017 in an effort to wean itself off online ads, a critical source of revenue. It launched a shared development platform for automated driving, dubbed Apollo, with automakers and information technology players from around the globe, and received support from the Chinese government as well. It is also working to develop AI-equipped smart speakers and other products, and is actively investing in AI startups.

"As we enter 2018, we will continue to strengthen Baidu's search business ... and differentiate iQiyi with AI," Chairman and CEO Robin Li said in a statement. "We also look forward to further strengthening our position in autonomous driving and conversational AI."

In addition, the company looks to increase investment in new AI businesses and other fields, said Chief Financial Officer Herman Yu.

Baidu on Wednesday posted a net profit of 18.3 billion yuan for the year ended in December, up 57%. That marked a recovery from the group's first-ever profit decline in 2016, sparked by problems in its advertising business. However, the 2017 figure includes the sale of a home delivery app business. Baidu will still be pressed to expand earnings beyond online ads.

Rivals Alibaba and Tencent remain well above Baidu in earnings terms. Tencent boasts around 1 billion users of its free messaging app WeChat, and has been earning more from games delivered through that platform. Alibaba's online shopping business is a steady source of income. Whether Baidu can successfully build new AI fields into strong earners will go a long way toward determining its future growth.

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