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China's Baidu credits AI for advertising recovery

Internet search company reports 45% increase in quarterly profit

HONG KONG -- Baidu, among China's leading corporate investors in artificial intelligence, cited the technology as the driver of its strong rebound in advertising revenue.

The company, which runs China's dominant internet search engine, reported revenue of 25.97 billion yuan ($3.81 billion) for the three months to June 30, up 24.4% from a year earlier. Baidu generates more than 80% of its revenue from online advertising.

"We had another strong quarter in Q2, with search exhibiting robust revenue growth driven by AI-powered monetization capabilities," said Chairman and Chief Executive Robin Li Yanhong during a teleconference Wednesday.

"Baidu is moving to be an AI-first company," Li said. With the growth of the Chinese internet population slowing, he said, "Technology will play a more important role in terms of user experience and monetization."

Earnings grew nearly twice as fast as revenue during the quarter, rising 45% year-on-year to 6.4 billion yuan, or 18.14 yuan per share. This was 29.4% higher than the consensus estimate of analysts tracked by Thomson Reuters.

Baidu's Nasdaq-listed American depository receipts rose 1.7% to $251.30 in after-hours trading during the U.S. evening following the earnings announcement. Baidu's shares have moved choppily this year. The latest downturn started after the ADRs touched $271.45 on July 12 amid a heavy turn in sentiment against technology stocks in the U.S. due to reports of slowing growth at top names like Facebook and Twitter.

While some U.S.-listed Chinese tech stocks such as Alibaba Group Holding have held up relatively well against the down sweep, several have taken hard hits, with JD.com losing 18% since mid-June and Sohu dropping almost 40%.

Many of the China tech companies are also investing in AI. At the AI Summit conference in Hong Kong on Wednesday, JD.com AI platform and research head Bowen Zhou, who joined the company last year from IBM, cataloged the online retailer's push to integrate AI into its operations. For the upcoming Chinese Valentine's day on Aug. 17, the company will offer gift buyers a customized AI-generated poem based on qualities of the gift and of the recipient. 

For the quarter ending Sept. 30, Baidu projected that its revenues will be in the range of 27.37 billion yuan to 28.77 billion yuan. This would mark a gain of 23% to 30% from a year earlier.

Baidu's online advertising business has been in recovery mode since a 2016 scandal in which a cancer sufferer died after ordering questionable medical treatments that had been listed among the top results during a search on Baidu. An outcry led the government to tighten regulations and the company to give up a large chunk of its profitable medical advertising business, leading to Baidu's first decline in annual profit since its listing in 2005.

During the second quarter, the number of active online marketing customers and revenue per customer for Baidu increased by 9% and 16%, respectively.

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