China's Search Giant Baidu Struggles With Weak Ad Spending Despite AI Push

Baidu, Inc. (NASDAQ:BIDU) shares slipped after the company reported its fourth-quarter results on Thursday. The company reported quarterly revenue of $4.682 billion (32.7 billion Chinese yuan), a decrease of 4% year-on-year (Y/Y). The analysts' consensus estimate stood at $4.680 billion. A Reuters report said China's largest search engine operator, Baidu, posted a 4% decline in revenue for the December quarter, as continued weakness in its core advertising business weighed on results, partially offset by strong growth in its cloud segment. The quarterly revenue rose 5% quarter-on-quarter, primarily due to an increase in Baidu Core AI-powered Business. Baidu's adjusted earnings per American Depositary Share (ADS) came in at $1.52, exceeding the forecast of $1.12. AI Cloud and Applications Drive Growth Baidu delivered solid fourth-quarter 2025 revenue across its AI Cloud, AI Applications, and AI-native marketing segments, alongside continued Robotaxi growth. AI Cloud Infra generated 5.8 billion yuan in fourth-quarter revenue, with subscription-based AI accelerator infrastructure revenue rising 143% Y/Y. AI Applications produced 2.7 billion yuan in fourth-quarter revenue. Baidu also formed the Personal Super Intelligence Business Group to integrate Baidu Wenku and Baidu Drive and advance AI application development. AI-native marketing services generated 2.7 billion yuan in fourth-quarter revenue, up 110% Y/Y. Apollo Go and Autonomous Driving Expansion Meanwhile, Apollo Go completed 3.4 million fully driverless rides in the quarter, up more than 200% year over year, as cumulative rides surpassed 20 million by February 2026. Revenue from Baidu's streaming platform, iQIYI, Inc. (NASDAQ:IQ), was $971.60 million (6.79 billion yuan), topping the analyst consensus estimate of $970.48 million, representing a 3% Y/Y growth. In terms of expenses, Baidu reported a 10.6% Y/Y increase in Selling, General, and Administrative (SG&A) expenses, totaling $1.06 billion. This rise was primarily due to an increase in expected credit losses. The company's Research & Development (R&D) expenses rose by 1.4% Y/Y to $800 million. Baidu's adjusted EBITDA margin dropped to 14% from 20% Y/Y. Cash Position, Buyback and Dividend Policy As of December 31, 2025, Baidu maintained a solid cash position with $42.06 billion in cash and equivalents. The company generated a free cash flow of $91 million during the quarter. Excluding the iQIYI business, Baidu's free cash flow outflow was slightly less, at $87 million. Recently, the company authorized a new share repurchase program of up to $5 billion and introduced its first dividend policy, with an initial payment potentially by the end of 2026. CEO Commentary on AI-First Strategy Baidu Co-founder and CEO Robin Li said 2025 marked a turning point as artificial intelligence became central to the company's strategy. He highlighted strong momentum in AI Cloud Infrastructure, driven by Baidu's full-stack AI capabilities and rising enterprise adoption. He said the company expanded its AI application portfolio to serve both enterprise and individual users, while Apollo Go strengthened its global leadership and accelerated international expansion. He also noted continued growth in AI-native Marketing Services and expressed confidence that Baidu's AI-first strategy will create long-term value. Price Action: Baidu shares were down 4.01% at $127.33 during premarket trading on Thursday, according to Benzinga Pro data. iQIYI shares were up 1.13% at $1.79. Photo by Tada Images via Shutterstock