On August 22, Baidu announced its second-quarter 2023 earnings。

In the second quarter of 2023, Baidu's total revenue was 34.1 billion yuan (RMB, the same below), up 15% YoY and 9% YoY.。Operating profit was $5.2 billion, up 53% YoY and 5% YoY.。Net profit attributable to Baidu was $5.2 billion, up 43 percent year-on-year and down 11 percent from the previous year.。Net profit margin of 15%。Adjusted EBITDA was $9.1 billion, up 29% YoY, up 12% YoY, and adjusted EBITDA margin was 27%。

As of June 30, 2023, Baidu held cash, cash equivalents, restricted funds and short-term investments of $201.5 billion and free cash flow of $7.9 billion.。

Q2 Advertising business to achieve double-digit growth, managed page revenue accounted for half of the country

Baidu's business revenue consists of Baidu Core and iQiyi.。In the second quarter, Baidu's core revenue was 26.4 billion yuan, up 14% year-on-year, and Baidu Core's net profit was 5 billion yuan, with a net profit margin of 19%.。In the second quarter, iQiyi's revenue was 7.8 billion yuan, up 17% year-on-year.。

Baidu's core business is mainly composed of online marketing and non-online marketing.。Revenue from the online marketing business (i.e., online advertising) was $19.6 billion in the second quarter, up 15% year-on-year.。Among them, managed page revenue accounted for 52% of Baidu's core business online marketing revenue.。Non-online marketing revenue was $6.8 billion, up 12% YoY。

As for the advertising business, which grew by 15% in the second quarter, Baidu Chairman and CEO Robin Li said in a phone call that the growth was driven by a number of factors.。The first is that the post-epidemic recovery has boosted the continued outperformance of several industries, including healthcare, business services, local services and tourism.。Rising search volume drives revenue growth。In addition, the continued growth of the e-commerce industry has also driven the growth of Baidu's online advertising business.。It is worth noting that e-commerce is the sector that contributes the most to Baidu's online marketing services revenue。

Robin Li said that the second half of the advertising business recovery momentum is expected to continue, search will continue to be the most effective way for performance advertisers to achieve marketing results, because the user's purpose of using search engines are very clear, search advertising can be this very clear purpose with the most relevant services linked。

But he also cautioned that business growth in the third quarter of this year may not be as high as in the second quarter because of the higher base in the third quarter of last year.。Robin Li also specifically mentioned the role of short videos in driving revenue during the call.。In the second quarter, the number of users watching short video content on Baidu's platform grew, with double-digit growth in the number of short videos played through Baidu's app, and Baidu's revenue contribution from short videos continued to increase.。

For the medium- and long-term development of the advertising business, Baidu said it will focus on both user traffic growth and business realization optimization.。In both cases, Baidu is introducing AI to drive development.。

In terms of users, Baidu APP had 677 million monthly active users in June 2023, an increase of 8% year-on-year.。Baidu is using Wenxin Yiyan to gradually optimize the search function to provide users with a more novel and intuitive experience, promote the mobile Internet ecology to get more traffic, and drive the increase in user usage time.。"We see Wenxin as a new traffic channel that connects users with all kinds of apps, including Baidu and other third-party apps.。"

In terms of commercial realization, Wen Xin's words will enhance the precision of advertising and upgrade the bidding system.。Robin Li said, "By leveraging large language models and generative artificial intelligence, the company has made breakthroughs in advertising technology, especially in advertising model innovation and personalized advertising, and I believe there is still great potential for future growth, which will drive the company's revenue and eCPM business growth in the third quarter.。"

Baidu will launch Wen Xin Da Model 4 by the end of this year..Version 0, the cloud business has slowed down

In May 2023, Baidu launched Wenxin Model 3.Version 5, which is the latest basic model of Baidu's conversational artificial intelligence robot Wen Xin Yiyan。Over the past few months, Wenxin Yiyan has undergone several rapid iterations and improvements。According to IDC's latest AI Big Model Technical Capability Report, released in July 2023, ERNIE 3.5 Excellent performance in algorithms, industry coverage, developer tools and ecosystems。

Baidu revealed that the company is working hard to develop the Wenxin model 4.Version 0, which should be available by the end of the year。During the call, Robin Li was confident: "I believe that in the end only a few companies will be able to achieve this advanced level of basic model development, and Baidu will be one of them.。"

He believes that Baidu's self-developed artificial intelligence four-tier architecture is its core competitive advantage, and the tests in the past few months have also reflected its better performance.。He also mentioned that Baidu's ultimate goal is to foster a native AI ecosystem centered on the Wenxin model.。

Recently, companies such as Alibaba and Tencent have announced that they will join the ranks of open source artificial intelligence models.。However, Baidu currently seems to have little interest in open source models.。Shen Shake, president of Baidu's Smart Cloud Business Group, believes that open source and closed source base models will coexist for some time。At present, many models are trained based on open source basic models, and a large number of applications on the Baidu Cloud platform are supported by open source models.。However, for the open source base model, it is difficult to achieve continuous development and optimization due to the lack of effective feedback。

"Our top priority is to keep Wenxin Big Model evolving rapidly and maintaining market leadership.。"Looking to the future, I believe that whether it is open source or closed source, or even industry-specific models, the supply of advanced basic models in the market will be limited."。As the industry advances, companies will need advanced models to develop more complex applications, and the Wenxin Big Model will be one of the few basic models in the market to meet these long-term, changing needs.。"

In order to support the rapid development of Wenxin Yiyan, Baidu has also increased its investment in computing infrastructure and other aspects.。In the second quarter, Baidu's R & D expenses increased by 1% year-on-year。Baidu's core spending increased 2% from the same period last year to 59.4.2 billion yuan, while iQiyi fell 9% year-on-year.。The company said R & D spending is mainly used to purchase hardware to support the training and iteration of the AI business.。

At the same time, Baidu expects the investment to continue, and the scale of future investments will depend on the pace of actual expansion of the business, not just on the need to support model training, meaning that near-term spending will be determined by revenue growth from Wenxin Yiyan Services。

Baidu's firm investment in AI is to value AI's broad growth prospects。

When talking about the AI business model, Baidu said that in addition to providing customers with computing infrastructure based on artificial intelligence technology, the company is also considering charging customers for using Wenxin Yiyan services, or other artificial intelligence applications such as code assistant Comate.。Customers can also be charged for retraining and operating their own models on the Baidu platform.。Shen said: "We expect this new opportunity of artificial intelligence will gradually boost the company's revenue growth, the future long-term development potential is huge, in order to provide customers with better service, we will continue to invest in Wenxin Yiyan。"

Baidu also expects Wen Xin's words to "pave the way" for revenue growth in its cloud business.。Baidu said it may consider deploying the Baidu base model to the customer's private cloud and then charging a fee per project.。

Shen Shake said on the phone that for generative artificial intelligence, both new and existing customers have shown great interest, and although it will take time to achieve significant revenue generation, it has provided a new arena for the development of Baidu's cloud business, and Baidu has achieved market leadership in this field.。

CFO Luo Rong: "In the long run, we believe that customers will increasingly actively use our services to improve performance, and our pricing power will also increase, resulting in higher profit margins than the cloud business."。"

Baidu's cloud revenue grew 5% year-over-year in the second quarter, slowing growth。The company explained that because its cloud business growth is mainly driven by government projects, the post-epidemic recovery cycle is longer than other projects.。

According to IDC's 2022 China Public Cloud Market Report, Baidu Smart Cloud has once again won the first place in AI cloud services for the fourth consecutive year.。

The number of passengers in the radish fast running service has reached a new high, and the mass production of self-driving vehicles RT6 is on schedule

In the second quarter, Baidu's self-driving service, Apollo Go, also performed very well.。According to the financial report, the second quarter radish fast running supply of automatic driving orders of about 71.40,000 orders, up 149% year-on-year。As of June 30, 2023, the total number of orders for self-driving travel services provided to Volkswagen reached 3.3 million.。

Radish Express has now been approved to provide self-driving travel services without drivers or safety operators to the public in four cities (Beijing, Shenzhen, Wuhan and Chongqing)。In July, Radish Run achieved automated driving tests for fully unmanned drivers or safety operators on open roads in Pudong New Area, Shanghai。

The number of passengers on the Radish Run service hit a record high, making Baidu one of the largest companies in the world to provide a fully driverless ride service。In terms of order composition, the proportion of fully driverless orders in Baidu's total business rose from 10% in August last year to 55% in July this year.。

During the call, Li Zhenyu, president of Baidu's intelligent driving business group, also responded to relevant developments regarding Baidu's autonomous vehicle RT6。Li Zhenyu said that the production schedule of the RT6 model is on schedule, and its production cost is reduced by 50% compared with the previous generation。

According to the official introduction, Apollo RT6 deep integration of AI technology and vehicle engineering, with high safety, high quality, low cost and other advantages, can achieve the city's complex road driverless ability。

Regarding the automotive solutions business, Li Zhenyu believes that the versatility and safety of the current mainstream vehicle assisted driving are not fully in line with the standards and cannot meet consumers' needs for convenience and efficiency.。Fierce price competition in China's electric vehicle market has also led to a general decline in the profitability of the automotive industry, with OEMs already showing a demand for smart driving standards and a greater tendency to make cost cuts, which has also affected the company's automotive solutions business revenue in the short term.。

However, Li Zhenyu still expressed his vision for the future of intelligent driving, believing that consumer demand for intelligent driving will bring many opportunities in the future.。

He also mentioned that the company plans to launch a safe navigation product, Apollo Safe Driving Map, later this year.。He said: "Looking ahead, the automotive industry is changing towards intelligent driving. The future is full of opportunities, and we will take advantage of this opportunity through cutting-edge technology and reasonable business models.。"