Baidu, Inc. (NASDAQ: BIDU, HKEX: 9888)

Baidu’s Q2 2025 revenue declined 4% year-over-year to RMB 32.7 billion ($4.57 billion), primarily driven by continued pressure on online marketing services which fell 15% to RMB 16.2 billion. However, this decline was partially offset by strong growth in non-online marketing revenue, which exceeded RMB 10 billion for the first time, representing 34% year-over-year growth. This milestone reflects Baidu’s successful diversification beyond traditional search advertising into AI Cloud and other emerging revenue streams.

Operating income decreased significantly to RMB 3.3 billion ($457 million), down 45% year-over-year, reflecting increased investments in AI initiatives and higher costs related to AI Cloud business expansion. On a non-GAAP basis, operating income was RMB 4.4 billion, down 41% year-over-year, with operating margin declining to 17% from 26% in the prior year period.

Despite operational challenges, net income increased 33% to RMB 7.3 billion ($1.02 billion), primarily driven by significant gains from long-term investments and fair value adjustments. Total other income increased substantially to RMB 4.9 billion from RMB 771 million in the prior year, benefiting from favorable investment performance and pickup of earnings from equity method investments.

Adjusted EBITDA declined 29% to RMB 6.5 billion ($906 million), with margin compressing to 20% from 27% in Q2 2024. This margin pressure reflects the company’s strategic investments in AI transformation and the ongoing challenges in the core online marketing business as the company transitions to AI-first solutions.

The divergence between operating performance and net income highlights Baidu’s dual nature as both an operating technology company and an investment vehicle with significant stakes in the broader Chinese tech ecosystem. While core operations face near-term pressure, the company’s investment portfolio continues to generate substantial returns.

Baidu Core revenue decreased 2% year-over-year to RMB 26.3 billion, reflecting a more balanced but transitional period as the company shifts toward AI-first solutions. The segment achieved a significant milestone with non-online marketing revenue exceeding RMB 10 billion for the first time, driven primarily by robust growth in AI Cloud business and expanding Apollo Go operations.

Online Marketing Revenue faced continued pressure, declining 15% to RMB 16.2 billion, as Baidu accelerated the AI transformation of search. This transformation involves replacing traditional link-based results with AI-generated content, which initially impacts advertiser demand but positions the platform for enhanced user experience and long-term monetization opportunities. By July 2025, 64% of mobile search result pages contained AI-generated content, up from 35% in April.

Non-Online Marketing Revenue delivered exceptional 34% growth to RMB 10.0 billion, demonstrating the success of Baidu’s AI initiatives. This growth was primarily driven by AI Cloud business expansion, with Baidu maintaining its position as the No.1 AI cloud provider in China for the sixth consecutive year according to IDC. The Qianfan MaaS platform continued to expand its model library and integrate more AI tools to support AI-native application development.

iQIYI revenue declined 11% to RMB 6.6 billion, continuing to face challenges in the competitive streaming market. The segment reported an operating loss of RMB 46 million, compared to operating income of RMB 342 million in the prior year period, reflecting ongoing content cost pressures and market competition.

The segment performance highlights Baidu’s successful diversification strategy, with non-online marketing revenue now representing 38% of Baidu Core revenue, up from 31% in the prior year. This shift demonstrates progress toward the company’s goal of building a more balanced, AI-driven revenue portfolio less dependent on traditional search advertising.

Baidu continued to strengthen its position as a leading AI company through significant technological advances and strategic partnerships during Q2 2025:

ERNIE Foundation Models

• ERNIE 4.5 Series Launch: Open-sourced the latest and most advanced family of foundation models comprising ten models of different architectures and sizes in June 2025
• Performance Leadership: ERNIE 4.5 series delivers strong performance particularly in instruction following, world knowledge memorization, and visual understanding
• Model Expansion: Qianfan MaaS platform expanded its model library with the open-sourced ERNIE 4.5 series and additional third-party models
• MuseSteamer Launch: Introduced proprietary video generation model in July 2025, expanding multimodal AI capabilities

AI Cloud Business

Baidu AI Cloud maintained its market leadership position with continued recognition and expansion:

• Ranked No.1 AI cloud provider for the sixth consecutive year according to IDC’s 2024 report on China’s AI public cloud market
• Enhanced Qianfan platform with integrated AI tools and functions to better support AI-native application development
• Driving significant portion of the 34% growth in non-online marketing revenue
• Expanding enterprise adoption across multiple industries and use cases

Search AI Transformation

The AI transformation of Baidu Search accelerated rapidly during the quarter:

• Over 50% of mobile search result pages contained AI-generated content by end of June, up from 35% in April
• By July, 64% of mobile search result pages featured AI-generated content
• Traditional link-based results progressively replaced by structured, intelligent, and multimodal-first AI answers
• Managed Page accounted for 50% of Baidu Core’s online marketing revenue in Q2 2025

This transformation represents a fundamental shift in how users interact with search, positioning Baidu for enhanced user engagement and new monetization opportunities as the AI-powered search experience matures.

Apollo Go achieved remarkable growth and expansion milestones during Q2 2025, establishing Baidu as a global leader in autonomous ride-hailing services:

Operational Performance

• Provided over 2.2 million fully driverless rides in Q2 2025, representing 148% year-over-year growth
• Cumulative rides provided to the public surpassed 14 million as of August 2025
• Global footprint expanded to 16 cities as of June 2025
• Leadership in both left-hand drive and right-hand drive robotaxi markets globally

Strategic Partnerships

Apollo Go secured major international partnerships that significantly expand its global reach:

• Uber Technologies Partnership: Multi-year strategic partnership announced in July 2025 to deploy thousands of Apollo Go’s fully autonomous vehicles on the Uber platform across multiple international markets, with initial deployments planned for Asia and the Middle East
• Lyft Partnership: Strategic partnership announced in August 2025 to deploy Apollo Go’s fully autonomous vehicles across key European markets through the Lyft platform, starting with Germany and the United Kingdom and scaling to thousands of vehicles across Europe

Geographic Expansion

Apollo Go continued aggressive geographic expansion during the quarter:

• Expanded open-road testing area in Hong Kong to Tung Chung residential areas in June 2025, and to the Southern District in August
• Commenced open-road testing in designated areas in both Dubai and Abu Dhabi in August 2025
• Building regulatory approvals and operational capabilities across multiple international markets

The rapid expansion of Apollo Go demonstrates Baidu’s technological leadership in autonomous driving and its ability to scale globally. The partnerships with Uber and Lyft provide significant distribution channels that could accelerate adoption and revenue generation from the autonomous ride-hailing business.

Baidu’s Mobile Ecosystem continued to show resilience despite ongoing monetization challenges, with user engagement metrics demonstrating the value of AI-enhanced search experiences:

User Engagement

• Baidu App Monthly Active Users (MAUs) reached 735 million in June 2025, up 5% year-over-year
• Strong user retention and engagement despite major changes to search result presentation
• AI-generated content driving enhanced user experience and longer session times
• Progressive replacement of traditional link-based results with structured, intelligent answers

Monetization Evolution

The mobile ecosystem is undergoing significant monetization model evolution:

• Managed Page accounted for 50% of Baidu Core’s online marketing revenue in Q2 2025
• Online marketing revenue declined 15% as traditional ad formats are restructured for AI-first search
• Investment in AI transformation expected to create new monetization opportunities over time
• Focus on creating value for advertisers through more relevant and effective ad placement

Strategic Direction

Baidu is prioritizing long-term user experience improvements over short-term revenue optimization:

• Continuing aggressive AI transformation despite near-term revenue impact
• Building foundation for enhanced advertiser value proposition through AI-powered targeting and content generation
• Positioning for competitive advantage as AI search becomes the new standard

While the mobile ecosystem faces near-term monetization pressure, the strategic investments in AI transformation position Baidu for sustainable long-term growth as the search experience evolves to meet changing user expectations.

Baidu maintained a strong financial position with substantial cash resources, providing flexibility for continued AI investments and strategic initiatives:

Cash and Investments

• Cash, cash equivalents, restricted cash and short-term investments totaled RMB 124.2 billion ($17.34 billion) as of June 30, 2025
• Baidu Core cash, cash equivalents, short-term investments and long-term time deposits reached RMB 229.7 billion ($32.07 billion)
• Net cash position for Baidu was RMB 155.1 billion ($21.66 billion)
• Strong liquidity position supporting continued investment in AI initiatives

Cash Flow Performance

Cash flow metrics reflected the company’s significant investments in AI business expansion:

• Free cash flow was negative RMB 4.7 billion (negative $653 million), primarily due to increased investment in AI business
• Capital expenditures increased to RMB 3.8 billion, reflecting infrastructure investments for AI Cloud and autonomous driving
• Operating cash flow was negative RMB 877 million, impacted by working capital changes and AI investment timing

Capital Allocation

Baidu continued returning capital to shareholders while investing in growth:

• Returned $677 million to shareholders since the beginning of Q1 2025
• Cumulative repurchase of $2.3 billion under the 2023 share repurchase program
• Balancing shareholder returns with strategic growth investments

Despite negative free cash flow in the quarter, Baidu’s substantial cash position and strong balance sheet provide significant financial flexibility to continue investing in AI transformation and global expansion while maintaining shareholder-friendly capital allocation policies.