Baidu Inc. stock offer in Hong Kong on Tuesday marks an unlikely revival for founder Robin Li, who has resumed his path to relevance in China’s technology industry after squandering a near-monopoly.
The internet giant has raised $ 3.1 billion in the largest return of a Chinese company traded in the US since then. JD.com Inc. in June last year. Li’s firm tripled its valuation from the March gutter last year, by about half of its earnings in the past three months, as Baidu’s AI betting finally begins to bear fruit in areas such as the cloud and vehicles. electric. It is a rare stretch during which the company has surpassed its larger rivals Alibaba Group Holding Ltd. and Tencent Holdings Ltd., whose actions were sought as a result of China’s campaign to suppress its technology industry.
Photographer: Cui Nan / China News Service / VCG / Getty Images
In an exclusive interview, the 52-year-old founder outlined how Baidu is becoming an AI company and why it supports Beijing’s antitrust action. The company will continue to team up with automakers such as Geely to position itself in the world’s largest vehicle market, sustain a record pace of investment in research and development, despite shrinking margins, and seek to gain talent and technology to lead the development of AI, Li said. Eventually, most of Baidu’s revenue will come from companies beyond search and advertising, he added.
“We’ve been investing in AI for more than 10 years and we probably lost a lot of money doing it,” Li said in an interview with Bloomberg Television. “Eventually we will be rewarded.”
Baidu posted a deactivated debut in Hong Kong, trading about 1.2% higher on Tuesday. This compares to first-day gains of 3.5% on JD.com and 5.7% on NetEase Inc., two other US-listed Chinese companies that have turned to the city for secondary listings.
Once part of China’s Internet triumvirate with Alibaba and Tencent, Baidu lagged behind in the mobile age, where the effectiveness of its search service has been affected by super-applications like WeChat that create silent ecosystems. To compete, Baidu’s core the search product turns into a multifunctional platform that hosts a range of content from news articles to live streams and short videos, essentially emulating those applications.
Meanwhile, Baidu has amassed billions of dollars over the past decade in areas from natural language processing to voice interaction, an effort that has faced initial problems with departures of key directors such as his well-known chief scientist Andrew Ng. Until recently, investors questioned the company’s R&D spending, which accounted for about a fifth of its 2020 revenue. But Li has kept his faith in his original vision and is committed to maintaining the pace of investment for the next decade or so. two.
“For most of the last 10 years, I think investors have not appreciated this,” Li said. “It simply came to our notice then. But it is really in line with our mission. ”
Now, marketing is finally coming to the fore. In January, Baidu unveiled a new one venture with Zhejiang Geely Holding Group, which will produce smart electric vehicles, prompting analysts to reevaluate the Apollo unit of the eight-year-old tech giant, whose autopilot software has attracted lukewarm interest from past carmakers. The initiative with Geely will accelerate this integration, Li said, with the goal of delivering its own electric vehicles to the market within three years.
Semiconductors are another use case. That Google and Alphabet Inc. Amazon.com Inc., Baidu has begun designing custom chips for its own server farms, performing tasks such as search rankings. But what started as a cost-saving exercise has turned into a new business, with almost half of its Kunlun chips being used by third parties last year. The new 7-nanometer iteration of AI silicon has begun production at fabs, despite the global chip shortage, Li said. The unit – which recently has raised $ 230 million from investors such as IDG Capital – will target more external clients in the fields, from finance to education and energy, he added.
By pressing chips and AI, Li delves into the business that has become a top priority for the Chinese Communist Party, as the world’s largest economies are fighting for global influence. US-China tensions covering trade to cybersecurity and investment have already engulfed a number of Baidu colleagues. Several Chinese companies that once saw an American list as offering the ultimate cachet have removed or added secondary listings elsewhere.
A car equipped with Baidu’s Apollo autonomous driving system.
Photographer: Qilai Shen / Bloomberg
Baidu’s Hong Kong debut is a hedge against potential US trading risks, Li admitbut more importantly, it “allows Chinese investors to truly participate in Baidu’s growth story.”
Internally, Beijing has signaled its intention to end a decade of unrestricted expansion by its technology giants, combating behaviors such as market abuse and end-of-year data monopoly. While Jack Ma’s Alibaba and Ant Group Co. was the most visible of the regulators’ objectives, this month, antitrust oversight sanctioned companies, including Baidu and Tencent, for not seeking approval for years-old acquisitions and investments. They are committed to ensuring that the company will not make the same mistake in future transactions, which could be funded from Hong Kong listing receipts.
In many ways, Baidu is better protected from China’s repression than its fellow technology pioneers. Efforts to encourage private sector companies to share the data they have accumulated will likely benefit Baidu’s main search service by dismantling the walls around the country’s most popular mobile applications. Its open platforms for self-driving and deep learning technologies are in line with Beijing’s efforts to open up data collected by private sector companies, Li said.
Also, his company does not have the same status as king as Alibaba and Tencent, both supporting a lot of supporters. Some of their portfolio companies, such as food delivery giant Meituan and travel leader Didi Chuxing, have been created through multi-billion dollar mergers. In 2017, Baidu sold takeover business of rival startup Ele.me, which was later acquired by Alibaba after losing an expensive subsidy war in China’s giant economy.
“You can’t imagine type no. 1 and no. 2 suddenly merging and gaining more than 90% of the market share in the USA “, said Li, a graduate of Buffalo University in New York. “It simply came to our notice then. This is not good for innovation. So I think the antitrust push is justified. ”
Read more: What lies behind China’s crackdown on its technical giants: QuickTake
Due to its immunity to antitrust pressure, Baidu’s market capitalization has increased by $ 66 billion in the past year, ahead of its list in Hong Kong, where retail demand was 112 times higher than available stock. The institutions have subscribed 10 times the shares allocated to them.
While the sale of shares has given Baidu a temporary boost, investors are likely to focus more on the company’s search and content as the biggest medium-term gain factor. There are upstarts like the owner of TikTok ByteDance Ltd. attracts eyeballs and trades dollars alike. Baidu Netflix-style service, iQiyi Inc. has been declining in revenue over the past two quarters as newer platforms have been Bilibili Inc. and Kuaishou technology has gained grip.
Taking out of Nosedive
Baidu’s revenue in the December quarter grew the fastest in 2020
Source: Bloomberg
In November, Baidu agreed to buy Joyy Inc.’s YY streaming service. with $ 3.6 billion in a business designed to enrich its content offerings. It is estimated that revenues in the first quarter will increase by at least 15% compared to last year, when Covid-19 plunged its advertising business into a contraction.
“Baidu’s attempts to commercialize its artificial intelligence initiatives are positive. Investors now have better visibility into returns after years of heavy investment, “said Bloomberg Intelligence chief analyst Vey-Sern Ling.” However, the incremental revenue generated by these efforts should be reinvested to stimulate growth, and “The profitability of these companies could remain low until they reach a sufficient scale, so Baidu will continue to rely on its core short-term search activity.”
With Baidu still undergoing transformation, Li is in no hurry to relinquish control after 21 years in power, unlike other Chinese technology moguls, including Alibaba founder Ma and Colin Huang of Pinduoduo Inc.
“I always wanted to find someone to replace me as CEO,” he said. “But in the meantime, I like my current job. I like technology. I like to see all the changes. ”
– With the assistance of Zheping Huang, Tom Mackenzie, Sabrina Mao and Allen K Wan
(Updates on the trading of shares in Hong Kong in the fifth paragraph)