Baidu CEOs: $ 66 billion return after wrong steps

Baidu Inc.’s stock offering in Hong Kong on Tuesday marks an unlikely resurgence for founder Robin Li, who has struggled his way to the relevance of the Chinese technology industry after wasting a quasi-monopoly on research.

The Internet giant raised $ 3.1 billion in the largest return home from a U.S.-listed Chinese company in the city since. JD.com Inc. last June. Li’s company has more than tripled its rating on scope last March, with about half of the gains in the last three months as Baidu’s bets on AI finally start to pay off in areas like the cloud. and electric vehicles. It’s a rare stretch during which the company has outscored its biggest rivals Alibaba Group Holding Ltd. i Tencent Holdings Ltd., whose shares have struggled as a result of the Chinese campaign to crack down on its free technology industry.

In an exclusive interview, the 52-year-old founder outlined how Baidu is being transformed into an artificial intelligence company and why it supports Beijing’s antitrust drive. The firm will continue to team up with car manufacturers such as Geely to achieve a position in the world’s largest vehicle market, maintain a record pace of R&D investment despite squeezing margins and seeking to acquire talent and technologies to drive 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 over ten years and we’ve probably lost a lot of money in doing so,” Li said in an interview with Bloomberg Television. “Finally, we will be rewarded.”

Baidu posted a dull debut in Hong Kong, which traded up about 1.2% earlier on Tuesday. This compares to first-day gains of 3.5% on JD.com and 5.7% on NetEase Inc., two other U.S.-listed Chinese companies that toured the city for secondary listings.

Once part of China’s Internet triumvirate alongside Alibaba and Tencent, Baidu has lagged behind in the mobile age, where the effectiveness of its search service has been diminished by over-applications such as WeChat creating silent ecosystems. To compete, the core of Baidu the search product is transformed into an all-purpose platform that hosts a wealth of content, from news articles to live plays and short videos, essentially emulating these applications.

Meanwhile, Baidu has amassed billions of dollars over the past decade in areas from natural language processing to voice interaction, an effort that had initial problems with departures from key executives such as his well-regarded chief scientist Andrew Ng. Until recently, investors had questioned the firm’s R&D spending, which accounted for about a fifth of its revenue by 2020. But Li has maintained confidence in his original vision and is committed to keeping pace. of investment over the next decade or two.

“For most of the last ten years, I think investors didn’t appreciate it,” Li said. “It simply came to our notice then. But it really is in line with our mission. “

Now, finally, marketing comes 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 revalue the tech giant’s eight-year-old Apollo unit, whose autopilot software had attracted the thermal interest of manufacturers. cars. The company with Geely will accelerate that integration, Li said, with the goal of delivering its own electric vehicles to the market within three years.

Semiconductors are another use case. I like Google and Alphabet Inc. Amazon.com Inc., Baidu began designing custom design chips for its own server farms, performing tasks such as search rankings. But what began as a cost-saving exercise has been transformed into a new business, with nearly half of its Kunlun chips used by third parties last year. The new 7-nanometer iteration of silicon AI has begun to occur in fabs despite the global shortage of chips, Li said. The unit – that recently raised $ 230 million from investors like IDG Capital: it will target more external clients in areas from finance to education and energy, he added.

By pushing for chips and AI, Li is delving into companies that have become one of the top priorities of the Communist Party of China, as the world’s largest economies struggle for global influence. Tensions between the US and China spanning trade to cybersecurity and investment have already surrounded several Baidu pairs. A lot of Chinese companies that once saw a U.S. list conferring the final cache have removed or added secondary listings elsewhere.

Baidu’s debut in Hong Kong is a protection against the potential risks of trade in the US, Li admitbut, more importantly, “it allows Chinese investors to really participate in Baidu’s growth history.”

Nationally, Beijing has signaled its intention to end a decade of free expansion of its technology giants, combating behaviors such as market abuse and data monopoly since late last year. While Alibaba and Jack Ma Ant Group Co. has been the most visible of the regulators ’goals; this month of antitrust surveillance in the country has also penalized companies like Baidu and Tencent for not receiving their approval for acquisitions and investments years ago. He pledged to ensure that the company does not make the same mistake in future operations, which could be financed with listing income in Hong Kong.

In many ways, Baidu is better protected from China’s repression than its technology pioneers. Efforts to encourage private-sector companies to share the data they have accumulated will likely benefit Baidu’s basic search service by dismantling the walls surrounding the country’s most popular mobile apps. Its open platforms for autonomous driving and deep learning technologies coincide with Beijing’s desire to open up data accumulated by private sector companies, Li said.

His company also does not exercise the same councilor status as Alibaba and Tencent, both of which respond to a large number of emerging people. Some of the companies in its portfolio, such as food delivery giant Meituan and leading roadmaker Didi Chuxing, were created through multi-billion dollar mergers. In 2017, Baidu sold his business to take to its rival startup Ele.me, which was later acquired by Alibaba, after losing a costly subsidy war to China’s concert economy.

“You can’t imagine boy number 1 and number 2 suddenly merging and gaining more than 90% of the market share in the U.S.,” said Li, a graduate of Buffalo University in New York. “It simply came to our notice then. This is not good for innovation. Therefore, I believe that the antitrust push is justified. “

Read more: What’s behind China’s crackdown on its technical giants: QuickTake

Thanks to its relative immunity to the antitrust push, Baidu’s market capitalization has risen $ 66 billion over the past year, ahead of its listing in Hong Kong, where retail demand was 112 times higher than in available stocks. The institutions subscribed ten times the shares assigned to them.

While stock selling has given Baidu a temporary boost, investors are likely to focus more on the company’s search and content as its main driver of profits in the medium term. That’s where rookies like the TikTok owner come in ByteDance Ltd. has been attracting eyeballs and marketing dollars alike. Baidu’s Netflix iQiyi Inc. service saw revenue fall in the last two quarters as the newest platforms Bilibili Inc. i Kuaishou Technology gained strength.

Get out of Nosedive

Baidu’s December quarter revenue grew the fastest in 2020

Source: Bloomberg

In November, Baidu agreed to purchase the YY transmission service from Joyy Inc. for $ 3.6 billion in an agreement aimed at enriching its content offerings. First-quarter revenue is expected to grow by at least 15% over 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 great investment, ”said Vey-Sern Ling, a senior analyst at Bloomberg Intelligence. “While the incremental revenue generated by these efforts may need to be reinvested to drive growth, and the profitability of these companies could remain low until a sufficient scale is reached. Therefore, Baidu is likely to continue relying on your basic short-term search business “.

With Baidu still in full swing, Li is in no hurry to relinquish control after 21 years at the helm, unlike other Chinese tech moguls such as Alibaba founder Ma and Colin Huang of Pinduoduo Inc.

“I’ve always wanted to find someone who can replace me as CEO,” he said. “But in the meantime, I enjoy my current job. I like technology. I like to see all the changes happen. “

– With the assistance of Zheping Huang, Tom Mackenzie, Sabrina Mao and Allen K Wan

(Hong Kong stock trading updates in the fifth paragraph)