By: The Economist
ROBIN LI SMILED when asked at a corporate shindig in 2014 to reflect on his path to becoming, at the time, China’s richest man. “I’m just lucky,” he insisted. Mr Li, co-founder and boss of Baidu, a Beijing-based search engine, may have been trying to project modesty. But his words could also have been taken literally. Thanks to government censorship, Google is inaccessible in mainland China. That leaves Baidu as the unrivalled leader in Chinese search. Slowing advertising revenues, however, are now taking it down a different road.
Baidu’s search dominance is indisputable. Its average of 538m monthly active users last year was nearly six times the combined total of the next three domestic rivals. Baidu’s share price has tripled in a year, taking its market capitalisation to $93bn. Riding this wave of investor enthusiasm, it has filed for a secondary listing in Hong Kong, with trading set to begin on March 23rd. The firm is expected to raise around $4bn. But the steep rise in Baidu’s valuation might seem unwarranted. Advertising, the main source of revenue, has suffered as the pandemic forced Chinese businesses to cut marketing budgets. Adverts on Baidu’s main search service brought in 66.3bn yuan ($9.6bn) in 2020, 5% less than the year before.
Even as China’s economy recovers advertising is unlikely to propel Baidu’s growth as powerfully as before. In recent years the supply of digital ad space in China has multiplied, depressing prices. Businesses can now choose from an array of platforms on which to hawk their wares — from addictive video apps like Kuaishou to e-commerce upstarts like Pinduoduo.
Baidu’s bosses appear to recognise as much. The firm is rapidly diversifying. Last November it agreed to buy YY Live, a video-sharing and live-streaming app, for $3.6bn, in a bid to boost its presence in online entertainment and compete with the likes of Kuaishou. Baidu is also investing heavily in cloud services to keep up with Alibaba and Tencent, two bigger Chinese tech rivals. But arguably the boldest push is what the company calls “intelligent driving”.
This business contributes hardly any revenues today but holds “huge long-term monetisation potential”, according to Baidu’s new prospectus. The business has three prongs. The first is the establishment of a nationwide fleet of robotaxis powered by Apollo, Baidu’s in-house self-driving technology. The firm is already operating self-driving taxis in three Chinese cities, including part of Beijing. Rides are currently free but Baidu hints that it may soon start charging. It has international ambitions, too. In January it received permission to test self-driving cars in California.
Baidu also plans to mass-produce electric vehicles (EVs). In January it formed a new venture with Geely, a Chinese carmaker, to bring to market “intelligent” (if not fully autonomous) EVs within three years. By 2035 China’s government wants every other new car sold to be an EV. The third prong allows Baidu to earn immediate revenues by selling services to Chinese carmakers, such as high-definition maps and automated-parking technology, which it has already sold to ten firms. Baidu is already a late entrant to China’s crowded personal-mobility industry. For now, at least, investors are on for the ride.