Baidu Posts Slight Drop in Revenue as Online Advertising Sales from Video Unit Remain Under Pressure

China’s search engine and artificial intelligent (AI) giant Baidu Inc. (NASDAQ: BIDU) on Thursday posted a 1% year over year decrease in its total revenue to 26 billion yuan (3.69 billion) for the second quarter of 2020 ending June 30, falling slightly below the Wall Street estimates of $3.7 billion.

Revenue from its Baidu Core segment offering keyword-based marketing and transaction services reached 18.9 billion yuan, a 3% decrease from a year ago, while its online marketing revenues decreased 8% year over year.

“Baidu‘s new AI businesses, including cloud, smart devices and smart transportation, saw double-digit growth in the second quarter and stands to become an important revenue driver in the years to come,” said Robin Li, co-founder and CEO of Baidu.

Baidu‘s AI open platform, built on top of Baidu Cloud, offers over 260 AI capabilities. In addition, Baidu announced in April the complete implementation of its Apollo robotaxi self-driving service in Changsha. It also introduced the 145,000 square feet Apollo Parkin Beijing, an autonomous driving and V2X facility that supports testing, and includes an operational command center, cloud control system, among other features.

“In addition to investing in new AI businesses, Baidu is also diversifying our revenue streams through membership, online games and others to increase the ARPU of our existing traffic.” said Herman Yu, CFO of Baidu. “We plan to continue heavy investments in technology to maximize Baidu‘s future growth potential.”

Revenue from iQIYI, Baidu’s video streaming service unit and also a NASDAQ-listed company, reached 7.4 billion yuan ($1.05 billion), up 4% year over year. However, its online advertising revenue plummeted 28% year over year despite the 19% growth it witnessed in membership revenue. Baidu, which is the major shareholder of iQIYI, owns 56.7% of its shares.

SEE ALSO: IQIYI Stock Slides under SEC Investigations, Q2 Earnings

Baidu-backed iQIYI disclosed on Thursday evening in its earnings that the platform has been under an investigation from the U.S. Securities and Exchange Commission(SEC) for alleged financial fraud. According to its report, the SEC is seeking to obtain certain financial and operating records dating from January 1, 2018, as well as documents related to certain acquisitions and investments that were identified in a report issued by short-seller firm Wolfpack Research in April 2020. The video streaming company is now cooperating with the SEC for the Internal Review but says that neither the expected completion date nor consequences of the review are yet clear.

Shares of iQIYI fell over 18% in extended trading on Thursday as a result of the SEC probe. It’s parent company Baidu’s shares were down as much as 9%.

Baidu forecasts its revenue in the third quarter to amass to between 26.3 billion yuan and 28.7 billion, representing a growth rate of -6% to 2% year over year. The company admits that the COVID-19 pandemic is becoming more manageable in China, but the daily business operation remains unpredictable.