Baidu and the Terrible, Horrible, No Good, Very Bad Month

By Danny Vena Markets Fool.com

Baidu, Inc. (NASDAQ: BIDU), the Chinese search industry leader, has been having a difficult couple of years. The company has been searching for ways to boost slowing revenue growth as it faced stiff competition and sought to invest in non-core growth opportunities such as online-to-offline (O2O) -- which matches online customers with offline vendors and services -- meal delivery, and video streaming.

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The one bright spot in the company's performance has been its emergence as the de facto leader in the nascent area of artificial intelligence (AI) in its native China. AI was another area of heavy investment by Baidu, and though it had yet to monetize this emerging technology, it was producing notable technological results. The most impressive among these was the development of its Baidu Brain, an artificial neural network that mimics the structure and function of a human brain, and is capable of learning. These developments were the brainchild of Andrew Ng, Baidu's chief scientist and adjunct professor of AI at Stanford University, who was the driving force behind the company's AI strategy.

Image source: Baidu, Inc.

An unhappy ending

In a blow to the company's future AI plans, Ng announced his resignation in a blog post on Medium earlier this month, writing:

In addition to transforming large companies to use AI, there are also rich opportunities for entrepreneurship as well as further AI research. ... This work cannot be done by any single company -- it will be done by the global AI community of researchers and engineers. ... I will also explore new ways to support all of you in the global AI community, so that we can all work together to bring this AI-powered society to fruition.

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In an interview with MIT Technology review, Ng said, "I don't know precisely what I'll do, but I think AI offers a lot of opportunities, not just at big companies like Baidu but for entrepreneurs, and for advancing basic research...I plan to spend some time looking at other opportunities to use AI to help people."

Baidu may have known that this was coming. In January 2017, the company announced the hiring of Dr. Qi Lu as its chief operating officer. Lu is an acknowledged AI expert and noted researcher in the field, who holds more than 40 U.S. patents and has published numerous papers on the subject of AI.

Another expert poached

In related news, online and social media giant Tencent (NASDAQOTH: TCEHY) announced that it hired Dr. Zhang Tong, the head of Baidu's big data lab and contributor to the company's AI efforts, to orchestrate its own entry into the field. Tencent, best known for its online games and WeChat social messaging service, has also been seeing success in online payments, and the company has been locked in a fierce battle with Baidu for customers in the streaming video and O2O markets.

Baidu is counting on AI to reverse its fortunes. Image source: Baidu, Inc.

Hackers attack

To cap off what must have felt like a pretty awful month, Baidu revealed that hackers had attempted to infiltrate the company in an effort to steal its autonomous driving technology, causing the company to increase its cybersecurity team. The company refused to give further details, other than to say it didn't know who was behind the attempted breach. Baidu has been testing its self-driving capability, including a public event last November that carried over 200 passengers around Wuzhen, China. Possessing one of the world's most advanced autonomous driving programs might present a tempting prize for hackers of a competing company.

BIDU data by YCharts.

Trying times

These developments come at a crucial time for Baidu, as the company seeks new avenues to energize its stagnating growth. The company's revenue has been decling for several quarters, and the falling stock price hasn't done investors any favors.

Stories emerged last week that the company would pay scientists 15% more if they were willing to move from the U.S. to China. Baidu is also planning to open a second U.S. office in Sunnyvale, California, and add as many as 150 new staff working in the field of AI.Baidu has been counting on its AI efforts to eventually help return the company to revenue growth. Time will tell whether this was just one tough month or continuing bad fortunes for Baidu.

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Danny Vena owns shares of Baidu. The Motley Fool owns shares of and recommends Baidu. The Motley Fool has a disclosure policy.