By Brenda Goh and Akash Sriram
(Reuters) -China's Baidu (NASDAQ:BIDU) on Thursday said it had not yet seen any notable improvement in advertising spending patterns or consumer spending despite recent government stimulus efforts, as it reported a 3% fall in third-quarter revenue.
The operator of China's largest search engine relies on online advertising for more than half of its revenue, making it highly sensitive to the slowing economy and weak consumption that has pressured businesses, especially small and mid-sized enterprises, to curb advertising spend.
Chinese policymakers have in recent months unveiled a number of measures to try and pull the world's second largest economy out of its deflationary funk and Baidu said it believed it would still take some time for the measures to reach offline merchants.
"So far in Q4, we have not observed a notable improvement in advertising spending patterns, and consumer spending remains subdued," Baidu CEO Robin Li told analysts on a post-earnings call.
"We remain conservatively optimistic about the recovery trend ahead."
Revenue in Baidu's online marketing division fell 4% to 18.8 billion yuan ($2.6 billion) in the quarter versus analysts' 18.89 billion yuan estimate.
Baidu has been able to offset some weakness in advertising revenue thanks to momentum in its non-online marketing business, largely boosted by its AI Cloud segment.
The company, like tech peers, has diversified into autonomous driving as well as artificial intelligence, with its Ernie large-language model powering products such as a ChatGPT-like chatbot as well as its search engine.
Its Ernie platform now handles 1.5 billion daily user queries and interactions versus 600 million in August.
Baidu warned however its margins would be in a "period of adjustment" in the near term, as it was prioritising improving the user experience especially for its AI search business over monetization.
The AI and autonomous driving initiatives were essential to sustaining its position as a leading technology innovator in China, it said.
Overall, the company's revenue reached 33.56 billion yuan for the three months ended Sept. 30. That compared with the 33.43 billion yuan average of 20 analysts' estimates compiled by LSEG.
Net income climbed 14% to 7.63 billion yuan versus a consensus estimate of 4.67 billion yuan.
($1 = 7.2370 Chinese yuan renminbi)