Robin Li of Baidu, speaks during World Artificial Intelligence Conference at Shanghai EXPO Centre on ... [+]
Baidu’s billionaire founder Robin Li saw his wealth surge almost 200% from a year ago largely based on optimism for the search giant’s plan for artificial intelligence and its joint venture to produce electric vehicles. But the company’s shares had a lackluster debut in Hong Kong today amid skepticism over its future growth.
Although the company’s secondary listing had raised $3.1 billion, the stock had only edged 0.4% higher by midday—compared with the 5.7% first-day gain for NetEase and 3.5% for JD.com. The Hang Seng Index was down 1.2% by noon.
Last week, it priced 95 million shares at HK$252 each, which is a 2.7% discount to its closing price of $266.78 for the company’s American depositary receipts.
Baidu joins a string of U.S.-listed Chinese companies seeking to list their shares closer to home amid escalating China-U.S. tensions. Other firms now looking to sell shares in a Hong Kong secondary listing include car-sales website Autohome, video streaming platform Bilibili and Tencent’s online music arm, Tencent Music Entertainment Group.
Li, who derives the bulk of his fortune from Baidu ownership, now has a net worth of $15 billion—a three-fold surge from $4.9 billion a year ago.
But analysts say Baidu needs to do more to convince investors that its newer businesses will eventually pay off. The company has been pursuing artificial intelligence-based initiatives such as autonomous driving and cloud computing that are needed to help offset stagnating revenues from its online search unit. Advertisers have been shifting to short video platforms such as Douyin and Kuaishou because users now spend more time there.
“Advertisers have been allocating more of their budgets to short video platforms and Baidu is losing market share,” says Zhang Xueru, a Shanghai-based analyst at research firm 86 Research. “It is the era of short-form video now, but Baidu isn’t operating this business very well.”
Li, however, has instead made progress in AI. Its Nasdaq-listed shares started to rise in November, after the company reported third-quarter results that included a 14% rise in “non-online marketing revenue,” which largely refers to contributions made from selling autonomous driving, cloud computing and other AI-based software. This was noticed by Cathie Wood’s Ark Invest, a New York-based asset manager that started to build its position in Baidu since December.
The company sustained its momentum in the fourth quarter. Non-marketing revenue rose 52% from a year ago to $645 million, while total revenues including online ads increased 5% to $4.6 billion. In January, Baidu announced a set up a joint venture with billionaire Li Shufu’s Zhejiang Geely Holding Group to make electric cars. The plan is to combine Baidu’s self-driving technology with Geely’s auto manufacturing facilities, but some are skeptical.
“Baidu aims to conquer smart transport, but search engines aren’t automobiles, and China’s EV sector is already fiercely competitive and over-capitalized,” says Brock Silvers, Hong Kong-based chief investment officer of Kaiyuan Capital, adding that Baidu priced its shares cheaper in Hong Kong because “the company seems to realize that a successful H.K. listing may require attractive pricing.”
Citing the quiet period prior to its listing, a Baidu representative declined to comment. 86 Research’s Zhang says the company isn’t without advantages when it comes to AI, because it has been testing self-driving software for a relatively long period of time. This allows Baidu to harness more data to better train autonomous cars, so they can understand and navigate various road conditions well.
Still, auto makers such as electric car startups Nio and Xpeng may want to develop their own autonomous driving technologies instead of purchasing from others. But Baidu can still find clients as the market is big enough, Zhang says. “Investors do hold different opinions regarding Baidu,” she says. “Whether the company can attract enough interest in Hong Kong really depends on whether it can do the new businesses well.”
