UPDATE 3-Baidu feels benefit from AI, Q4 revenue rises 6%

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By Yelin Mo and Brenda Goh

Feb 28 (Reuters) - China's Baidu said fourth-quarter revenue rose 6%, helped by gains from its generative AI applications as it ramps up efforts to make money from its investments in the emerging technology.

For the three months through December, the company reported revenue of 34.95 billion yuan ($4.92 billion), a fraction under the analysts' average estimate of 34.97 billion yuan, according to LSEG data.

As part of its efforts to monetize its AI services, Baidu announced in November the launch of a premium, paid version of its ChatGPT-like conversational AI product, Ernie Bot. The paid version charges 59.9 yuan per month.

"2023 marked a year of generative AI and foundation model...recently we began to generate incremental revenue from Ernie Bot," said company co-founder and CEO Robin Li in the earnings call.

As China's largest internet search engine, Baidu generates most of its revenue from advertising. However, as China's economy slows and consumers spend less, Baidu has increasingly invested in AI.

In March of last year, it launched a ChatGPT-like service to capitalize on the potential of the technology. Its large language model Ernie has since evolved to Ernie 4, which was unveiled in October and touted by the company as rivaling OpenAI's GPT-4.

The company also aims to attract enterprise clients to its AI services. It told Reuters this month that it has partnered with Lenovo to feature its generative AI technology on Lenovo's smartphones. This followed similar deals to integrate its technology into smartphones from brands of Samsung and Honor.

The number of enterprise clients that used its Ernie large language model in December reached 26,000, up 150% from the amount of the previous quarter, according to Li.

The company specifically highlighted the contribution of Ernie-related services to its cloud computing business. Revenues from Ernie services were 656 million yuan in Q4, accounting for 7.8% of the total 8.4 billion yuan in sales recorded from the cloud computing business.

In 2024, Li said AI-related services will generate several billion yuan in sales.

The company's adjusted net income rose by 44% to 7.76 billion yuan, compared with 5.37 billion yuan for the same period a year earlier, beating analysts' forecasts for 6.32 billion yuan.

Baidu's online marketing revenue grew 6% to 19.2 billion yuan.

For the quarter, its adjusted profit was 21.86 yuan per American Depositary Share (ADS), compared with a profit of 15.25 yuan per share a year earlier.

This exceeded analysts' average estimate of 17.87 yuan per ADS, according to LSEG.

The U.S.-listed shares of the company were down by 6.5% on Wednesday morning. ($1 = 7.20 Chinese yuan renminbi) (Reporting by Yuvraj Malik in Bengaluru and Yelin Mo; Editing by Sriraj Kalluvila, Sharon Singleton and Keith Weir)