Li’s remarks, posted in an internal letter, a copy of which was obtained by the South China Morning Post, came after the operator of China’s largest search engine has been navigating through macro headwinds and structural challenges to its core search business brought about by competition from peers.

The Nasdaq-listed company reported third-quarter revenue of 28.08 billion yuan (US$4 billion), just shy of the 28.2 billion yuan revenue in the same quarter last year but still beating the Wall Street consensus of 27.49 billion yuan.

While online marketing revenues fell 9 per cent year on year to 20.4 billion yuan, other revenues increased 34 per cent to 7.6 billion year over year, driven mainly by the strong growth in membership of the iQIYI video service, cloud services and smart devices.

Baidu’s shares jumped more than 4 per cent in extended trading, after closing at US$107.36 in New York on Wednesday.

Baidu CEO has bullish outlook on AI investments despite recent troubles

“For the third quarter, the best news is that the results beat estimates, and we see further improvement from the fourth quarter guidance,” said Raymond Feng, senior analyst and co-director of research operations at Pacific Epoch.

Feng expects the company to improve monetisation by mid-next year with new user traffic and better engagement through its DuerOS Chinese language voice assistant. “Baidu should be recovering, but how fast and whether the pace can meet expectations from investors is a question,” he said.

Some analysts expect Baidu’s earlier investments to start bearing fruit. By leveraging artificial intelligence, the company has seen its in-app search continue to gain market share via improved user experience in the quarter between July and September.

On the earnings call Li said building the company’s own universe of content and services remains a challenge because, unlike the PC era, many mobile players operate with closed ecosystems.

“Once we build a healthy and strong ecosystem, user experience will be more indigenous,” he said. “We are in the process of this transitioning.”

Baidu’s AI-powered conversational smart speaker Xiaodu remained the bestseller in China by shipments in the third quarter.

However, Li said the AI market is “not growing as fast as expected” so the company will have to continue investing while waiting for commercial markets to mature.

The company, which celebrates its 20th birthday in January, has been struggling through what Li has described as a business “winter”, which has seen the company’s core advertising income growth slow due to an economic downturn and fierce competition from established and younger rivals.

Baidu has adopted a “disciplined approach to spending, focusing on investment returns across the board”, chief financial officer Herman Yu said in the earnings statement. It recently started promoting “a frugal lifestyle” among all employees, putting extravagant spending such as business class air travel and five star hotels under review.

Wall Street is divided about the stock’s near-term prospects, with about half of analysts rating the stock a Buy or equivalent, and the other half with a Hold. For the fourth quarter, Baidu expects revenues to come in between 27.1 billion yuan and 28.7 billion yuan, which would represent a change between a decline of 1 per cent to an increase of 6 per cent on a year-on-year basis.

The revenue guidance for the fourth quarter was slightly better than the consensus of 27.52 billion yuan.