Fitch Ratings downgraded Baidu Inc.'s long-term issuer default rating to A- from A on Tuesday, citing a decline in the company's core search business and intensifying competition in China's digital advertising market.
The downgrade reflects expectations of sustained pressure on Baidu's search-related revenue, which remains a primary driver of its profitability despite growth in other segments such as artificial intelligence and cloud services. Fitch warned that prolonged weakness in search could weigh on the company's credit profile over the medium term.
The ratings agency maintained a stable outlook on Baidu's rating, indicating that further downgrades are not expected in the near term. Fitch acknowledged Baidu's diversification efforts, including investments in AI and cloud computing, but emphasized that these areas have yet to offset the revenue decline in its core search operations.
Baidu, often referred to as China's Google, has faced increasing competition from domestic rivals in the search and digital advertising space, particularly as tech giants expand their ecosystems. The company's latest quarterly results showed a decline in online marketing revenue, its largest revenue stream, which fell 3% year-over-year.
Fitch's downgrade follows a series of mixed signals for Baidu, which has struggled to regain growth momentum in its traditional search business amid regulatory scrutiny and shifting consumer behavior in China. The company has been investing heavily in AI-driven products, including its Ernie bot, to diversify revenue streams and reduce reliance on search advertising.
Analysts noted that while Baidu's AI and cloud initiatives could provide long-term benefits, their contribution to profitability remains limited compared to its core search business. The stable outlook from Fitch suggests that any further rating changes will depend on the company's ability to stabilize or grow its search revenue and demonstrate sustainable profitability in its newer ventures.
