The Beijing-based firm operates China’s main search engine and derives a large part of its sales from advertising, a sector vulnerable to fluctuations in consumer sentiment.

Baidu announced 33.6 billion yuan (US$4.6 billion) in revenue for the three-month period ended Sept 30, down 3% year-on-year, a filing with the Hong Kong Stock Exchange showed.

In a more positive sign for the firm, net profit during the quarter was 7.6 billion yuan (US$1.1 billion), up 14% year-on-year, the statement showed.

“Our strong AI capabilities are gaining broader market recognition,” said co-founder and CEO Robin Li in the statement, while acknowledging “near-term pressures” facing the firm.

Baidu has recorded slower sales this year, with revenue growing just 1% in the first quarter and remaining flat in the second.

China’s economy has struggled to fully recover from the pandemic, with sluggish domestic spending threatening to plunge the country into deflation.

Baidu is one of the top Chinese players in the emerging field of AI, which it is seeking to harness for a range of new applications across areas including internet search and autonomous driving.

Its generative AI product, Ernie Bot, serves as a local alternative to ChatGPT, which is blocked in the country.

Baidu has also sought to expand its presence in the field of autonomous driving, with fleets of its “Apollo Go” driverless taxis having undergone limited rollout in several cities including Beijing.

Apollo Go provided close to a million rides during the third quarter, today’s filing showed, increasing 20% year-on-year.

The firm is up against tough competition in AI from its Chinese tech giant peers, including TikTok creator ByteDance and Tencent, the operator of China’s ubiquitous “super-app” WeChat.