Q4 2019 Earnings Call
Hello, and thank you for standing by for Vitesse fourth quarter and flow.
<unk> earnings Conference calls.
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Sure on then Vitesse director of Investor Relations.
Yes.
Hello, everyone and welcome to buy do fourth quarter and full year 2019 earnings Conference call I do the earnings release was distributed earlier today and you can find a copy our website as well as on newswire services.
The call today, we have lobby, our chief Executive Officer, how many are chief financial Officer.
Oh senior Vice President and he tried to fight with mobile ecosystem group I was there shouldn't be season.
After our prepared remarks, we will hold acuity session.
Please note that the the discussion today will contain forward looking statements made under the safe Harbor provisions of the U.S., probably Securities Litigation Reform Act up 1995.
Forward looking statements are subject to risks and uncertainties that may cause actual results would be for maturity from our current expectation potential risks and uncertainties include but on an automated those outlined in our public filings, we'd ITC, including our annual report on form 20-F, I do does not undertake any obligation to update.
Any forward looking statements, except as required under applicable law Oh earnings press release and these called include the discussions of certain unaudited non-GAAP financial measures. We have made minor adjustments to our non-GAAP measures and reach out to be upside. These changes for comparison purposes.
Press release contains a reconciliation of the unaudited non-GAAP measures to the I know they did most directly comparable GAAP measures and is available on our IR website at <unk> I, our thoughts I do they'll come as a reminder, this conference is being recorded in addition, a webcast of this conference call will also be available on by this Iowa.
Side.
We'll now turn that over two hours C O <unk>.
Oh I'm sorry.
Being prepared to.
All the people who have worked so diligently and unselfishly contain no corona virus.
You know storm say in the.
Oh, good and courageous efforts that have been married to come back.
I think I mean uplink.
I do many all harmful you should be well going the extended to try and your holiday and working overtime to help contain.
I'll break for example, we leveraged our seasonal recognition and other technology to deploy fever screening system to railway station hospitals and municipal beauty across China.
Our systems remotely measured the temperatures up to 200 people permanent detective Bobby temperature, even for people, where we face masks and tests and identifying those who have no where in oh wearing them in property.
I do AI model has been open sourced to for example, we viewed that's right off the current Omar.
Well by well.
We launched a free health care consultation so more to allow people to access doctors online Oh, you money a related question.
Safe Hospital resources.
Our operational team.
During the medical experts to provide.
Our updated information all the crop Tamara and leveraging our large platform reach to make tightly and reliable information available to the public.
Baidu maps is providing timely information such as the location.
Classic control area.
That's the needed to hospitals and infected cases to help people better manage the situation.
So I leveraging big data Baidu maps help.
Truck population, Mike lesion and predict the spread upbeat.
That makes in China.
Our corporate social responsibility, we have pledged RMB 300 million toward the support.
To support this effort provide awareness education and improve public health in China.
The quantum virus outbreak Oh involved it like impacted our he called me.
Well the near term impact the bids asking Medicaid.
As many off our coffee industries, such as travel real estate oral health care and franchising suffer from reduced offline activity.
By the fact is that people are staying home war and they have the opportunity to get to know [noise].
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[laughter] Sea lice why do you you and type spend.
So [laughter].
Search queries in front of Iris exceeded 1 billion during the Chinese new year.
[laughter] came to baidu affect checking and finding more reliable information.
Turning to reduce fourth quarter was all 2019.
Sure.
Second changes and progress.
We focused on strengthening by these mobile ecosystem and <unk> in one hobbies.
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Our speakers smart transportation, and I'll enterprise solutions, while improving operational efficiency.
Our mobile bins, we have you a comprehensive and diversified eco system [laughter].
Any information, it's by Downhaul, Baidu Smarmy Baldwin and manage page.
That's our mobile beauty blocks.
This pillars provide a unified infrastructure to allow more video sharing and user engagement.
And provides users with greater trust on content shared on Baidu.
Through by those mobile building blocks and hosted more stuff warm, we enabled home and provider customers and other partners to leverage by too early to create share I mean gauge its user and access services from our top one to improve conversion which have.
Two unprecedented expansion I do with mobile ecosystem and robust organic traffic grows.
Oh, new I Didnt.
<unk> for those trends and leadership, that's the most popular wassa system in China, We believe and art seldom smart devices, Paul exceptional growth.
Yes.
Oh, Apollo we made exciting progress in early stage commercialization, forming partnerships with municipalities across China to install beat to enforce Tucker backbone for smart transportation.
Nobody knew cloud are well solutions have helped enterprises improve your service all.
Productivity and operational efficiency as well as supported the or digital transformation.
Looking ahead, we celebrate our twentyth anniversary this year and we look forward to enabling our partners and customer to do more of a sideways.
We are excited about the opportunities ahead to apply our technology to growing use cases and take steps closer to realizing our mission to make the complicated wall simpler through technology.
Let's begin our Q4 revealed <unk> I mean, our mobile ecosystem.
In December Baidu.
Daily active users salt continued robust growth, reaching 190 million, that's up 21% year over year momentum for being up topic remain strong with being a search queries rolling almost 30% year over year.
We have been relentless in improving the user experience for search the building blocks for by these mobile ecosystem.
Indeed, the scope of Baidu search from knowledge and information to services and transaction empowering Bible up to become a super out.
Ecommerce touches alive.
I'll majority off the 850 minutes Internet users in China in the past you those tend to buy due to search for information about delivery company.
Through Baidu speeding blogs, all six major express delivery companies in China have adopted if I do smarmy problem.
When the youth are searching expressed delivery the express delivered smart many problems up here on one card locking user on Baidu up can seamlessly obtain the shippings data hateful hurt economic order or request for an express delivery 70 by selecting.
Martin any problem on the searched resolved cars.
So it's clearly for express delivery by fivefold in December from the previous years.
I do Smartmoney Parliament also extending into government services for example, inflow eating China contribute to a healthy bombed each he <unk> similar to social security in the U.S.
So I do smartmoney problem locking users can access the are helping funky commission by simply getting their faith. Despite.
Daily average search queries on the house involved in December spiked at 40%.
After the introduction of the helping phone marubeni problem.
We believe expanding Baidu service offering.
Maybe up like user experience will further differentiate baidu search and pave the way for more online service provider to obtain a newsource off topic.
I do smarmy problem safe use or the hassle, having to maintain so many jobs on their phone or re logging a web site for every transaction.
Moving onto feed we worry about how popular powered by Baidu unique you 13 fucked continuously updated its the latest a search and feed trends.
He could be used for hot topics girls threefold and time spent on but I do see what's up 18% year over year in December.
That's more content provider original common going I, just by got how publisher platform user engagement by do feed is growing and and that's one of the fact is taking shape.
Fourk video, it's fiveg around the corner, we believe the opportunities even for deal like beyond entertainment oriented content.
To see if there's opportunities we are enabling content providers across all verticals to share with you.
We have viewed a large repository of Fourk video from our video App cellphone and Chen I mean I saw.
The main baidu out.
Oh switch over 70% all the continent distributed a short videos.
So by this building block, we are enabling content provider to share Fourk video across search feed how can entry I mean, that's all I, but I do other properties, such as Baidu, Vicky and by depose bar.
I do third over 1.1 billion user or divisive each month, and our user demand reach knowledge information and services, which can be best set aside when the short we do a distributed across numerous consumer facing products that we offer each year.
For a different targeted audience.
Nevertheless, we remain focused on improving by Booth Fourk video apps to differentiate from other market players time spent our deep plus for video App was up 20% year over year. For example, we have partnered with major TV station.
And provincial that like station to provide live TV streaming and be able be experience by Baidu smart meeting problem.
Through Bidens mobility blobs TV station can leverage by this powerful content. This distribution channel to extends the reach allowing unlocking users to engage with their shows and stay relevant and Internet technology advance this AI and fiveg.
Turning to content verticals I do know for exploring knowledge and information.
Strengthening content verticals to improve user experience has been a priority for us.
For example in June 2019, we set out to develop a health care wiki to aggregate medical knowledge and information from authoritative and professional sources.
Im a little more than half a year Baidu health care, we keep cover over half off the top medical experts in China, including Hospital director Preston Anda at their missions.
Health care speak Health Health care search do you implied.
Rose, 35% year over year in December outpacing Baidu via your gross.
We are seeing consumers become increasingly relying.
Baidu for health care information and services.
Online literature is another area, where we are actually being content to improve user experience.
This top online literature content providers, Tony Baidu, you use off our online literature channel and I do at what's up 40% year over year in December.
Let me quickly.
Covered the building block Baidu mobile ecosystem.
Oh, no 2.6 million publisher.
That's up 38% year over year.
The increasing scale and media influenced by do at its Tony more original content creator two baidu content ecosystem.
In December the number of publisher, providing original content rule, 116% well original content Pcs real Malden threefold year over year.
I just want any progress continues to gain momentum in the market.
They use reaching 360 million in December.
114% year over year number off Martini program, it's up 35 fold from last year, and a 40% from last quarter.
I do smartmoney problem, it's becoming an important source off topic for App developers.
How to an online that work up interior design and declaration solve the I'm Hey, you only.
I do smart metering program roll to about a quarter of the I may you only so one month after going live.
Sure.
Leading online question and answering community Rhodia, you only vital barring any problem to over 2 million in just two weeks after really.
[noise] Fidopharm any problem Len baidu, he I capabilities to developers.
Our hosted the marketing platform offering intelligent data analysis.
They're targeting an improved conversion.
A leading internet portal in China adoptive Baidu pardon me Pago and thought at money position. So exceeded that its 50 M.L. five stopped giving the portal more reasons to shift its content to buy I do find many problems.
Turning to manage to page.
Revenue from managed to page role to about a quarter off I do war marketing revenue in the fourth quarter advertisers, a proactively adopting side, who manage page that's we roll out industry specific solutions.
For example for home services, Vigo, and B to B sector.
I don't like Smartmoney problem on them.
Her managed page owners tend to be smaller merchants dissolved development capabilities.
Lending Baidu AI capabilities to SM, you through Baidu hosted marketing platform SMB can maintain their web presence.
Keep up with the advances of Internet technologies and continuously improve on conversion overtime simply by opening under contract with Baidu and full going.
The hassle of servers and software purchases.
Manage page dispute is data structure, which im sure content quality and improved consumer trust.
Oh, the monetization front, we continue to deepen our service offering through Baidu, hopefully the marketing platform to enhance the value on our marketing customers.
That's our customers increasingly use video ads or their marketing campaign, we are providing new video ad templates.
And content creation tools to viewed more impactful created at this initiative, leading to improved monetization and ROI for our customers.
Longer term out we see Baidu hosted the marketing platform, becoming a sales and marketing fast.
Evolving from marketing tool and audience to audience beauty into equipping SM yi.
<unk> powered capabilities to perform.
Marketing automation self generation and marketing to self fund enough.
So let me.
This innovative goal is quite meaningful when you consider how by mobile ecosystem, it's bringing user content and services providers.
Merchants together to create a win win it's different for everyone.
Moving onto do or OLED, Inc. fourth quarter door Elas Weiss assistant continues to grow rapidly with monkey voice queries, surpassing five bidding in December up over Swede both year over year.
Mostly voice queries from shell do first party devices will even faster.
Over seven fold from last year.
Reaching 2.3 billion in December.
First our home devices, a more valuable and we plan to provide.
The fieger to you going forward.
You are Alaska powered smart speakers continue to generate strong sales momentum according to market.
Analytics firms.
Rather dee.
Analytics and kinda this shall do smart peaker rent the first thing smarts weaker shipment in China and shall do smart display.
The first thing smart display shipments globally for the full year 2019.
Let's see I'll do smart device is growing about some unfold in.
2019, do or oil as you all store isn't capturing the attention of mobile App developers <unk>.
For example in video category I T. Tencent video Mango TV and meet movie deal all offered to your own do or less skills. We look forward to more exciting upgrade from two or less after the launch of shall do that age are eight inch smart display in December.
Suddenly that's eight is equipped with a high powered understanding interaction and self learning capability.
Enabling users to we caught the devices I gestures.
Oh streaming content. This 10 gestures and sent notification moving objects at home Wednesday older leaves the house.
Turning to Apollo we are partnering with the miscible government in China to enable smart transportation, a installing baidu due to FX infrastructure solution.
Income Dole could they probably the installed base enough I do between solution further extended into the launch of the city's vulva taxi pilots problem.
It's an initial fleet of 30, although powered autonomous driving vehicles that November.
I do also part of the each one the couple of names out probably to install between solution, which support autonomous drive trucking.
That's why we continue to advancing autonomous driving technology. It is important for two game operation on your.
Well as derived commercial value from areas such as my sense for patients to ensure that we are meeting market.
This arc acknowledged.
Turning to buy the trial and <unk>.
Last month, Tesla announced the switch to find do math for its vehicles in China. We are excited to provide pest not vehicles with asking services such as they snap display POI search and real time Tropic condition through Baidu, leading have solution.
Any November 20, Nike, we'd we'd be used an end to end far field automatic speech recognition solution based on our in house design.
[noise] bitumen cheap.
Customized for I do say huh.
I do bring leading speech recognition.
Capabilities are used across I do pronto.
Excluding sell do smart speakers door Elas in vehicle infotainment, Baidu maps and by do call Center cloud solution.
Developers have testified to bring speech recognition anything more than 10 billion times.
In December 20 liking.
I do pull between framework for language understanding Bernie became the first two floor about 90, the general language understanding evaluation benchmark for Glu, which is why can be considered as a benchmark for testing a language understanding and otherwise dominated.
By U.S. technology firm and universities.
Ernie powered Baidu search and sell through smart devices to provide the best user experience.
We have also begun to install by do Quinlan art <unk> design high performance AI chip to power New cloud service.
I do quinlan, a customized to optimize visual speech national Andrew language processing and other AI capabilities.
Turning to I T.
In December I see you subscribers reached 100.
6.9 million on that at all 19.5 million from a year ago.
Hi, Keith Larsen subscriber base strengthens the its foundation SMB eating video platform and producer of long form video.
<unk>, leading position in China video marketplace is a valuable component to buy this large content ecosystem, both on mobile and at home.
With that let me turn the call over to Harman to go through our financial highlights.
Thanks Robin.
Everyone welcome to Baidu fourth quarter call [laughter], all monetary amounts news in my discussion or any other movies unless stated otherwise.
Hi, good had a strong finish in 2019 revenue reached 107.4 billion.
And then b or 15.4 billion.
Usource up 8% year over year, excluding spin off revenue.
Revenue from Baidu core was 79.7 million wouldnt be or 11.5 billion usource, but 6% year over year, excluding spinoffs revenue adjusted EBITDA was 18.4 billion, but just as good a flip I do Corey was 25.5 billion or 2.7 buildings.
As always for 2009 to.
Total revenues for the fourth quarter was 20.9 billion EUR $4.1 billion up 6% year over year.
<unk> slightly beats the high end of our guidance.
Revenue from Baidu quarter was 21.7 billion were $2.1 billion up 6% year over year accelerating.
Last two quarters on a sequential basis fourth quarter revenues were baidu quote was up 3% compared with being slightly down into superior last year.
Martin services in the fourth quarter, so stream for Muto E Commerce.
I mean and services sectors offset by softness for financial services poker franchisee in auto sectors.
We are encouraged to see.
So I hope to in the fourth quarter, while continued double digit decline year over year was flat sequentially.
You know overall CPM continued to trend up sequentially.
Our New York businesses, which includes smart devices Smart transportation Baidu clout doubled year over year in the fourth quarter.
Produce more speakers continue to experience robust growth in unit economics continues to improve the new products, we lose at higher price points or Bom cost reduce.
On greater sales volume.
Well I do cloud revenue reported a strong double digit growth with impressive margin improvements as we enter 2020, we're excited to our new businesses are becoming an important growth driver for baidu.
Hi to revenue reached 7.5 billion.
7% year over year I to subscribers grew 22% year over year to 106.9 million well I choose AD business was down 15% year over year as a result, like slowing macro delayed release of Hobbit, iOS and heavy competition from food feed advertising.
Adjusted EBITDA was 8.2 billion.
And adjusted EBITDA margin was 28%.
Adjusted EBITDA for by do quarter was 9.8 billion EUR 1.4 billion U.S. dollars in the fourth quarter and adjusted EBITDA margins, if I do core reached 45% compared to 32% last year.
Let me quickly go over the rest of Q4 financial highlights cost of revenue. Excluding non-GAAP items was 14.9 billion down 4% year over year, primarily due to a decrease in content costs intact offset by an increase in hardware and cloud cost of goods. So that's well server depreciation.
Have decreased primarily due to a decrease in tech revenue.
Sure they expenses.
Non-GAAP items were 2.5 billion down 34% you have your primary due to a decrease in personnel related expenses and do crews investments in Charleston, and promotional marketing as less marketing program has met our stringent ROI criteria.
For example, we go back marketing spending or short video apps as Robin put out earlier put our efforts on differentiating true ups to features like high quality broadcasting from television stations.
R&D expenses, excluding noncash items with 2.7 doing it.
Increasing 1% you have your primary due to decreased personnel related expenses.
Non-GAAP operating income was 6.8 billion and non-GAAP operating margin was 23% compared to 10% last year.
Non-GAAP operating income for by do quote was 8.5 billion and non-GAAP operating margin pickup I do core it was 30% compared to 20% last year.
And the non operating income I should note that Q4.
In Q4, we benefit from higher interest income maturity and other items totaling two approximately 1.4 billion. So we don't expect to carry over into Q1.
Non-GAAP net income attributable to do was 9.2 billion and non-GAAP net margin was due to present.
GAAP net income attributable to by the court was $10.
Well 1.3, <unk> I'm, sorry, 1.4 door in us dollars.
Non-GAAP net margin provided color was 46% compared to 30% last quarter.
As of December 31st 2019, cash and short term investments were 147 point.
For building for $21.2 billion, excluding I had to cash and short term investments for Baidu core.
Yes.
1.1 hundred 35.9 billion or $19.5 billion.
Free cash flow was 10.1 billion in free cash flow for by the Court was 8 billion one point to go in us dollars.
Total full time equivalent.
Employees at probably due course in December was approximately 20900 employees reduction of 2700 headcounts from last year.
Managed our hotels in 2019 and plan to a boost headcount was back in strategic areas in 2020.
I should note that we knew minor changes to our condensed financial statement format. This quarter to be more aligned with our industry peers to avoid disclosing sensitive information sensors, our pricing strategy and to provide investors with more information on our cash flow.
Turning to first quarter guidance, we expect total revenues to be between 21 billion and 21 22.9 billion, representing a decrease of 5% to 13% year over year. Our guidance assumes by do court will decline between 10% to 18% year over year.
The novel Corona virus situation in China is involved in business visibility is very limited.
Sports has our current and preliminary view, which is subject to substantial uncertainty.
Nevertheless, let me give you some color of what we're seeing in Q1.
As a result, the quote you own a virus outbreak the Chinese new year Golden week that was originally scheduled to add on January 30. It was extended by a week in Beijing, and there's some regions and trend at the holidays were extended even longer most shops restaurants, a malls across kind of were closed out and.
Remain closed down.
As many remain closed down as we speak.
Consequently, the rebound for Olin working after Chinese new year has been slow this year.
In the past two weeks Herbert business activities has started to pick up as people return to work at Baidu. Our employees are gradually returning to the office applying strip safety measures. We assumed businesses have caused try to do the same in the or marketing services will pick up at a faster pace in two quarters.
Yeah.
As Robin mentioned, a good portion of our marketing services is dependent on off like activities and we expect these sectors to see negative growth this quarter that some experience never good growth into next quarter.
On the other here, we are benefiting from only sectors such as online games ecommerce online education.
Online services.
We are encouraged by the experience that China has had with Sars and other academics. In addition, the Chinese government has implemented a policies only to boost the Chinese economy.
Internally, we have set us.
Up to two Bill and then b cells et cetera to hope or marketing.
Services customers roughly the current difficult situation.
We are entering 2020 with the Luciano which puts us in a good position to continue our heavy investments in technology and new businesses to optimize future growth as we look beyond Corona virus outbreak. We're excited about the strong foundation that we have built with Baidu mobile ecosystem in the scaling of our new.
Yeah, I businesses as evidenced by the accelerating growth rate of Baidu core revenue in Q4 on the year over year basis.
And with that operator, let's open the call two questions.
So to me, so ladies and gentlemen.
Begins a question and answer session.
If you wish to ask questions. Please press star one that's also an injury free needs to be in them.
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Please press the pound there has [noise].
Participants.
Let's take one question.
And if you have further questions you may join the queue again.
Your first question comes from the line of future.
Goldman Sachs. Please go ahead.
Thank you for taking my question.
In any real gardens, Herman you talked about how the business has recovered in the last two weeks to certain degree.
Could you just take us through the distinct periods in the first quarter, two together give us a better sense of the sort of recovery, but where.
During the last two weeks for example, what is being the eurone or growth that you're witnessing in your business.
Yeah and related to that gardens also should could give us a sense of what the underlying search trends have been I, what sort of traffic growth that you're witnessing.
Hi, how without disruptive disrupted in any way how does that evolving.
And at this stage how would you how would you comment on what March and the rest of the looks like this recovery in the last two weeks can we extrapolate from Bob that its good that pays the recovery will continue into the rest of the quarter and is that in your guidance.
Yeah, Hi, fish, so I'll take the first part on wherever they are now I'll have a go talk more about the traffic.
For the first quarter.
As I mentioned in the prepared remarks or in the first quarter.
The first half of a first quarter.
We see a rather weakness because of the quota virus and because of extended holidays and the fact that Oh, you know people what were doing currently so a lot of the shops. So we're not open so a lot there allpoint activities were impacted in a substantial part of our you know revenue.
It's related to these are all play activities because sectors that Robin has a venture on the other than we do have a oh. So a good portion of our revenue that's a online and as I mentioned or things like or online games ecommerce all education. So forth. So when you look at the park cutter about growth after trends.
Sure.
We had anemic.
Okay.
We usually look at how a fast growing on a week over week basis, and it will you even compared to last year last year Q1 was not very strong for us and when you compared to last year, we were still its apart, but at this year, but you certainly see activity pick up a little bit or two weeks ago, and then also a good sweep.
This week, we were also seeing.
It's continued pickup so the assumption with our guidance or is that from now until the end of quarter that.
The growth on a week over week basis, we'll continue to ramp up even faster than what we have seen in the last two weeks and we think that that is potentially possible because.
We're seeing there are many cities.
I would try to or people are actually going back to work with suits US you know some bishops' enbridge or opening up when you're you know going on we wait now or you're actually seeing the you know traffic jams, Oh versus a two three weeks ago, where do you know roads were pretty empty.
So you want to answer on how topics trip or on the traffic side actually us early already mentioned.
Even in last December we artist the a quick gross for boasts the view and the search follow actually for them.
Atomic outbreak so people once again realize the unique value proposition for Baidu service because.
They were eager to know more about the quantifiable us and did they want to proactively to search you know instead of a weakening there to be effect. So that's tied in and we can see the Sichuan and that's what goes on more than such claims during this time.
And the because of the do edging and engine if I do at right, where we have search and did the feed.
So.
With that volume gross a search we also see robust to gross for the 10 spent on fee, which is a pause at 100% no year over year. During this time the good thing forces that by analyzing the qualities, we not only through the gross for the car with relative to.
Corner of others. We also see the gross of other verticals for searches and meaning it means that okay, you, there's or getting a tone to know more and more about by dues service. So then they can expand to other sectors.
So in general I think its a good time actually for the cost him as for the users to know to learn more about by this service and we've added that tried to gross will be a good start for the next quarter actually.
<unk>.
Thank you.
We'll have the next question.
On the line of adding them from Bank of America. Please ask your question.
Hi, good morning, so at best wishes and our thought wed have to one being affected.
By the outbreak May I have to like who are passionate about how upside to our Herman I'll, just say follow up on D. I see PMD trial I would like to clarify your DCP haven't stopped that's true go up a year on yeah or steel down audio.
Yeah, I could not be assemble autohop saw at the beginning of hobbies CEO and then second the or not course upside versus just wondering how should we thinking about the trends all Fox CAC and not content costs excluding I.E.
Going forward. Thanks.
Hi, Eddie.
Okay. Let me talk about a CPM. The question was how a CPM is trending.
You look at CPR training or you know.
We look at on a sequential basis, we've been a nice leach trending up.
Last few quarters into Q4 or on a year over year basis.
We're still seeing us or that being a negative growth.
As we saw last year, we talked about how the market was a diluted by a lot of a supply of inventory going into the market, but I think you're you're seeing good trending on a sequential basis is coming back. It's hard for me to comment on Q1, because I think Q1 do you have an issue of a tough demand right, we talked about how Ah.
Part of our 'cause a customer base because base.
Rely on offline activities. So when you have a them you know the shops, a closing and so forth very hard for them to compete for CPM. So I think it's not indicative to look at the CPM trend given our current situation.
With regards to attack a you know for Q4, you know our tech costs was down or Totoki attack revenue is down.
This is an area or you know what we're seeing the pattern of a surgeon in China, but you know we talked about a lot of our mobile ecosystem with her quite enough search because enough searches so much more convenient because when you're log then you can do so much more as personalized to the particular user you'll see a ship or people how people using.
Search, we think that the future of search is gonna be INAP search you assume us growing very robustly in Baidu app as a result.
Well you soon.
But the searches on 2000, so as a percentage the overall a search in China. So declining so we expect that that market to continue to decline as a result, our revenue from Tac as a proportional to the revenue will also declined so.
The way, we look at that isn't what's in two to participate in bidding for attack traffic to the extent that we think it could be profitable since we're the largest in China. If we cannot be profitable probably other companies cannot so well allow other companies. The continued a bid for tech traffic and negative margin, while we focus on just a profitability from that.
Perspective, and the on content costs.
This is an area that that's oh.
Good for us in a sense of what going up or no fee system. We're also trying to strengthen our vertical or propositions are.
Certain vertical areas such as online literature, such as you know held her a week or so forth or at the same time. We're also you know going into for example live streaming if you if you've seen a you know our apps. So that's an area that that's going to help contribute to the content. So I think as a percentage of a quote or you're going to see hunton costs.
We're going to confirm the indesit in that this year, but in terms of absolute dollars, but it's not that big compared to our overall cost structure.
Understood. Thank you.
One or the.
On the Sikkim, a wise because I'm sure the first that.
First months of the club first quarter actually we have much factors like Chinese new year ended that their current but just before the outbreak of the Ethernet academic by removing or other factors. We can I think it accurately we already see the CPM appears to be in a lofty.
Sure.
Quite significant actually but that epidemic actually just did you know disrupted this pace, but donlin gold I think we.
More confident on this.
That's good to know center.
Okay. Thank you.
Next question, we have is from the line Alicia Yap from C.T. crew. Please ask your question.
Oh, Hi, and good morning, Robin Harman Pershing Tran.
Thanks for taking my question is an awesome wishing you all.
All house Ti on for in Labor for the calling all virus. It seems like I do decision Masha.
To transition to automatically structural packed from landing page a thing timely and you mentioned, our R&D I can you afford to health care such crimes up 35%.
In December put your Chevy best a rough sense after the absolute five often steel you.
You know could you offer different from comparison income trough, though.
Are you increase so far up until now in the first quarter.
How are these potential, Ohio, crabbing east and traffic search to translate to a potential higher tomorrow for a magical key work I'm like high phone in the first quarter for future quarter. Thank you.
Hi, a alicia right before I talk about this best numbers I want to show you why we're seeing the gross of the health care inquiries and such volumes. So like let's say about the vis a front a virus so.
Right.
Around the outbreak of that dynamic would put together a channel I to call to cover all the relevant information.
About the academic so specifically so we actually.
Launched a free health care, a consolidation that allows people to access doctors online and also our oxygen or team partnering with a medical experts to providing the alternative information on that front a virus and also we embed them to do quite a lot like bought a cost to onto the users question.
Yes.
So with all of that actually by this platform in a once again to show is scalability to answer address users such.
Constance so as Robin mentioned right. So we see the krave volumes about how scared gross 35% year over year in a normal piece actually during this academic actually we can see even higher gross for the house care.
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So in terms some of the stuff that has to do use actually I do not have the number I tend to but we cannot calculation you know based on that probably bottoms out proportion.
Does that address your question.
[laughter], yes, it's helpful.
Yes, it can we get some sense I, how oh, we can't get the fantasy later in the quarter or lightning future quarter, I can come soft translating to revenue upside.
Yeah, I think from my perspective, I think is a pretty correlated to them. So since we have more and more use are coming to buy due for the house care and actually as I say you know.
They use it comes to here for the health care relative a relatively information actually they already showed their interest for beyond that just house here. So that's why we can see the total six volume gross.
I mean, that's you know as that said we can see all this you know user interest and.
Six volumes were going to be monetized properly.
Yeah, I think we sure it's more important to look at the Big picture of what we're trying to do with a whole mobile ecosystem I think health care, there's just a one or two factors.
What we're trying to do with a culture with a managed page is so that the information its verifiable. So the it becomes more reliable and what though has mentioned earlier is that during the CRO virus. You know you see a lot of people you know playing fields and so forth. You'll also note that when you have a lot of foods and so for your happens with a co pays news so what people want to do win.
Gainesville impacts People's whole impacts People's lives they want a place where they can go and have information that's more authoritative that's more reliable and that's why you're seeing people come to baidu. During this time to search to get the information to make sure. There. This is correct. So I think you know we talked about a lot of things we're doing.
With health care, but I think when it goes over it is not just gonna be focus on health care appetizer or more.
Ali the users are going to come here because this is where they can verify more reliable information as a result, the overall traffic growth is probably going to scope to other sectors over for advertisers I think that's probably a better way to look at but this versus just focusing on how to customers.
So that's another.
Oh, so maybe if you guys, maybe a already noticed fashion.
But I do some unique position in.
Certain users knowledge and information with that we already see you know me a news a including those CCTV has a quoted or cited by reduce data or.
Information a lot steering the posted a few weeks actually so this again proves the assorted information if I do so service and once again to.
Helped to the users to.
To know by does service, even better actually to improve their confidence in back to service I think this August signals I know going forward.
Great. Thanks for the great effort.
Thank you. Thank you.
Once again, ladies and gentlemen, if you wish to ask questions. Please press star one in your tele filling into meat free needs to be in them.
The next question. We have is from the line of Thomas Chong from Jefferies. Your line.
Hi, Thanks, Bobby how many thanks for taking my question I wish everyone.
It wouldn't help and say Oh My question is about Oh, we need to went up potential good traction that we are seeing I noticed that me mention about ideally I would.
To be a key driver what about the driver for this year, but the new well I can management comment about the timeline or many programs our monetization at all given him a.
Oh, the trend in operating expenses focus yet given the fact that out two.
Okay and so.
So that Oh, I will I stress. Thank you.
Yeah, well answers.
The first one and a permanent well because I'm not just Martin.
Okay actually for the smart many programs, we already see quite a lot of examples know today and before about is a advantages in terms of user experience and to help to the developers. So besides the examples shown before so fundamentally.
It has because with the AI capability. So the developers they can.
Simplify their development and provider even more powerful functions are just as the example, a given by Robbins for the what's the house.
The text.
Hello.
Having fun to check my so I just scan the pace and we can immediately got all the data about of the personal information.
So that is that a good example, actually so we have a lot of other examples so in terms of the monetization just it because we've seen the small new programs. We can't have more data about view, there and we can't and extended the user better. So then we can match of the user with the more relevant as and did.
With all the you know a small middle programs lunch and did monetized through our at service. So we can see the CPM lift a pretty significant to the which is also mentioned in the Robbins script.
And.
Also for the advertisers wherever you use the.
Smartlipo program as the landing page four they're comping. So we also see the our Hawaii lets you know, which has proven example bags and price or one after another so that's I didn't know we already see the advantage you know brought by the Montney programs and so forth and our so we can.
In the so the adoption reach for smart meter programs as growing quickly actually so all this was actually depends on the user experience, which is a fundamental factor for all the advantageous I just mentioned so we are mark no closely managing money.
Entering the experience pitching our mini programs and a mini programs on other platforms actually we can see now we're showing.
Advantage.
Hello.
Yeah. So common so the way you know just to add with Doe has set the way I think I would look at when programs and what we're trying to do with this mobile ecosystem is you know what actions disrupting how searches doing right. We're going from klausner search to what we call AI search and as such as basically you log into by.
Maybe Pete.
And the results you get his personal lives. That's why are you know when you scan your pace you know exactly what the balance of housing fund. It so think of it as you know in the past people search to browser disrupting the cap search because you can log and because we can Dan lose your personal information to you.
With regards to a margin because you can you ask that again I've been to all of that.
Oh, it's about the trend in operating expenses I'm trying to Trinity.
We see that all the Q.
In August, but we still at all because Oh I focused strategies. These very successful Oh, a over the Oh my with outbreak how should we think about a trend in operating expenses or the margin outlook that any color there.
Yeah. So when you look at a cost structure in Q4, you know we went through our operations and we deliver our promise Bakken or maybe when we said we're going to do it last year and then you know when you add a quest for six seven months later or we basically down our cost structure and took out areas that we thought.
With those operating leverage so in Q4 you know.
On a non-GAAP basis through cost of sales plus operating expenses.
Glue do a noncash items, we're talking about a level or go to point to go in renminbi. So going into Q1, we think that we can maintain that are willing to or there will be a little bit down and even at that range about 13.2 billion. You know when you compare to for example.
Q1, or 2000 bites and we're talking about being down 14%. So I think we're in a good position going into 2020, even if we maintain at the two four level.
Okay.
Thank you.
Yes.
Thank you.
Next question, we have is from the line Binnie Wong from HSBC. Please ask your question.
Hi, Good morning management leasing after then safe and healthy.
Two questions here, one is that I guess, it's understandable. It's like a situation is just very tough now if you look beyond just one off event right based on your speed <unk> that the county do you say, it's mostly realistic to see a you over U shaped recovery do you notice any change in your supply hazy l. efficacious approach that might be to new business up.
Attunitys and second is that we noticed as an uptake right into by two air traffic shrink the Chinese new year and their surpassed that that's 200, knowing empty age you a milestone I'm trying to think that's very encouraging. Despite we have scaled outlet packet promotion this year compared to last year. How do you think we can't sustain guest traffic and monetize.
Station swap and just fair last me on housekeeping a in Fourq here, what actually outperforming or underperforming advertising effect because of course you see thank you.
Hi, This is Bob and I think.
Permit already they cities as I described our expectation for the rest of the order you can call I V shape or do you sheep.
Probably a different people have different to interpretation, but what we.
Ken how is that Oh, the majority all hobby, Bob arms to all the industry's dogs, who advertise and.
Well look kind of the man or they don't disappear there just to put all.
If you plan to get married to do you have to getting married if you tend to buy a car you are still buying a car. If you plan to become pretty are you. All he'll go for a cop 30, or so just kind of demands will come back after that.
The epidemic and.
In terms of traffic.
Dough mentioned that the topic I have gone up a very dramatically during that are at that time to tweak because we are up better technology better user experience that the more accurate information people get a better than that or the baidu.
Let's start with the to purify. So we think they were all stayed with us or even after the academic outbreaks.
How many will cover the coupon industry.
Yeah, I think in the Q4 in Israel, we talked about it within the put a marks are basically the ones that are a strong or ecommerce wintel online games and services.
And then are the ones, a a week or financial services healthcare or franchising and auto.
And I'm sorry, no just follow up here in one Q I, so far how you see it has been trending.
You're talking about.
With that customer segments, Yeah, I got some excitement in lung cancer.
Yeah I take it.
Obviously, there's been.
Things are customers that they are doing from online or do well you know such as online game online education Commerce and our other online services and those are going to be negative probably probably obvious are gonna be things like no travel industry, which is a big sector for us.
Auto real estate.
Healthcare and franchisees.
Okay. Thank you that's very helpful.
<unk>.
Thank you.
Especially happy is from the line of Tina along from Credit Suisse. Please ask your question.
Hi, Good morning management. Thank you for taking my question. Just one quick question on that sounds team structure. So it's sort of side has been almost 10 years Sensata senior management change on the field team. So I like to I know what has to be a what has been done over the past eight months and so on that.
Our team, including I like to capture a tap incentive and KCI I setting or that kind of thing or what the a change will actually be true stronger year Uh huh.
Following quarter internal contention. Thank you.
<unk>.
Oh.
Yeah about that self management I think we are I'll ask though to answer okay sure or wait.
We have seen a lot of a change over the sales thing both in the members and culture and collaboration with the products team.
So lets you guys already know a we have.
Hired or you know replaced quite a few of positions with.
Hi qualities are people and was pretty solid experience in sales and I think the most important thing inside we or strengthen the connection between the sales team and the commercial product team and even a them a user side or products team.
So we are on exchanging the idea is quickly so that we can fully exploited them power or the service provided through the commercial end users had products to help the advertisers to acquire a their targets customers and the there.
For a improve there or was actually we already see the synergy is happening and the data games that gave us. The you know the confidence or maybe in Congress to see better resource in the coming quarters.
Is that.
Does that work aggressively Jefferson.
But you can accomplish sure sure. Thank you.
I think again.
Thank you Sir your next question. We have is from the line of changes Th capital. Please ask your question.
Hi, Good morning management.
Thanks for taking my question. The question is that related to why.
It didn't focus in 2020.
2019, I understand for back to you if they transition a year, so where have a lot, but thing or Neil and can management changes in south team changes and yeah, how here Ah Ah sector removal and demarchi change and lots of changes so like in terms of our package.
I think what's really smart so we spent money or you know, but do not use our return on investment as a principal she was due rack how expensive. So we didn't grow that much and the way you didn't spend that much either so we have a good tamarkin improvement.
So I actually entered into 2020 <unk> until I Wonder what is the new focus for development and how are we going Sheila I P. Rack, you know to plough out capital in a different area. You know two candidate more growth. That's the question. Thanks.
[music].
Oh.
Yes.
Okay, I think you're asking maybe a M&A question.
So so when we're looking at you know the claim.
Yeah.
Well.
Yeah, what is the business, okay, and how you're going to spend the money to support your focus.
Which area.
Oh.
Yeah, I think when you look at a you know are spinning focus in 2020, it's a big part of it it's going to be summer to a you know how we are her focus a in Q4.
And I think what you're gonna see us or you know in Q4, we you know I took a look at our operations, we right size that we need to fine tune. It so for that going into 2020, you know first we've got to deal with a Corona virus and then you know or try to get our business to go back to growth again.
And then once a beyond that I think there's certain areas that we want to focus on I think it's a you know.
We wouldn't want to continue to invest in a technology in the research that we have this isn't important area. As you know we're moving into a search or you know what INAP search it does seem kind of businesses and so forth.
Another area, we talked about earlier that you know.
Are they going into a more with a content.
As we focus you on verticals yos or trying to strengthen or you know.
A video areas and also you know like broadcast and so forth. This is just another museum in which you know advertisers can team can communicate with users and so forth.
And then you know just beyond this I think it's just a good the the things that we've been talking about how do we further continue to invest in our mobile ecosystem, but to the the foundation of building blocks that we talked about in also building or AI businesses. The three areas that we talked about this more trends.
The patient or do a smart devices and also a cloud business. So those are the area. So there were going to continue to focus on as we move into 2020.
Okay. Thanks, Adnan thanks, everyone.
Thank you, ladies and gentlemen that does conclude their conference for today. Thank you for participating you may all disconnect.
[music].