Q1 2020 Earnings Call
[music].
In the sense Gandhi mode. After managements prepared remarks, they will be a question and I said Sasha.
Today's conference is being recorded you could have any objections you may disconnect. At this time I would now like they tend to meeting over to your host for today's call Center shedding light.
<unk> Investor relations well they think is.
Hello, everyone and welcome [laughter] quarter 2020.
I just I believe was distributed earlier.
You can find a copy of our website as well as.
I've said this is on the call today, we had building the our Chief Executive Officer, only need our Chief Financial Officer, and it Ocean, Oh Executive Vice President and each I, just I do mobile ecosystem or fish and seed business also prepared remark, we will hold acuity session [laughter].
Question today will contain forward looking statements made under the safe Harbor provisions so [noise].
Could you meditation Reform Act up 1995 forward looking statements are subject to risks and uncertainties that may cause actual results to differ maturity from other countries such as.
Essentially with unless attention include all committed to those outlined in our public filings with <unk>, including our annual report on form 20-F, I do it does not undertake any obligation to update any forward looking statements, except as required under applicable law or earnings press release and these call include disk.
Sessions of certain unaudited non-GAAP financial measures, we have made minor adjustments to our non-GAAP measures and it was actively applied to these changes will composed and purposes.
Our press release contains a reconciliation of the unaudited non-GAAP measures to be another most directly comparable GAAP measures and is available on our IR website at IHOP I do dotcom as a reminder, this conference is being recorded in addition, a webcast of today's conference call will also be available by those Iowa.
Right I will now turn the call, although two hours the old Robby.
The all recall Colby Nike resulted in China economy shrinking 6.8%.
Water compared to a roll off 6.0.
Give me a quarter.
This was China horses economic contraction.
Although the GGP recording Deca 28 years ago.
Shelter in place was putting plays.
Awesome movie theaters wash up though a much of the offline activity came to a halt in the first quarter.
The good news is that the academic outbreak seems to be under control and people are gradually allowed to travel freely around the country. That's we witnessed during the money first at LIBOR the Golden week.
Restaurants in shop reopening across the country.
Chinese economy is we Bobby.
And I do with marketing services is growing each week after getting involved in February.
So I just told all revenue in the fourth quarter reached RMB 22.5, feeling declining 7% year over.
I see whether the macro headwinds by growing 9% year over year.
<unk> revenue diversification from advertising to membership to online games made it a beneficiary of the stay at home involved.
I don't core revenue declined 13% year over year fourth quarter, we'd be stronger than many advertising verticals.
I'll watch spending sales channel allow baidu marketing services to diversify and benefit from the pockets Oh rose in the first quarter, such as online businesses and key account customers.
Our newly I'd been it's also fair well during the fourth quarter cloud door or less than a portal all saw healthy growth in Q1.
During the first quarter, we quickly retooled baidu AI capabilities to help users municipalities and organizations better cope with the pandemic crisis, that's part of why do social responsibility.
For example, so baidu held one off the largest and most a comprehensive health and wellness itself warm in China, we provided tens of millions of free online Dr. consultation and powered money third party medical apps, because I do online health care services.
Such as online pneumonia is going to free up hospitals for critical emergencies.
More than a 100 uphole powered autonomous vehicles, how being deployed across 17 cities in China in putting huh, Beijing, Shanghai, Shenzhen and shopping to provide medication face mask and food deliveries and Oh man fever screening.
And Sterndrive decent services.
We [laughter] Colby my team with a black Swan event, and we turn the crisis into opportunities for Baidu.
Let me share with you a few observation that we believe well support baidu near term recovery and fuel the long term growth our search and B.
First according to quest mobile Baidu out what's one off the fastest growing India use among the top 10 jobs in China in February.
This trend continued into March even the pandemic outbreak leveled off from UBS.
That's a leader in information and knowledge centric Internet Baidu is well positioned to allow users to easily sat check information, which is a long term demand on the back drop off rampant misinformation on the internet.
Our expanding mobile ecosystem further solidifies I do capability.
According users native App like during the third party content and services.
Without leaving Baidu out.
Bgh Hotel plus smart many problem advantaged age together provide baidu eat up search and Oh matched experience.
Second.
User behavior in China is shifting from browser search choosing GAAP search with the latter now accounting for the majority off I do mobile search traffic Fido App has an advantage in absolute approach because most users with it but an intent to search.
Let's use our intent is difficult to Butte, especially apps that I talked about 40 pounds such purposes.
<unk> search creates a positive reinforcing cycle among users customers and partners.
The age of AI Baidu can deliver better user experience for users Levine better conversion, when our marketing customers Lucky and better content distribution when content providers Lucky.
Our twin engine search succeed allows users to can you feed when they are visiting without a an intent in mind, increasing overall user stickiness.
Even after search also money type is rather than brothers search.
Shifting user behavior from process search to AI powered picking up search it's a positive two bonaduce long term growth.
Starting with the Chinese economy recovery FM <unk>, starting to rebound at an encouraging paid especially with the support of government policies toward FM.
Our Kirby of marketing services customers and distributors show that haven't picked berchtold, such have health care franchising and auto logistics main recover faster in the mouse ahead.
I do is new I've been hot weather, Colby nineteens headwinds, well and the future looks even more promising.
I'd say its data indicates that smartycard are becoming one of the major internet gateways in China.
In 2019, Smartycard shiffman doubled from the acquired.
Well smartphone shipments dropped 8%.
Regarding eat smart speaker shipments, surpassing 10% of smartphone shipments in China.
One interesting trend to note is that mobile users are adding smart devices in their home. So that they have a hand sprayed wife enabled connected device.
Well keeping their phone rate for texting and other mobile centric activities.
The Chinese government recently potted you infrastructure investment.
Looking to trillions help us dollars to speed up economic recovery and boost sustainable gross.
I do smart transportation and cloud service stand to benefit from this government projects.
Let's begin our operational review with.
Our mobile ecosystem.
In March the nation shifting from shoulder in phase two back to office by do after you experienced strong growth, reaching 222 minute.
That's off 28% year over year.
He napster to clarify grow.
45% year over year and feed time span, what's up 51% from a year ago.
This impressive stats show that Baidu is widely recognized as the place to find more comprehensive timely and reliable information.
Our efforts to strengthen Baidu mobile ecosystem through our mobile building block, it's making a huge difference.
Third party content and services through Bgh outcome Smart metering program and managed to pages now and they Todd the majority off our mobile search results.
The in this the interplay enable their Q3 to engage with virtually dog fight liking or posting common which dramatically improves the quality all and love is the up search results.
In absurd to provide a better user experience and lopping users Baidu App has increased to almost 60% by the end of March.
I do content verticals at aimed UBS and authority to pay to content to baidu content ecosystem.
For example, our health and wellness Bert go into.
Health care, we can BJ took home.
Doctors and other well respected professionals in the medical feud health care Smart many programs to provide online dr. confrontation and managed to pages from our large network of health care providers.
In the first quarter Baidu House.
Helped more than 100 live broadcasting Gibbon uncovered Nike and other healthcare related topics.
Hosted by industry experts.
By two how allows users to register for Dr. Appointments by helping short resets information on hospitals and sort of I'd doctors and connect to users to hundreds of thousands of doctors for online consultation.
But I do it's building blocks on dynamic because content by copy call interest us gather and you see.
UBS and on mobile watch that on the Internet.
So by doing building block, we can call all off the content by popular interest to gather deliver the content to users through search and Pete and allow users to try and that resolved beating by doing the platform.
Just as how we have doubled the baidu. How we are using the same dynamic building block architecture to develop the b to B and beauty verticals.
Just to name a few.
I do acknowledge products complement third party content provided through Baidu building blocks, providing users and allow us to from the rent this information on the Internet.
For example, users have come to know by two week. He asked the authoritative source for effect checking in China.
I do know if another important knowledge product, which we have upgraded the innovative <unk> Q and a features and more video content, resulting in daily questions posed increasing 150% over the past year.
Hi, there was comprehensive set of knowledge products, including baby knows and by do experience make it easier for users to affect check and seek critical and reliable information.
Hi, This mobile ecosystem is making good progress. This video in March total daily video views bidding Baidu knowledge products wrote 100% year over year and short video viewed the thing I do a family of apps was up 60% year over year.
We have been expanding by do with library, all short videos and live streaming, particularly around information in the <unk>.
For example, and the first quarter, we hosted concessions are long live streaming wondering screw civilization, which is added to our library for.
The audio playback.
Let me quickly covered the progress I'll Baidu mobile building blocks.
BJ took accountant and work now house screaming and publisher I come up 44% year over year.
In March the number of publishers, providing original content grow 178% year over year.
Due to the large you third scale baidu platform, including Baidu out how can Jimmy and by two weeks.
I do smart many programs continue to see strong user growth with as many of you Baidu app, reaching 350 warrant million.
Up 96% year over year, and who don't I mean, you, including users from Baidu opens network reached over half a billion in March.
The number of Baidu with marubeni problem grow over 26 fold year over yet and it up 35% sequentially as developers onto them by the rapid user growth.
Continuing with the tradition I do serving as an E. Baidu Smart metering program enables lung hill apps with high quality content to operate an effective thin.
For example, easier can comics grow the deal you and spine to Smarttv problem Holquin six fault sequentially in March exceeding the classic I'm going on out.
Leveraging baidu use or inside an AI technology, each uh huh more.
To be attracted and we can you third.
For example, the repeat users accounted for over a quarter or.
Our meaning problem, you and contributed to over half of it subscription revenue.
Turning to manage to page.
One more advertisers are choosing baidu managed page the landing page four at the or add over to your HTML five as we expanded managed page industry specific offerings.
The structured data set up all managed page capturing pre defined viewed customized for each industry allows baidu betim on it are the information from third parties and provide you theres more reliable information.
Revenue from managed page was above 20% help I do for marketing revenue slightly down from last quarter that marketing services customers from sectors like health care and franchising pulled back in the quarter.
Nevertheless, we are excited about the potential managed page.
Marketing services customers can leverage is our resources by dues hosted the marketing platform such as at creation tools Baidu user inside and the arent features to improve sales to be the generation and conversion.
That's an easy would not otherwise the wherewithal to employee AI capabilities in the search traffic or diverted to their own mobile site.
I'm of the monetization prompt Baidu is hosted the marketing platform has been instrumental in pushing out effective at tools by having our marketing services customer logging.
For example, after releasing a help video AD creation tool video ads grew to 38% upbeat revenue in March up from 29% in December.
Moving to do more or less and the first quarter door Alas wise assisting strong momentum continue this multi voice queries from third party from first party devices, reaching 3.3 billion in March up almost a fivefold from last year total monthly.
Hi, guys Claris reached 6.5 billion up almost threefold from last year.
Time spent on sell through device. It is also growing rapidly.
Especially on smart to displays.
Average daily time spend per device reached over three hours the march up over 20% quarter over quarter.
The popularity of dual acting China is drawing pop out like doing quite show BBB, and we think to join the door or skill store.
Oh, Yes, now offers over 3800 skill.
Spanning a wide range of Januarys, including education video online game and live streaming.
During the last prompt pass through or last popularity is also driving strong sell or sell doing smart devices.
For 2019, IVC ranks sell do first [laughter] rents and sell dual first in global smart display shipments, which was reinforced fine.
Strategy.
And elected analytics and the canal at CES.
We are seeing encouraging early signs of monetization historical F Mark devices.
Similar to an outdoor door, Alaska steel door is distributing thousands of skill and has the potential to enjoy app store economics.
I do strong mobile content ecosystem. Also then do are alive and advantage in generating membership revenue for license the content.
Its home device, it's becoming ever more popular do Alaska is an important asset for baidu to enable developer.
Mark many programs to ortho distributed VR content and services through home devices.
Turning to Baidu cloud and a accurate we all that rates and by two AI to help enterprises viewed a competitive edge and support their digital transformation.
In March we find a strategic partnership with a major public utilities company to provide AI enterprise solutions to improve customer service and office productivity.
The public utility company leveraged to Baidu newly launched AI path.
To enable its customers to purchase electricity through efficient recognition at the kiosks off their customer service centers, which significantly shortened June time.
The customer also upgraded internal system with Baidu AI path to enable is in call used to more efficiently drops daily and weekly management reports by recommending report highlights derived from relevant internal documents using baidu, beating AI powered lets them.
In addition engine.
And Apollo we are seeing an increasing interest in Baidu smart transportation solution in the first quarter I do want content from municipality, including coffee junction and Tom team.
Navigant research, a well known Wizard squirm recognized by do Apollo as one of the for global leader in autonomous driving based on strategy branding functionality and reliability.
I do whats the exclusive autonomous driving leader from China named England report.
Apollo also received a top ranking in the 20 uniting phasing autonomous driving vehicles go tested report, which is well recognized as the numbers used for the report on monitored by facing Municipal Commission.
Turning to IP in March I see subscribers reached a 118.9 million up 23% year over year, He's large subscriber base strengthening the foundation.
Huh.
Leading video platform and producer of long form video.
He is leading position in China video marketplace is a valuable component to baidu with large content ecosystem, both on mobile and at home.
With that let me turn the call over to Harman to go through the financial highlights.
Thanks Robin.
Hello, everyone welcome to buy this first quarter 2020 call.
Oh monetary amounts using my discussion or in renminbi unless stated otherwise.
Despite the huge uncertainty than adverse impacts caused by Kogan IP outbreak in the first quarter by reduced total revenues reached 22.5 billion then Andy.
3.2 billion us dollars decreasing only 7% year over year.
Revenue from Baidu core was 15.3 billion.
2.2, Bill in us dollars decreasing 13%.
Marketing services from healthcare travel franchising and financial services among other sectors were significantly impacted by the whole team of awful why activities to shelter in place.
We offset some of this weakness by leveraging by dues spanning sales channel to capture growth from performing areas such as E. Commerce online game online education in software.
In general SMB held back to more during the quarter, while key accounts took advantage of the situation to build their brands.
Our new businesses saw strong growth across the board and smart devices to cloud to smart transportation.
I actually revenue reached 7.6 billion up 9% yogurt in their AD business was impacted by the challenging macro down 27% year over year.
Non-GAAP cost of revenues was 14.2 billion down 3% year over year, primarily due to a decrease in traffic acquisition costs offset by increased content costs.
Tech decreased primarily due to a double digit decrease in tech revenue.
Our strategy on Tech continues to be optimizing profit that's been growing track revenue at a loss.
Non-GAAP SGN, a expenses were 3.4 billion down 39% year over year primary due to less channel spending and promotional marketing and decrease in personnel related expenses.
Non-GAAP R&D expenses were 3.5 billion down 1% year over year.
Non-GAAP operating income was 1.4 billion and non-GAAP bye.
Yeah.
Operating income to Baidu Corp is 3.3 billion were 473, then us dollars and non-GAAP.
Operating margin to by record was 22%.
Adjusted EBITDA was 2.9 billion up 61% year over year and adjusted EBITDA for Baidu quote was 4.6 bed for 656 million in us dollars.
38% year over year in adjusted EBITDA margin put Baidu core is 30%.
11 point from last year.
With our solid execution expanding by dues mobile ecosystem were able to leverage R&D to strengthened by these mobile building blocks that increase user retention.
Despite total marketing spending decreasing year over year by do HPG or use saw a respectable year over year increased 48 million users in March.
The strong operating leverage in the first quarter ultimately reflects our focus on quality revenue growth for our new businesses.
Smart devices, we tried to lead.
By launching innovative products to increase SP, while growing sales volume to drive down Bom cost.
In closing, we focus on developing solutions for enterprise customers growing gross margin in tandem with revenue growth.
Smart transportation is the fastest growing among our NII businesses and is also experienced improving margin trends.
As of March 31.
2020 cash in short term investments was 146.7 billion.
Excluding IP cash and short term investments provide do Corp was 136.7 billion or 19.3 billion us dollars.
Free cash flow was 1.7 billion and free cash flow for by do or was 2.2 billion worth 327 million us dollars.
As a side note in accordance with a new accounting policy as Hugh and United team Dash eight two we reclassified license content purchasing from investing activities to operating activities starting from Janney Theres This year.
To the new accounting standard adoption reflect the license content producers in cash flow from investing activities, which was consistent with our appears in China.
Nucor had approximately 20800 fulltime employees as of March down 7% from last year.
During the first quarter returned 185 million us dollars to shareholders in cumulatively over the last two buyback programs, we repurchased approximately 1.4 billion us dollars.
Our board recently approved a new one bill in US dollars buyback program, which will be effective due July 1st next year.
In early April we completed a bond offering at 1 billion in us dollars at a blended in a percentage rate of 3.26% proceeds from which we were used to pay off maturing bonds and for general purposes.
Turning to second quarter guidance, we expect total revenues to be between 25 billion and 27.3 billion representing growth, we have negative 5% to 4% year over year, our guidance assumes by the court will be growing between negative 8% to 2% year over year. These forecasts are currently.
We have moved route which is subject to substantial uncertainties.
Before I turn the call back to the operator, let me summarize our first quarter achievements our strategy to strengthened by these mobile ecosystem is working with third party content and services from new speed platforms apps and mobile site migrated onto our platform to give users native app experience without having to download third party apps.
We'll be redirected to mobile sites.
By dues mobile building blocks are enabling our users customers and content partners, who login, which is creating a positive virtuous cycle, resulting in strong user growth more INAP searches and longer lead time spent.
Many investors assets, how to see the value of Baidu core business.
Despite a challenging situation with Coburn 19 outbreak in the first quarter revenue from Baidu, App, which makes up the majority of by due course mobile revenue was up year over year during the quarter.
By do apps contribution margins also increasing due to strengthen baidu mobile ecosystem.
And by these new AI businesses saw strong performance in the first quarter, while operating losses are decreasing reflecting our prudent strategy to focus on quality revenue growth.
We appreciate by this business is important to recognize a tremendous franchise value that we are creating with baidu mobile ecosystem and baidu app as well as our new AI businesses, which were focusing on revenue growth with improving margins.
Operator with that let's open the call into question.
Ladies and gentlemen, we've been now became the question and answer Sachin If you wish to ask question.
Style, one onshore pattern and they are tuned into the house.
I wish to cancel your request please press the pound all hash key.
I said to me speak for one question at this time once again is that we should question Chris I want.
Our first question comes from the line all Alisha Trump ticket.
Please go ahead.
Hi, good morning, and Robin Hammer dose and Ken Thanks for taking my questions.
Management Chevy events.
You and the strategies on how you plan.
To further capitalize on to continue strength offshore bike room mobile app traffic.
To drive broader and more diversified monetization after right.
Becoming futures and also on investment hiring key what are the project spend coming later in the in I do a last Apollo breakfast across such technology Trisha. Thank you.
Okay.
First one.
Okay. Thank you for the question in terms the monetization for up I do at.
Actually we are seeing a pretty good tailwind so human lost a few quarters last year, we see CPM improved sequentially and consistently you know from Q2 Q4 last year. So the one you know the trend is a temporarily disrupted by the black Swan event No Cobian 19 in the first.
However, this year, but we already see the trend is coming back. So the cpms is continuing to improve so how we make this highpin in baidu at has because.
Itself is growing quickly.
Robin nationally in the prepared remarks, we can see the deals. So we can see the search volumes and the time spent.
They are growing.
Significantly and with that so we.
We had better tons to provide a you know better experience to the users not only through search but also sue feet are treating engine.
Strategy.
So all the experience or counting on our building blocks liked by downhaul asthma milligram and manage the page. So with this building blocks actually we can provide not only content the service to the users and with that we can kenmore knowledge about views.
Sure. So that's why weekend continuously improve the CPM.
So [noise].
On top of that money. So a smoking also mentioned it then health care platform. So which is another example, where we consider the user badger. So that we can get more information and ended the you know you the intent from users so with that weekend butter improve them.
Monetization capabilities.
Yeah, I would just stop here and then let herman to onto the second part.
Hi, Alicia good morning.
Yes, they talk about how our.
Our by do App, Tim will provide a better experienced by by having the users advertisers and also a content providers logging in you know by having more data by having to know what users do on landing page. Obviously, we can make the user experience better and we can continue to help improve CDC CPM, but fundamentally.
I think if you step back what we're doing over the last few years is that we used to rely heavily on dolls are search and when you think about bugs such as more of a mobile error and now as we're going into AI, which in a ship that traffic into by do ATP that in itself because.
Margin is higher within by re BP as our traffic is growing faster in by Dray PV versus the overall search traffic and browser and so forth that proportion of traffic going into by GBP analyze monetizing that that would hope would cpms I would hope with revenue growth as we mentioned our prepared remarks.
Even in difficult quarter like this or by JP behind us revenue growth on a year over year basis.
With regards to lessen the parties, we look at our businesses in two separate parts one is with the mobile ecosystem. So.
Very focused on ROI driven.
[music].
The parameters here so when we look at for example.
ER in App, but.
App installations of our marketing promotions, we do measured based on our wise, where we think we can deliver to the new users that we acquired based on lifetime value more importantly over the last year as mobile ecosystem, sorry to become more and stronger and stronger we started.
Comparing for example, how much we can spend in R&D versus.
Marketing spend as you can see by toning down on marketing expenses, we can PCC or a user increase so it's very.
ROI driven.
Pretty complex formula, but so far you can see it is working for us even in a quarter where revenue is declining on a year over year basis, you are seeing profitability increase and then we had businesses I think the.
Plancher is to try to get to higher gross margins right now while the second step might be trying to get the whole business to be profitable at a contribution margin ratio. We're focusing on how do you grow revenues at the same time trying to get to a gross margin.
That's positive or growth.
Thank you.
Thank you.
Thank you.
Question comes from the line of patient or by phone calls.
A question.
Thank you for taking my question when I look at your guidance, which looks it for the call which looks at a recovery from the first quarter can you give us a sensor where we are as of the month April to give you the confidence about recoveries, taking place or we should look for a number of special about and the second thing is when you looked at all would be the bad because Richard.
Taken off during the course of last couple of Slash last couple of months. How many do you think will come back with gusto too.
Now.
And I am an extension of that very questionnaires, how should we think of the medical logical, particularly where there was so much traffic that came back during a during the past quarter. How should we think will be monetization in that specific vertical going forward. Thank you.
Hi, ph I'll take that I think.
So when you're looking at.
The verticals that they have come back.
Our current guidance factor in.
How are you to our.
Advertising verticals sectors have won in.
April as well as recently in May and where we see this mainly as a a trajectory in which the alpine businesses are opening up if you think about by dues business, we're best at interest generation Ed.
Deriving leads acquired businesses and what has happened over the last few months is added stores were closed down no one's buying leaves because the lease goes nowhere. So as these businesses are opening up the costs for the country. Then the advertisers will come back to our platform and started bidding.
For a peak traffic to two to help them generated ourselves so it's built into our.
Model and what we are anticipating is that may should be better and then June should be better than.
Okay and with regards to healthcare you are seeing tremendous try to come back you are seeing us.
The strategy, we adopted with mobile ecosystem, we don't.
Being able to to not only offer our own content such as you know by do hope, we do but also there pretty content through BJ each account through many programs to manage page so well below the information and then on top of that being able to insert for example, short videos adopt to talk more procedure.
For example.
Concerning.
These live broadcasting where people are talking to open our.
Industry experts and so forth so that wealth of knowledge really helps generate a lot of traffic, but again with regard to monetization. The assumption here is that these clinics and these hospitals have to be open. So we believe as Colin I think gets contained as there is no more rush to go to hospital to treat this particular pandemic.
Hospital would be open up for regular procedures checkout since oakwood and when those things happen. So we should see better monetization. So we're pretty bullish going into Q2, we compare gold recovery should continue even after Q2.
Thank you.
Next question comes from the line up until now.
Please go ahead.
Good morning, Thanks for taking my question My question is about.
Yeah, hi to mobile ecosystem.
Pre the office that we have seemed improvement in the things that you can control. For example, we have heard of nice things in traffic user experience content technologies either monetization.
I'm just curious if you could share with us to fill up on the external end farm and be especially Apollo competition.
For example that hurt some of your competitors thinking about getting interest charge. We have also hurt that some shop video sites.
Increase monetise aging in advertising.
Yeah, So you'll fall our same stop our side Youre ecosystem could you talk about the potential impact and how you guys can deal with it I think it.
Thank you for the question. This is though let me take this so let's first talk about the search part actually.
As we mentioned research has been the evolving from you know traditional prouder search to you have search so with Baidu App unit growing dramatically in terms of the user and traffic and contributing to the vast majority of mobile subscribers.
So the trend is driving less and less dependency on traffic acquisition actually which is in contrast to the competitors, we're still highly reliant on the acquired traffic.
So we you know the reason we can achieve this progress is because of the three pillars will be waiting for the mobile ecosystem.
As we mentioned for the user experience and the facilities the index engagement for users content providers and customers.
As you May know our May not you know we have 60% of the daily active users lobbying in by two at which is amazing for a search business because we can nobody users much better.
So a search experience is not just about search is actually about who ecosystem. That's why in a with baidu at with more traffic coming to do at with the building blocks for the ecosystem. So we're pretty confident in this area so as to other competitors in the market.
So clearly you know the traffic is is growing and in terms for the short videos and other ways. So we have to imaging no. This is a challenge for us, but what we're working on its actually to not only expand our user base through you know better and ended the video.
Apps, we are working on but we are also have a huge potential to improve the.
Monetization capability for our products. So as we already mentioned right. So we have the managed to page has it already showed the effectiveness for improved improving the ROI for the marketing for our customers.
So.
We just have shipped a few features and we have more on the list and we can see the contribution already so that's why I think you know you know to DHR either search I think Oh, we have our unique strengths I'm not only in that state experienced also in the building blocks for ecosystem.
And the four or otherwise and other size you know, we have well planned for improving the monetization capabilities and to a.
Strengthen our ecosystem.
Yeah, and want to add to that or Eddie.
They talked about the strength of our mobile ecosystem and the content that we're able to pour into our platform. The other always keep in mind that search works, because our users or intend base as we've seen.
Trying to compete with Baidu, given our scale and software in the browser surged.
Although people can get market share in revenue, they don't get market share and profitability and we believe long term.
Shareholder value creation, it's on trying to get of market share of profitability. So we're seeing the in the browser part and then in order for people to compete with us in App. The main assumption is that their app has to be a 10 basis. Okay. If you look at the people coming to buy DPP. Our users have the behavior. So it's very hard.
The intent based users when you have other type of apps such as social such as entertainment focused picked example of how we're able to distribute one hour long.
Live broadcasting from healthcare industry right. If you think about if you're watching 15 second videos in the teaming videos you know laughing and so forth how likely are you going to be sitting there all the sun watching one hour.
Healthcare experts or if you're kind of all your friends. So trying to bill intent really changed a dynamic of that act in particular, so you're trying to make a surge it might not be as good or other type of behaviors, that's something to keep in mind and you talked about how a short videos again, our focus is not on the format of the content, but really.
By topical alright. So if you think about where were strong with money. So for example, focusing on trying to build a great.
Place vertical for healthcare trying to build a great place for knowledge for information and so forth and where it makes sense to insert short video just as it makes sense to insert live broadcasting or text or photos or you know the services will be able to contact doctors and so forth we want to own that.
Various different media formats surrounded by Topicals. So thats, how were focused on and when you see a lot of could consume short video as a consumer these long held topicals and so forth that's where we can also insert a short video advertising.
Thank you very much.
Thanks, Kim next question comes from the line off Gregory Chow from Barclays. Please go ahead.
Hi, Matt you make sense for taking my question and greater fever, sorry, a recovery from the core uniting perhaps two quick follow up so first storm. So we see the bite you actually very.
Strong user growth in Q1, we just want to know user retention man of engagement.
Into Q2, and the work a plan to maintain this users are into second half sure not everyone to receive your smart devices.
Reported very strong shipment and where we are right. How do you kind of fees are huge numbers jumped to one friend apparent.
Our before about check for monetization potential and they're also you have plans are to expand our petsmart speakers into more channels for broader smart home connection. Thank you.
Okay I'll take the first one it is too you know the and then that outbreak and.
Attracts more user to baidu at because they want to proactively sick information to help them and incentives tuition. So thus period if it helps to grow that do you use the end of the 10 spent.
So after the outbreak we can see some decline in terms of the do you use but the good thing is side. It has a very good tons to advocated the users they can't what they can do own baidu.
So for example, like a let's take the house Cure I example, again.
So when people started to use baidu asset for US you know house care religious questions and cancellation. So there are the or actually getting used to it and we can see them.
Consultation and numbers or.
Pretty stable. So we are using this tons to advocated the users with more features which are not a you know.
Obvious to the users before so.
You know this on our says that you know we do have many we're using many approaches to make them by two hat you know more friendly prevent more service to the users. So that they can use it in different up four different purposes.
Yeah. This is robin love regarding to the smart device monetization potential.
I think its oh, it's going to be very similar to the mobile ecosystem.
In the sense that Ah that the revenue can come from.
Selling hardware selling subscription selling advertising.
And then even commerce.
The difference is that.
It's a home base the device and we.
We maintain a better control are almost anything from hardware.
To the back end of monetization.
It is in the early stage off the double.
We are pretty much focusing on.
Including the.
User experience.
I.
Talked about the time spent average time spend for our smart display.
Over three hours per day, now so that a lot longer than than average mobile app.
We are quite optimistic onto the potential of monetization for our smart home devices.
And we will continue to.
Sure.
New form factor for for Smart home and the other AI or wants to enable the devices and uptime.
You are.
Okay all right.
Thank you very much.
Thank you next question comes from a lot option.
Please go ahead.
Great. Thanks for taking my questions. Herman I was wondering can give us a sense.
What the total expenses will look like in to Q as revenue start to recover in the second quarter. How should we think about expense accrual there and also maybe help us understand maybe opportunity to increase your operating margin.
Operating leverage maybe over longer.
Like for example, and the opportunity to rationalize from the investments you're making care. Thanks.
Yeah.
Yes, Hi, James.
So so two questions from me answer the first part so when you look at up by due course.
Operating model in Q1 on a non-GAAP basis, a cost of sales plus opex was probably around 11.9 billion renminbi.
And because we typically have a wage adjustments in Q2.
Because kobe, Nigeria in China seems to be rather under control. So we're going to start you know how endpoints. So for us. So you should expect sequentially that this number will grow.
10% and probably even in the teams are really will depend on several factors that are uncertain right now, but but I expect that kind of range of growth from Q1 into Q2.
Okay.
Longer term in terms of our operating margin potential is I think but really comes into place number one is a images. So as you can see.
Because of the tracked over there we're growing in within apps enough search is growing a pass or into a traffic we and it has higher margins you can see us having that that better terminal value over time because.
Proportionately revenue is growing in apps, as we're making or mobile ecosystem stronger. So that's going to make LNG business are healthier.
Secondly, with a high businesses as we have mentioned our focus is on how do we grow revenue at the same time, how do we have gross margin. So these two or a important hand in hand, we want to growth of quality revenue. So as time passes we expect to have a less expenses or less losses AI businesses.
In a few years potentially one or two of these businesses could even turn profitable so thats really or our target 22 or shoe for that so I think over time, you should see that that there's a potential over much improvement both when images and also new businesses.
Right.
Thanks.
Thank you and next question's comes from Pinho from pitch Kathy.
Hey.
Thank you management, congratulations on a quarter Abba.
Question right issue related to that eating at search so if you.
It's a Chinese how can buy ti to extract more users to use by you.
That's true versus other ATP Act research that's separate question. The second one is we observing a lot chipset like Brock ecommerce.
It's really at the way to accomplish a C N and yet you know I wonder if I.
I could TBT are going she was the negative impact to our E. Commerce advertising revenue. That's true question. Thank you.
Okay I'll take the first one and the first.
So.
Are you there you search because they have a certain need and the need is satisfied through search so I'm, just because with the building blocks for like a by downhaul rights monogram and manage page. So we can provide better user experience for users to search we can connect to the users not only to.
The content to the information, but also to the service they want to achieve so with that and we can impressed the user once they use it. So that's why we can see the average search tens and per user everyday is actually growing so on I think visit for key chew up.
18, the users for a baidu search net because once they use the baidu search the compared with other search and brother or in other apps, where they can see the difference the nowhere, which when inspired they know how to get there. So I think visits them in a major approach forced to do it and secondly, you know it's because.
Yes, the brand awareness, so and is Herman already mentioned so one baidu is them you know strongest or then.
You know well known Brent for search and it's it's actually taking more effectiveness.
To help build a INAP search had pitch for users so.
And just some up you know the.
Brent for search as Baidu and or so the better user experience not only for content search, but also for service connection. So it's helping her is to reach into users for search.
Cemetery.
Okay, rather than let me.
Second one.
It's obvious that goes live broadcasting commerce.
Growing very quickly and the.
Becoming a trend and it could become a major four o'clock commerce or a more broadly speaking I think I broadcasting well become another new forms of media.
Ah Ah comparable to video images and text. So we are embracing line broadcasting.
Content to threw out to the search experience ddics year event or the Baidu mobile ecosystem, so going forward when the ecommerce advertisers saw come to buy due to advertise they can choose all kinds of all media format to integrate their service.
This will add creative to adequate hips or content.
With with Baidu products. So we think we stand to actually benefit from this trend not.
Hi, this trend.
Thank you.
Thank you.
Next question comes from them that coming from.
Please go ahead.
Hi, good thanks for taking my question.
Question regarding the healthcare related revenue, so I guess that a high basic factor related or was that the area a clear up assets in the last two years should be disappearing coming into the second half up this year.
And so that should create a relatively easy calm accordingly, if that right Im just curious what's the revenue contribution from medical Advertiser lately I remember that that number is I ran out one seventh and they didn't back the second quite a up last year. So just wondering.
What's that level recently and also can you give us sense regarding a multi national advertisers expose show for your back to core business in Q.
Hi, Natalie.
With regards to.
Sure.
<unk>.
I.
The revenue proportion really is.
Two main factors one is the traffic that we're seeing secondly is also the amount of offline activities.
Glenn upward hospitals are now opening up it's very hard for them to actually come onto our platform to try to drive interest in by leads and so forth.
And for that reason being in Q1 whole care.
You know drop below 10% of Oh, I do cores or advertising revenue.
So your second question was on a multinational.
We don't track or revenue by multinational because.
We look at our overall revenues, we just look at our key accounts, we don't see the it's a major difference between multi national or local fortune 500. So we look at our business either by SMS or or by a key account.
Thank you.
Ladies and gentlemen that does conclude our conference for today. Thank you for all parties. Please.
Okay.
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