Q2 2020 Baidu Inc Earnings Call
[music].
Hello, and thank you for standing blight fooled by two second quarter 2020 earnings Conference call.
At this time all participant in that listen only mode. After managements prepared remarks that will be a question answer session.
Today's conference is being recorded if you have any objections you may disconnect at this time.
Now I'd like to turn the meeting over to your host for today's conference gently by two director of Investor Relations.
Hello, everyone and welcome to by the second quarter 2020, <unk> Conference call I did.
You should be it earlier today and you can find Oh website as well as I said it.
On the call today. He had been me, our Chief Executive Officer, I know, you, Oh, Chief Financial Officer and Ocean.
I think I've tried to fight with mobile because as.
Our search and suit.
I feel that the parity Mark will hold acuity session. Please note that session today. It's a forward looking statements made under the Safe Harbor provisions of the Black Friday Securities Litigation Reform Act with Nike, making flight.
Forward looking statements are subject to risks and uncertainties.
Actual results to differ materially from our current expectation.
Potential risks and uncertainties include but are not limited to those outline anymore.
I think <unk>.
And we'll report on then turns yet I do does not undertake any obligation to update any forward looking.
Except as required under applicable law.
That's really and we call include.
Certain unaudited non-GAAP financial measure it we have made minor adjustments to our non-GAAP measures and then there's actually apply these changes for comparison purposes. Our press release contains a reconciliation of the money Tedmund GAAP measures to the and I noted it most directly comparable GAAP measures and.
The available on our IR website at <unk> Dot Baidu Dotcom as a reminder, this conference is being recorded in addition, so what kind of that this conference call will also be available on by this IR website.
Ill now turn the call over to our CEO Darby.
Hello, everyone I do total revenue in the second quarter reached RMB 26.0 billion declining 1% year over year versus a 7%.
Oh.
Excuse me presenters.
We do not have audio from your side can you on mute locally.
All right.
Let me repeat what I just add a vital total revenues in the second quarter reached RMB 26.0 billion.
Declining 1% all year.
Versus someone and decline in the first corner.
Or contributed to the rebound, it's the second quarter revenue growing 24% sequentially.
Michael Kors online marketing services as demonstrated.
Steady improvement think this role in February.
It's encouraging recovery across many industries.
The second quarter, however, with automatically temporary setbacks, such a new waves off Colby liking cases, appearing in Beijing, and other areas, China Claire level to pandemic precautionary measure.
We're again put in place.
That forward to later half of your line is situation has been improving things that.
Colin Nike's it subside.
This positive moves forward.
Oh, coupled with some temporary setback deep us.
Cautiously optimistic about the bins climbing to into the second half.
Welcome It 19.
Our geographic <unk>.
Geopolitical tension and other phenomena plaguing the economy.
May continue to bring about hiccup.
The opportunities that I have presented are getting more exciting.
Our foray into in APSRQ three years ago is proving to redefine how content and services are two viewed and I'll buy due to be a competitive or to enable long tail SMS to do been online.
More than two third of Baidu App users I Lugging daily.
Not only demonstrate user stickiness, but also indicates greater sense, though identity and belonging baidu off users.
The CPM gap between Baidu App and Union traffic continues to widen in App revenue mix up the majority of search and feed revenue and daily now search queries outgrowing the total search market in China.
Traditional search screw up browser direct users a week from Baidu wherever it is absurd aggregate third party content and services onto our platform for a unique close loop experience.
Users come to Baidu to form relationships, it's merchant.
To follow.
Setting like video shop, and so long.
With users remaining on Baidu. After the landing page, we are in a better position to improve user insight and provides a superior user experience such as verifying the merchants on high.
Monitoring the content and services on Baidu or better quality strengthening baidu is vertical and community offering.
And enabling users to follow interact and transact this merger.
From the merchants perspective, our customers no longer rely on baidu only for traffic.
We are able to viewed a fan base through our building blocks off <unk> Uh huh.
Smart many program and managed page.
An increase interaction with their fan base through like video.
Hunky both ways.
And close loop transaction.
And leverage our marketing services platform for conversion improvement look alike targeting and repeat purchases.
But I do see value proposition extending from selling traffic to also provide a marketing cloud services to empower alerts and consumer relationship management capabilities.
Makes us more competitive by leveraging Baidu, AI and cloud capability [noise].
The increase the increasing liveliness off our users their participation in live broadcasting ecommerce and other activities provide spy do an opportunity.
To leverage our existing traffic.
To move beyond watching services.
Into membership.
On games and other revenue stream.
[laughter].
Our new I Ain't bins it.
So I'll do smart devices continues to sell well despite the current economic situation caulking headwind to smartphones and other consumer electronics.
By New cloud is leveraging baidu, leading AI to provide intelligent cloud solution to enterprise that.
To help them digitized and do more this AI computing.
Opponent continues to make advances in autonomous driving and commercialization, particularly in the area Smart transportation, which stands to benefit from the new infrastructure initiatives that China is pushing to reignite the economy.
I T weathered another Kuwait and I can impact this quarter is positive growth year over year, reinforcing the belief that online entertainment and their while in difficult economic times.
Let's begin by do second quarter review it was anything.
My do after you use reached 204 million in June I.
Let me use were over half a billion, which puts buying too hot England like class on top six naphthalene, China, and often partial weibo and other feet apps.
According to class model.
In half user engagement on Baidu at remained strong with enough search queries growing 28% year over year in the second quarter <unk>.
Thanks to improving user experience and the expansion of third party content and services our California.
Let me talk about video social services and money I vision for EM.
First video I do Abbott is becoming a powerful a distributor oh video content.
We do consumption from search increased 81% year over year and video make up about 70% of the feed consumed.
For Baidu set off knowledge.
Set up six knowledge products, such as I do wiki I do know.
Video contributed to almost a third of the Patriot.
I've from less than 20% at the beginning on the year.
Our efforts in fortifying the content Baidu with video is showing incredible results.
Sample in the area of health care TG CBD expanded rapidly, resulting in total video views surging over fivefold from the prior corridor.
Well I've streaming, it's becoming a popular way for professionals to a shared their content baidu.
We are making live streaming easy to conduct our building blocks, especially for now entertainment oriented content creators.
For example, they leave no entertainment like video sessions on Baidu.
Surged I'm more than four sold and monthly viewership grow by 80% in the last three mile.
Topical likes session Vectrus by do we keep virtual do.
Summer Arc Festival, and wondering school civilization deep into attracted over 40 million viewership in the second quarter.
Industry experts are also live streaming on Baidu.
For example, online video sessions by health care expert nearly tripled in the last it streamone, even ask Koby 19 subside in China.
Second on social we're making it easier for users to interact at this content creators and service providers on Baidu through our building blocks.
The versatility off Baidu building blocks allow power users.
For example to deep comment on their search results to interact with content creators orally, others, who are interested in the same content in essence building topical communities.
[noise] users can follow the content creators for future informational update.
We recently integrated P.G.H. Akorns, it's by doing all these products and interactions between users and content creators within by do knowledge products increased 78% in the last three miles.
Third on services.
In the second quarter, we added service center in Baidu, App, which allows users to access services from a wide range on margin.
And government organization through a single Uh huh.
Through a single thing all and keep track of their transactions this where with service providers.
Through our.
My wallet and my message Sandra.
Through My service Center users can perform a host of third party services, such as buying tickets for tourist destinations and train ride.
Making reservations for restaurant and car repair checking express deliveries data and paying utility bill.
All in Baidu out without leaving.
Now having to download the host apps.
I do service offerings, well continue to expand and new players join our Army program network.
For us.
I'm wondering how they should despite tough macro environment in the first half off this year by do App revenue role both in Q1 and in Q2.
I do absolutely traffic continues to see healthy growth and the CPM gap between INAP search and Bronzer search continues wind any validating that I do enough strategy is coming to fruition.
[noise] honestly our inside.
When customers by traffic from Baidu, they can lock into our marketing cloud platform.
Which is upgraded regularly this new features tools and technology Atlanta to help them improve at conversion.
Hi, enabling our Mark marketing service customers to perform consumer relationship management, we aren't transforming search from directing traffic to enabling customers to engage and improve the lifetime value of the consumers they acquire baidu.
Let me talk about harm building blocks, you speaking verticals and communities for a compelling.
The health care and wellness industry mix up almost a 10 sub China's GDP.
I do how [noise].
And we'll house is fortunate to be a top health care and wellness platform in China, and our strong brand asking further recognition I mean, the spread of Cowen 19 into up and dynamic.
Year to date top tier doctors, joining Baidu house has increased 87% and our partnership covers the majority of the top hospitals in China.
The aggregation of quality health care content and Baidu from health care expert newsfeed too short D to live broadcasting has increased our health care topic and resulted in online dr. consultation more than doubling from last year.
We see such progress to naturally lead to offerings of online prescription dietary supplements and other related products and services overtime to enable more people in China to access quality health care and wellness services.
I do building blocks are also helping to form topical communities. For example, we hosted approximately 100 live broadcasting session conducted by experts.
National Cultural heritage in the second quarter, which created a community following for Jade antique jewelry and collectible.
Well with stakeholders in the community brought it up on Baidu and such as collectible valuation specialists.
Merchants using live broadcasting ecommerce and other feature sets to enable long tail merchants to better monetize baidu.
The versatility of Baidu building blocks, it's also allowing a strong community our students and parents to warm baidu.
For example, students can launched the 400 plus live broadcasting sessions offered by over 100 universities.
And I took a ship and educational experts from our feed and smart many programs I saw last check your interest like them discourse research suitable universities and learn about popular majors based on Baidu big data.
Well at an early stage, we see community formation from the interplay of my do building blocks as a way to further enrich baidu <unk> position as a leading knowledge and information centric Internet platform.
Empowering content and service providers to monetize and I do well ensure a robust and wrong content and services ecosystem paving the way for additional monetization opportunities in the future.
Moving to do or last shall do theorist off smart display and smart speakers, what's the best selling and speaker category on JD Dot Com During June 18 shopping festival.
So I do see raised our smart device. It is building a strong brand and a marketplace.
Well with Baidu.
Leading AI capabilities, such as voice search and multi input modality.
Endure alas skills door now offers over 4000 skills.
In my breath of content, including children learning online games.
Videos.
Turning to buy to cloud and AI services.
We are at an early stage of intelligent transformation empowering traditional industries through the use of AI and thier operational data.
To increase productivity and improve their service offerings.
Vincent are coming to the rationalization that they have to innovate <unk> or be left behind.
Well inventing cloud and Uh huh prices are chasing after scale in areas, such as CDN and ask Baidu cloud is positioned.
A one stop shop for our customers cloud needs and more importantly, differentiating through intelligence road solutions by leveraging Baidu, leading a high paving the way for long term growth.
For example by do formed a strategic a partnership with China National building materials group.
The parent all 13 lifted accompanied.
With the aim to leverage by the way I pass equipped with big data and I LT edge computing capability to provide intelligent logistics intelligent factory and industrial autonomous driving.
CNBM group plans to use Baidu <unk>.
Paired with Baidu intelligent map to improve the routing efficiency Offy logistics vehicle and track vehicles were about to improve operational efficiency and reduce production costs.
I do <unk> open platform is viewed baidu cloud offering over 260 I capability.
Which is tap at peak a trillion Heinz today by over 2.1 million developers.
This give my do incredible insight on how <unk> is best used.
And the at the World Artificial intelligence Conference recently, Baidu Ernie our natural language processing framework earned highest the on the rate recognition the sale award.
I do see recently published a report ranking Baidu cloud number one in China <unk> public cloud market in 2019 based on revenue and I cloud product portfolio <unk> used by developers.
Turning to Apollo, we are making stroke stride in autonomous driving smart transportation as well as connected vehicles.
Chinas new infrastructure initiative is promoting municipalities to adopt smart transportation EM Apollo stands to benefit by providing local government, it's Vito acts infrastructure.
Got it supports the add on features including smart signaling smart parking and smart buses.
To date, we have thing multiple 100 million clot RMB contracts.
Which really flat how municipal governments intelligently using technology to improve the leaving and they're all the then and their community.
During the last four auto is also a promising market with electrical vehicles, becoming [noise].
Over becoming ever more popular.
Apollo Robertex the operations in Beijing tongue shop, and some joel or expanding into larger networks and more complex the drought conditions such as downtown straight.
In working with Apollo customer, we are gaining valuable experience and the operation autonomous driving leading up to believe that the arrival of fiveg well bring new opportunities for Apollo for example, enabling the monitoring off driverless fleet from remote which.
Well increase the efficiency all although operation to one person per multiple vehicles.
In Q2, we completed the 145000 square feet Apollo parking Beijing.
Probably the worlds largest autonomous driving and V. two X cat to facilities.
Supports associated function, including testing operational command center Big data cloud control vehicle warehousing maintenance and collaboration.
With that let me turn the call over to Hermine to go through the financial highlights.
[laughter].
Thanks Robin.
Hello, everyone welcome to Baidu second quarter 2020 Hall.
All monetary amounts use my discussion or <unk> unless stated otherwise.
By these total revenues reached 26 billion or 3.7 billion us dollars decreasing 1% year over year, which is an improvement from last quarter, 7% decline.
Our business involved improvement.
Mailing came from Baidu core, whose revenue reached 18.9 billion or $2.7 billion in the second quarter decreasing 3% year over year, which is a significant improvement on that 13% Oh last quarter.
Travel financial services, franchising health care and auto underperform in the second quarter, though we're seeing a meaningful recovery in health care and franchisee.
Along with real estate and machinery.
INAP revenue grew double digits, you'll get in the second quarter and made up more than half of our searching fee revenue.
The robustness of in APJ revenue and it's increasing revenue proportion will be important government.
Our new AI businesses also saw strong growth up double digits year over year.
The strength coming from Baidu call, it's more transportation.
Carl revenue reached to billing than in D. into second quarter.
And we expect call as much hesitation to be important revenue drivers for us going forward.
I achieved revenue reached 7.8 billion up 4% year over year.
Actually subscribers reached 104.9 million in its membership was up 19% growth.
I, just add business was down 28% year over year impacted by the challenging macro environment in the delay releases a pop hit.
Non-GAAP cost of revenues was 12.9 billion down 19% year over year.
Primary due to a decrease in traffic acquisition costs, So hoffman surcharges and cost of goods. So.
Traffic acquisition costs decreased primarily due to a double digit decline in tech revenue.
Strategy on top continues to be optimizing profit rather than growing revenue at a loss.
Non-GAAP SGN expenses were 3.9 billion down 18% year over year, partly due to less channel spanning most likely onto a lesser extent a decrease in personnel related expenses.
Non-GAAP R&D expenses were 3.7 billion down 2% year over year.
Non-GAAP operating income for Baidu was 5.6 billion up 187% year over year.
Non-GAAP operating income for Baidu core was 6.5 billion or my hundred and 17 more in US dollars up 18, 86% year over year.
Non-GAAP operating margin for Baidu core with 34% up 16 point from last year.
Adjusted EBITDA was seven point.
Zero billion or seven building up 109% year over year and adjusted EBITDA for Baidu core with 7.8 billion or 1.1 billion U.S. dollars, 63% your view.
And adjusted EBITDA margin provider or 41%.
17 points from last year.
As of June Thirtyth, 2020, cash and short term investments.
Were 154.1 billion.
In cash and short term investments provide require were 144.6 billion.
Were 20.5 billion U.S. dollars.
Free cash flow was 7.3 billion and free cash flow for by require was 8.8 right were 1.2 billion in us dollars.
By do core had approximately 29300 portholes corvels as of June down 2% from last year.
During the second quarter, we retired 540 million U.S. dollars.
To shareholders under the 2020 stock repurchase program and cumulatively over the last two years.
As a possible in March and you are.
Our board recently approved a change to our 20 point share repurchase plan, increasing the buyback.
On the U.S. dollars to Threed, though in us dollars.
Which is effective to the end of 2020.
Turning to date quoted guidance, we expect total revenue to be between 26.3, Berlin and 28.7 billion representing.
Okay of negative 6% to 2% year over year.
Our guidance assumes by the CLO Baidu core will grow between negative, 7% and positive 3% year over year.
These forecasts or current and preliminary view, which is subject to substantial uncertainty.
Before I turn the call to the operator, let me summarize our second quarter achievements.
Our strategy to strengthen Baidu is mobile ecosystem through our building block and marketing cloud platform is bearing fruit.
More than two thirds of by do App users of logging in daily.
Enap search queries continue to grow above 20% year over year and CPM and in after surgery continues to widen against traditional browser search.
Content and services are extending at incredible rate on Baidu.
By Joe how content network now holds 3.4 million publisher killed a 52% year of Europe and the number of.
Smart many programs joining Baidu network grew over five fold from last year.
The increase in services, along with improved social video and monetization feature set.
Live streaming shopping is making baidu pop or more likely interactive.
More conducive to doing business for long tail Esa needs.
Verticals in communities are forming which further enhances closed loop transactions and down the marketing funnel opportunities in the future.
In that revenue is growing double digits, making up a majority of surgeon feedback.
INAP revenue together with newly I businesses will be risk.
The risk respectable growth engines for Baidu in the years to talk.
Our strong execution is ultimately like the bar result of increasing non-GAAP operating margin for Baidu core by 716 points year over year, and adjusted EBITDA margin Baidu quarter by 17 point.
Strong operating results from Baidu core is an indication of by these prudent approach to investment and growing quality revenues.
Overtime, we believe the tru measure of value creation, its ability to increase cash flow.
For our shareholders.
Operator with that let's now open the call to question.
Thank you ladies and gentlemen, we will now begin the question answer session. If you wish to ask a question. Please press star one on your telephone and wait for a name to be announced if you wish to cancel request. Please press the pound or hash key.
This brings our requested to restrict one questions at each time.
First question comes from July ARPU use from Goldman. Please go ahead.
Thank you Rob in Harman for a taking my question I really have one question centered around how your business is being recovering into the third quarter. You mentioned Hammond medical has started to come into its own which is very encouraging can you give us a sense of what percentage or some scale of how about.
How much it's come back and how much further we can expanded to expected to come back in the coming quarters based on the guidance you set for three Q and related to the guidance and the medical is you talked about some of the other verticals where you're in the earlier stage of recovery, you give us a field or how long that lie.
Take to come back and essentially a give us a feel for how the.
The broader economy has been performing.
And I know you said one question only but there is a pronounced improvement in your gross margin into Q.
Although the first quarter and versus the passage is bad and the gains you're seeing a b operating profit level sustainable.
Thank you.
Hi, fish Wow, that's a mouthful questions here.
Let me see what I can do.
With regards to a health care or as I mentioned, you know when you look at on a year over year basis, we're still a down significantly a double digits, but when you look at how were recovery on a sequential basis or we've come back a pretty significantly and we expect at this current rate.
Healthcare, a should probably be as good as of last year, probably sometime in Q3, given the current trajectory.
We're also seeing several other verticals or at the same a trend.
That's why when you look at a our guidance in Q3 or you know you're seeing as you know doing better on a year over year basis than Q2 in Q2 is a assuming we hit midpoint and in Q2, you know is much better than Q, what so I think on a whole that trend is right and as I mentioned in the prepared remarks, you know given that it's got Kobe.
At 19 pandemic you know we have seen you know a second wave coming back to Beijing. So I. The assumption here that we continue to have smooth sailing and that we don't have a further ways to disrupt the economy because part of our business relies on the fact that stories need to be open so they'll come to buy due to buy a traffic.
To their stores.
With regards to you know a gross margin in our operating margin I think that you can probably expect a you know that the savings that we had a in the last few quarters you know as we talked about this oh last year in May we promise you that we will go through our operations and.
Actually go through and look at where should we put our investment in place on investment that would have higher ROI Oh, we we follow through six month after that and you saw starting from Q4 last year that we had a pretty of being a piano yeah. We've been going through with this strategy in Q1 and again in Q2. So you should expect us to contain.
Going into Q3 and Q4.
I will say that are part of Q2 or cost structure, though is the fact that you know.
Several things to look at it you know for example, social marketing that's a function of whether we can actually spend right. If our revenues coming in heart. It probably would be hard question spend on marketing, whether you know its promotions or whether it's you know trying to buy more at installation because last smartphones are being sold so and as the economy gets back or if theres more.
You know FM station that we could buy were with our higher you don't good ROI is we're going to continue to buy.
And then similarly, you know going into Q3 Q4, it was harder to do interviews, especially when people come into the office, but as China opens up we're going to be able to do that and we're going to be able to a higher and go according to our budget. So I would.
Say that they are going from Q2, Q3, you should expect or a.
Cost of sales and operating expenses on a non-GAAP basis for Baidu court to increase probably but tend to.
In the teams I would say, that's probably a good way to initiatives.
Thank you thank you though.
Thank you for the questions next question comes from to lie off any Leo of Bank of America. Please go ahead.
Good morning, guys just two questions.
Number one could you comment on your a lot out.
Out at the potential combinations are all 510 cents and one of your competitors would that change the competitive landscape and how pie to can address the potential changes and then number two pumping more housekeeping.
Question.
And you might mention that coffee, our kofi situation aging.
50, our second Florida, our core pieces. So just wondering could you help us to carve like okay sense of the potential impact and how much exposure of the core pieces to the appetizers enough aging for example, thank you.
Thank you for the question Oh, Eddie Oh, a ticket the first one on.
So it is actually not new between Ah. So go and Tencent trends are they had been working together for a long while I think it is not new in terms and Uh huh.
Collaboration so actually I mean, the mobile you know era. So users can you remember each appetite as key feature and you know by do add security has established a.
Brendan as the number one the general search engines, so and I think no such brand awareness is very hard to a duplicate and was more you know for baidu.
We have moved to chew that I do at a strategy to build our ecosystem, we seem to at so with that actually we alrighty improved user experience you know for from the traditional generous are changing it is not just for you there to get information, but also help.
Users to experience then close the loop I experience you know to completing the task in their mind there not only for service, but also even for shop online. So.
The more we viewed our and ecosystem and in the more 'cause features we can present to the users thing or was that I think you know baidu will keep leading innovation in a second market and then.
Doing well.
Let me add to what don't just said.
Eddie So it's important to understand that different product positioning right. When you have a for example, a we chat is a social network. So the purpose of social network educate people together when you try to connect people with people or other people that are no. The purpose of surge is not trying to connect people to people.
Is trying to connect people to a certain content, whether its techs, whether it's a photo whether it's a video. So when you go for example, a into a social network. You know you have their Lucy and what you wanted to is it's a usually trying to.
A very short and you want it is kind of get get up very a quick update and want to go through a lot. It's a feat, whereas when you're going to search sometimes your interest in a topic as we mentioned in her prepared remarks by Robin you have people listening to live broadcasting port for it maybe an hour on a certain topic.
You'd want just very rich content, usually it's from a you know whether it's a social accounts, whether it's from certain apps and we have a managed page where there was some websites. So the more information you have on that specific content. The more deeper you could dive in that person who's doing the search would feel more comfortable that that.
They have all important information. So when you start building a lot of search functions and associate that you might be banker that surge, but you will lose that social function. So it's a question of whether tests and wants to make the source product more search oriented and search centric and less social because if they start doing that then.
They lead the door opener for someone to go a better search product.
I mean for a better someone to go better social product.
Okay.
And then our exposure to last 18 hubs.
Yeah.
The exposure up from Beijing, or you know it's.
Not very significant toil overall revenue, but it it will have some because some of our advertisers or a in the north part a a china. So so a I would say publicly on you know it's in the Oh no single digit.
Rather than you know more significant Matt.
Thank you Hermine and right now.
Thank you for the questions next question's comes from the lie off Alicia Yap of Citi. Please go ahead.
Okay.
Oh and Ken Thanks for taking my question.
My question is related to the revenue from the managed page, which is quite an increase to 30% right off the call marketing revenue is that a timeframe that you anticipate order values to be fully migrate to the 100% manage page.
[laughter] assay football on four out of so much of that previously on H five website, what I, what do you set the foundation, Japan metros that already switched over to the knowledge page versus those are yet to shift or what and then just quickly follow up can you.
Described the advertiser sentiment do you feel that the attitude after spending has dramatically change all affected in the last two man in light of and not only you're off the U.S. on China attention. Thank you.
I will start was the first part.
So that actually a you know robins opening remarks, you already mentioned about what percentage of the.
Ending owned or.
Managed to pages, so or some of the in the beginning for the managed to pages right. So our.
Intention is to make the experience for users a safer and you know to getting more.
True information so earlier on we are seeing more and more advertisers actually they start to use the managed to page by themselves without our wasn't it.
So.
This is because we or adding more and more features to the managed to pages. So they can significantly improve their ROI. So in terms of the number as advertisers adopting.
Manage pages and it is even higher numbers because managed to pages now can help this nice to easily to do business on our assistant.
Our products. So that's why we were seeing more and more advertisers they or adopting managed to pages by themselves and I Badger No. I think you know with more features and then more advertisers are realizing the HM advantage of demand in pages. So.
Youre going to you know the read for a atop station will be even.
Hi, a faster.
Yeah, and let me add to that at least.
Your question was you know do we have a set target for a managed page. We don't have a set target I think as we mentioned many times you know using our building blocks. The idea is that if we can't get content on by this platform.
We'll have better user inside can provide better user experience.
So the idea is not to have 100% or revenues for managed page, but to have a from managed to have it from smart many programs because that content services for the app to have it from a Vijay hall, so that we could promote creators and publishers and so forth.
So obviously the more of that the better but because we are a search engine will open up we want to also be able to search content. That's now on our platform. So you have to worldwide web. So I think that the goal is trying to have as much of the worldwide web on our platform. So that we can improve user experience not just.
On managed page and we're seeing a lot of content coming over to Baidu platform since we've been focusing on this shrinking our mobile ecosystem.
With regards to advertiser sentiment on geopolitical tension, we think that are currently our advertisers.
The sentiment is more a function of the economy in China is more of a function of or the kind of policies, we have a allowing people to actually cold storage that their shops.
Outside and so forth so as China opens up more as people are more likely to run about I think our business what were come back I don't think right now geopolitical tension I had a meaningful impact on our business.
So far.
<unk>. Thank you Herman Thank you though.
Thank you.
Thank you for the questions next question comes from the Lyle James Lee of Mizuho. Please go ahead.
Great. Thanks for taking my questions on Herman I was wondering maybe you can comment on.
The by two after your decline sequentially.
It's a more to do to suspension of yours and or is it is more people returning back to work here and just curious are you taking any initiatives.
To try to you you quote in the second half or do you few you have to critical mass.
At this point in time and also secondly are we going to SCC inquiry on I Ci and its independent review and just curious how involved is the bitumen management process and especially on the internal review sites. The Chick Fil a thing the advisor here.
To make sure it's a credible and impartial process for this important matter. Thanks.
Okay.
So, but Jason let me answer the first question I'll answer in part and then I'll you know turn over to Dole to answer the second part, which is how do we improve Oh idea you growth and so forth. So.
As you know China was hit a heart recovery 19 in.
First quarter, Oh, I think the.
We we came to a you know probably the top of of our economy and you know people were very stringent with Ah you know associate this thing in February and even going into March.
People were well so should this thing and you can see that throughout China. So a lot of stores in our open up and so forth. So a lot of people staying home you now have schools opened so when you compare that Ah you know our days is reported in the third month of each quarter. So when you compare March to June.
Obviously in June.
You see a lot of places in China are opening up a lot of store opening up a you'll see some of the schools you know opening up to I think the big differentiation between.
March and June is the fact that people were going about outside of the house and as a result, they have probably less time spent on their apps. So when you look at you know.
Basically the top absent try to get across mobile is a good example, you can see that it's not just by do at is pretty.
Consistent trend with all the top apps that that Marshall is very high and go into June and you're just going to have a less traffic I think it with a company that just reported over the last few days you're seeing the same track.
With that let me turn over to Doe and talk about.
How what we're doing trying to improve your growth.
Okay.
So we do have a and many approaches to work on June I saw this issue I. So as we said you know, we or any more and more content and services to the at night. So that we can increase the game in between the users and our product. So this will operating units.
To get you, there's thing or longer you no longer and more frequent on this.
And also.
On.
So we're adding more on that features not only content the service, but also more a new features to this product for a different groups of users say now we are developing some a specific products for the college as you know when they come back to universities Kemper's you know.
They are going to has a chance to use our new a product. So is that you know I think we already see the trend coming back but for now is not because in the summer break so we all going to see.
You know, how our solutions or working on not in the near future.
Yeah, and let me comment on ice sheet FCC investigation.
At by do we have a zero tolerance for plot or when there's a short sellers port issue again.
Our subsidiary, especially one that is quite autonomy. It is important to get an independent <unk>.
The audit committee of I'd, she stepped in and they some in the internal audit as well, it's hard to independent external advisor.
This process is part of the corporate governance.
And we think this validation process, it's important to our investors Trust.
Since I am part of the parent company I am not directly involved in the independent investigation Beth I am not in a position to comment on I cheese situation specifically.
Perhaps I can talk about my understanding how the Pos It usually works. In addition to looking at short seller report it as customary for independent external advisors to also performed forensic procedures on the rest of the financial numbers, which means the process will take time.
The fact that the FCC is involved they may ask the independent external advisor questions and the independent external advisor may end up doing additional procedures.
Covert 19 in the backdrop, one should expect this process to be longer than normal.
In past cases without a pandemic, we've seen investigations last month and sometimes be on a year.
The positive side is that we have very qualified independent external advisor looking into this situation.
Typically if that were evident comes to light.
There is reason moved out to believe a company.
It's fraudulent and that their numbers are not viable then the company.
Auditor, we'll pull their audit opinion and withdraw from the engagement.
Again, having a independent set of eyes viewing that situation men to put the allocations to less.
Hi by do we take.
We will take action to ensure a good corporate governance, if necessary and operate with <unk> and interest in my.
Only this way we'd be able to tap the capital markets in the future.
I hope that answers your question.
Thank you for the questions for next question comes from the lie off can hold off Th capital. Please go ahead.
Yes.
Yes.
Th capital. Your line is now open please ask your question.
I'm sorry off to move onto the next questions from Macquarie. These channel from Barclays. Please go ahead.
Hi, Good morning, mantra assumption Lucky So my question.
My first wanted to apologize.
Marketing or non advertising services transformation in the press release.
Right no cloud related business as well I have to smart transporting sure.
Become important to revenue our driver in the quarter Afreeza future philosophy, our five year, our three year horizon Blue seem to these are non advertising business revenue can be kind of possible to exceed your current advertising revenues from me.
A quick follow up 20 or share repurchases.
The mountains grief from $1 billion to 3 billion I knew you have a reach onshore cash preservation yarn be having also recently finished the 1 billion Gotham offerings.
Hi, I'm planning to converge on be more on the Andrew you asked order for the buyback or usually more cash more often masseurs central even money for the buyback. Thank you.
Hi, Greg.
Thanks for your questions with regards to a house and they've done or a non <unk> businesses or non AD business can be a I think what it will do is it will become a important growth driver for us.
As you can see or by due course or non advertising a piece is getting bigger and bigger it's pretty a him.
Significant now and because of that size, though that we think there's potential to be really helping drive the overall growth of our business and we talked about in my prepared remarks that just the cloud business alone. We're talking about to go live in India. This quarter, obviously when you add on.
The other businesses such as you know there's shall do a speakers you you're talking about smart transportation, so forth or the size is bigger than that.
With regard to our sure a purchase a program, where we expand from 1 billion to $3 billion.
We have several ways of getting worse dollars. Obviously, we were just raise upon earlier this year, but building all your west.
We also can do a several things as you mentioned one is to convert renminbi into a U.S. D.
And obviously what would take advantage of that when when the opportunity arrives. The second thing. We can also do is sell down right investments and we've been steadily during that you know we look at that kind of you know market prices and so forth and then we look at our cash needs a U.S. dollar cash needs and we'll sell or a embed.
And our as appropriate if we feel like we do is no strategic need for previous investments.
Thank you.
Thank you for the questions how move onto the next questions. Once again from a 10 Ho Hum Th capital. Please go ahead.
Yeah.
Hi, good morning, and Herman Jan.
Wrapping or something like let's say somebody to your investment cat. So if I look at your basements with no we can totally separate them.
I have one part is the consumer facing let's.
Let's say your three at building blocks and other part is that this is facing that youre, calling AI apolo.
So I can imagine hi, each of those Ah Ah area, you can do a great deal. So what's the plan what's your investment plan.
The second half when that here and you have to ramp that not what is your parity matched Ah. Thank you.
[laughter].
Yeah. This is a robin let me try to answer your question I think our consumer facing business and are facing businesses are Ah all quick businesses are they each have their.
They're on potential the consumer facing one or bought during their prepared remark Kathy and says from Doe into Herman.
You can see that John do a lot of things, we can do a especially using technology to provider to provide better content and service system to chew, our users and ER provide better conversion for our advertisers.
Yes.
But oh afford that in spacing opportunities saw a the sector as well growl, apparently faster than the consumer facing one and we will continue to aggressively embarked in areas, where we have picked up.
And this area well brawl year after year for.
Many years down the we are leading a in almost all the categories, we decide to to get in Florida been facing a opportunities.
Yeah, and let me just add to their part we talk about parties I think it's been pretty clear within very consistent with our priorities. When you look at our to see business is a in App services right and then outside of our why.
Isn't that a you know we talk about that we businesses.
That that we have and particularly cloud it's had a bigger scale and it's a huge market and we do have or advantage of having a leading.
Hi capability. So so are we there are businesses. In addition to the Enap serves as our property and I think among the I businesses I think they all get they're all growing.
You know nicely and and then I think a policy, but bigger scale and that's probably something I'm more interested though.
Thank you.
And then try sometime we have time for one questions.
Last question comes from Binnie Wong of HSBC. Please go ahead.
Hi, Good morning management. Thank you for the time here.
So I'll congrats on dining speech without meaningful margin interest net my question. He is on the Smartninety program right looking at all competitors strategy that this mean program and social network I actually was actually could get back to sustain that relationship with it you said and that's a classic entrusted with that Patrick domain. So how would that before we changed the F.
I think industry landscape and then also up especially in this might maybe talk right and then a quick follow up here is that I called broadband in your opening remarks, you mentioned that video is [noise] accounting for 70% office. It. So I wonder if you can't discuss ballpark the pricing because I can your competitor mentioning that the shift from Penn.
As to what Steve has seen a like a meaningful interest then aimed at pricing so I'm able to increase in the pricing I meant so what do you see this is also going to be one off I like driver into the second half to see if I said revenue growth from here. Thank you.
Well, there are small and mid program or so.
Its running already mentioned right. So we see the increase in terms that.
I mean, your monthly active user actually even when we talk about a 10 stand alone smart many programs and so the gross is even.
Much higher so it is that okay smart medical wins is you know leading to.
Hi be engagement between the users and its riders. So we already see you know the numbers about transactions through the mini programs in horse or the budget dollars you know.
Using smart mini pull them as the lending page four there campaigns and then also you know the amongst the transactions I.
I mean in terms of such and these are also growing so we see pretty good trend for that Mark a mini programs in our ecosystem.
And then all of this happens because it is.
You know.
Lighting, you know better user experience to users and it's a good wage connecting users and instead its providers.
So I laid out you know, we're going to share more information and data about.
One more minute minute programs, and then or does that I would.
In two it really it looks like.
Yeah onto a video Uh huh.
Content for advertisers are also very effective for our advertiser basketball and users.
At June.
<unk>.
We do have.
Right.
And but it it to improve the conversion or many off our advertisers are there for that's you know most on our advertiser or AD budget or performance oriented so the pricing for or Uh huh.
Great excellent video content is generally higher than the average.
You know what you're asking.
I think if any essential to reply beneath you have anything to add.
Oh, Yes, I was just asking is that in terms of the pricing because we see more video advertising. So I think there for the color onto confession, but what about underpricing side do you think we can't answer charge higher pricing with the video ads on that you see pinsight. Unlike traditional like say Bennett.
And then that should help us to be another like the growth driver into second half.
Yeah. The simple answer is yes, because the advertisers are mostly on in Sweden, a when we can improve the conversion.
Through video or through other means that the pricing will follow.
Thank you very much better trends for the answers, ladies and gentlemen that does conclude teleconference. For today. Thank you for your participation you may now disconnect your lines.
[music].
[music].
[music].
Hello, and thank you for standing by for <unk> second quarter 2020 earnings Conference call.
At this time all parties, but in addition, the only but after managements prepared remarks Dalbey a question another sufficient.
Today's conference is being recorded if you have any objections you may disconnect at this time.
Now I'd like to tend to meet field, but to your host for today's culprits trending high twos director of Investor Relations.
Hello, everyone and welcome to by the second quarter two with other twice the I hope, it's cool I do I need to distribute it earlier today and you can find Oh website as well as a newswire services on the call today, They had any Oh, Chief Executive Officer, Honey, our Chief Financial Officer and.
Okay.
That is I tried to quite as much <unk>, Oh search and speak with it I call it depends a lot.
Okay and they session.
No that especially today, it's a forward looking statements made under the safe Harbor provisions of the Black Private Securities Litigation Reform Act of Nike Nike side.
Looking statements are subject to risks and uncertainties <unk>.
Actual results to differ materially from all the close expectation.
<unk> and that doesn't include but are not limited to those outlining our public flight of the diabetes.
And you report on central yet I do does not undertake any obligation to update any forward looking.
As it acquired <unk>, it's a little <unk> and gradually and these coal [laughter] washes certain unaudited non-GAAP financial measures. We have made minor adjustment to our non-GAAP measures, which activity I did change it for comparison purposes, that's maybe contain or the combination of being audited GAAP.
Sure.
Oh I noted that most directly comparable GAAP measures and is available on all IR website at <unk>, but I do dotcom.
Linda.
It is being recorded in addition, so what type of these coking coal the old could be available on Baidu IR website.
I'll now turn the call that will always be all Bobby.
Hello, everyone I do total revenue in the second quarter reached RMB 26.0 been declining 1% year over year.
70%.
Let me repeat what I, just said Oh by do total revenue in the second quarter reached RMB 26.8 billion.
Declining 1% over your.
Persistent and decline in the fourth quarter.
Core contributed to the rebound, but the second quarter revenue run 24% sequentially.
Michael Kors online marketing services has demonstrated.
Steady improvement I think that's role in February.
It's encouraging we calibrate across many industries.
The second quarter, however, what's ultimately temporary setbacks, such as new waves off koby liking it appearing in Beijing, and other area, China lower level to pandemic precautionary measure.
Well again put in place.
That's for June later half of July and situation has been improving things that.
Well the Nike in case it subside.
This positive moves forward.
Coupled with some temporary setback the boss.
Cautiously optimistic about the bins climate into the second half.
Well Cobiz Nike.
Oh geography.
Joe political pension and other phenomenon.
Taking the economy.
May continue to bring about hiccups the opportunities that I have presented.
I'm getting more exciting.
Our foray into upsurge three years ago is proving to redefine how content and services to view and I'll buy due to be a competitive fourth.
Enable long tail SMB to Dubin online.
More than to start off by do out there.
Logging daily.
Not only demonstrates user stickiness, but also indicates greater sense, though identity and baloney, Oh I do off users.
The CPM gap between Baidu, App and Union traffic continues to widen.
Revenue mix up the majority of search and steep revenue and daily you know search queries outgrowing the total search market in China.
Traditional search screw up browser direct users a week from bite.
<unk> Inc. upsurge aggregate third party content and services on Ptwop power platform for a unique close loop experience.
You were supposed to come to buy due to form relationships it's merchant.
Through follow.
Setting like video shop, and so on.
With users remaining on Baidu. After the landing page, we are in a better position to improve user insight and provides a superior user experience such as verifying the merchant monetize.
Monitoring the content and services on baidu or better quality strengthening by those verticals and community offering.
And enabling users to follow interact and transact this merger.
From the merchants perspective, our customer no longer rely on baidu only for traffic.
They are able to viewed a fan base through our building blocks off <unk> com.
A smart Muni progress and managed page.
Any quick interaction with their fan base through like video.
Punky both ways.
And co fluke transaction.
And leverage our marketing services platform for conversion improvement look alike targeting and repeat purchases.
I do see value proposition extending from setting traffic to also provide marketing cloud services to empower their chance consumer relationship management capabilities.
Cost more competitive by leveraging Baidu, AI and cloud capability [noise].
The increase the increasing liveliness off our users their participation in live broadcasting ecommerce and other activities provide spy do an opportunity.
To leverage our existing traffic.
To move beyond marching services.
Into membership online games and other revenue streams.
[laughter].
On you I AI businesses.
So do smart devices continues to sell well despite the current economic situation coffee headwind to smartphones and other consumer electronics.
I do cloud is leveraging baidu, leading AI to provide intelligent cloud solution to enterprises.
To help them digitized and do more this AI computing.
Opponent continues to make advancing autonomous driving and commercialization, particularly in the air real Smart transportation, which stands to benefit from the new infrastructure initiatives that China is pushing to reignite the economy.
I T was there another Kuwait Nike impacted quarter, there's positive growth year over year reinforcing the belief that online entertainment can there while in difficult economic times.
Let's begin by do second quarter reveal it was any.
My due out do you use reached 204 million in June.
Let me use were over half a billion, which puts bind to app, England like mass on top six naphthalene, China, I know stoking commercial waibel and other feet up.
According to class model.
Enough user engagement on Baidu App remained strong with enough search queries growing 28% year over year in the second quarter.
To improving user experience and the expansion of third party content and services our California.
Let me talk about video social services and money Ization for EM.
First be deal I do app, it's becoming a par for distributor Oh video content.
We do consumption from search increased 81% year over year and video.
Make up about 70%.
The feed consumed.
For Baidu set off knowledge.
Set up six knowledge products, such as I do wiki I do know.
Did you contributed to almost a third off the Patriot.
From less than 20% at the beginning of the year.
Our efforts in fortifying the content I do this video is showing incredible resolved.
For example in the area of health care PGCB de <unk> expanded rapidly, resulting in total video views searching over fivefold from the prior quarter.
Well I've streaming, it's becoming a popular way for professionals to a shared their content baidu.
We're not making like streaming easy to conduct our building blocks, especially for now entertainment oriented content creators.
For example daily No entertainment like video sessions on Baidu.
Search to find more than four sold and mostly viewership grow by 80% in the last three mile.
Copy go lives sessions that checks by do we keep virtual zoo.
Summer Arts Festival, and wandering school stabilization deep into attracted over 40 million viewership in the second quarter.
A mystery expert also live streaming on Baidu.
For example, like video sessions by Health care expert nearly tripled in the last three mile even ask Koby 19 subsides.
China.
Second on social well, making it easier for users to interact with this content creators and service provider.
I do through our building blocks.
The versatility off I do building blocks allows power users.
For example to the comment the of their search results to interact with content creators orally, others, who are interested in the same content in essence building topical communities.
Users can follow the content creators for future informational updates.
We recently integrated Bgh Akorns, it's by doing all these products and interactions between users and content creators living baidu knowledge products.
Increased 78% in the last three mile.
Third on services.
In the second quarter, we added service center in Baidu, App, which allows users to access services from a wide range all Martin.
And government organizations through a single or.
Through a single site, Oh, and keep track hop their transactions with where with service providers.
Our Oh, my wallet and my message Center.
Through My service Center users can perform a host of third party services, such as buying tickets for tourist destinations and train ride.
Making reservations for restaurant and car repair checking expressed deliveries data and paying utility bill.
All in Baidu out without leaving.
Without having to download the host apps.
I do service offerings, well continue to expand.
Oh players join our Marubeni program network.
Force.
Hi, they should despite tough macro environment during the first half office here My do App revenue growth both in Q1 and in Q2.
I do absolutely traffic continues to see healthy growth and the CPM gap between search and Rother search continues wind any validating that baidu eat up strategy is coming to fruition.
[noise] on the CRM side.
When customer spy traffic from Baidu, they can lock into our marketing cloud platform, which is upgraded regularly this new features tools and technology Atlanta.
To help them improve that conversion.
By enabling our Mark marketing service customers to perform consumer relationship management, we aren't transforming search from directing traffic to enabling customers to engage and improve the lifetime value of the consumers they acquire baidu.
Let me talk about how our building blocks, you speaking verticals and communities for a compelling.
The health care and wellness industry mix up almost attends helped China's GDP.
Well I do how [noise].
And we'll house is fortunate to be a top health care and wellness platform in China and our strong brand has gained further recognition I made the spread of Colby Nike into up and dynamic.
Year to date top tier doctors, joining Baidu house has increased 87% and our partnership covers the majority of the top hospitals in China.
The application of quality health care content on Baidu from health care expert news feed to sort D to live broadcasting has increased our health care topic and resulted in online dr. consultation more than doubling from last year.
We see such progress to naturally lead to offerings online prescription dietary supplements and other related products and services overtime to enable more people in China to access quality health care and wellness services.
I don't building blocks are also helping to form topical communities. For example, we hosted approximately 100 live broadcasting session conducted by experts.
National Cultural heritage in the second quarter, which created a community following for Jade antique jewelry and collectible.
Well with stakeholders thing that community brought it up on Baidu, such as collectible valuation specialists.
Merchants using live broadcasting E Commerce, and other feature sets to enable long tail merchants to better monetize I'm back to.
The versatility of Baidu building blocks, it's also allowing a strong community all students and parents to warm baidu.
For example, students can launched the 400 plus live broadcasting sessions offered by over 100 universities.
<unk> and educational experts from our feed and smart many programs. That's all I asked check your interest like them discourse research suitable universities and learn about popular majors based on Baidu big data.
Well at an early stage, we see community formation from the interplay of my do building block that's a way to further and you know each baidu position.
Leading knowledge and information centric Internet platform.
Empowering content and service providers to monetize on by do well, a sure a robust and growing content and services ecosystem paving the way for additional monetization opportunities in the future.
Moving to do our Alaska shall do theorist off smart display and smart speakers, what's the best selling and speaker category JD Dot Com During June 18 shopping festival.
So I do see erase off smart device. It is building a strong brand in a marketplace.
Well with Baidu.
Leading AI capabilities, such as was search and multi input modality.
Indoor Alas skills door now offers over 4000 skills.
In my breath of content, including children learning online games.
Videos.
Turning to buy to cloud and AI services.
We are at an early stage of intelligent transformation empowering traditional industries through the use off AI and thier operational data.
Two increased productivity and improve their service offerings.
Businesses are coming to the realization that they have to innovate <unk> or be left behind.
Well I'm getting cloud and Uh huh practice chasing after scale in areas, such as CDN and ask Baidu cloud is positioned.
A one stop shop for our customers cloud needs and more importantly, differentiating through intelligence Rosen solutions by leveraging Baidu, leading a high paving the way for long term growth.
For example by do formed a strategic a partnership with China National building materials group.
The parent all 13 lifted companies.
With the aim to leverage by the way I pass equipped with big data and I O T edge computing capability.
To provide intelligent logistics intelligent factory and industrial autonomous driving.
CNBM group plans to use Baidu <unk>.
Paired with Baidu intelligent map to improve the routing efficiency Aafia logistics vehicle and track vehicles were about to improve operational efficiency and reduce production costs.
I do say I open platform is viewed baidu cloud offering over 268 capabilities.
Which is top at peak.
Drilling times today by over 2.1 million developers.
This give baidu incredible insight on how a high it's best used.
And the at the World Artificial intelligence Conference recently, Baidu Ernie our natural language processing for anymore. It earned highest honor rate recognition the fail award.
I'd see recently published a report ranking Baidu cloud number one in China <unk> public cloud market in 2019 based on revenue and I cloud product portfolio <unk> used by developers.
Turning to Apollo, we are making stroke stride in autonomous driving smart transportation as well as connected vehicles.
Chinas new infrastructure initiative is promoting municipalities to adopt smart transportation and a total stands to benefit by providing local government with me to access infrastructure.
Got it supports the add on features including smart signaling smart parking and smart buses.
To date, we have seen much coal 100 million plus RMB contracts.
Which really flat how municipal governments intelligently using technology to improve the leaving standard off the to them and their community.
During the last four although it's also a promising market.
Electrical vehicles, becoming.
Over becoming ever more popular.
Apollo Robertex, the operation thing Beijing tongue shot and some joel or expanding into larger networks and more complex the drought conditions such as downtime straight.
In working with Apollo customers, we are gaining valuable experience envy operation autonomous driving leading up to believe that the arrival of fiveg well bring new opportunities for Apollo.
Example, enabling the monitoring off cleverly sleep from remote which well increased efficiency all although operation to one person per multiple albeit hosts.
In Q2, we completed the 145000 square feet Apollo parking Beijing.
Probably the worlds largest autonomous driving and B two x. caster facilities.
Which supports associated functions, including testing operational command center dictate a cloud control vehicles, where housing maintenance and collaboration.
With that let me turn the call over to Hermine to go through the financial highlights.
[laughter].
Thanks, Bob and.
Hello, everyone welcome to buy do second quarter 2020, Paul.
All monetary amounts use my discussion alone given the unless stated otherwise.
Well I do is total revenues reached 26 billion or 3.7 billion into us dollars decreasing 1% year over year, which is an improvement from last quarter, 7% decline.
Our business in <unk> improvement.
Mailing came from Baidu core, whose revenue reached 18.9 billion or $2.7 billion in the second quarter decreasing 3% year over year, which is a significant improvement from that 13% Oh last quarter.
[noise] travel financial services franchising healthcare in auto underperform in the second quarter. So we're seeing a meaningful recovery in health care and franchisees.
Along with real estate and machinery.
In that revenue grew double digits.
Second quarter and made up more than half of our search and be revenues.
The robustness of in Apt revenue and it's increasing revenue proportion will be important government.
[noise] O'neill AI businesses also saw strong gross up double digits year over year.
With strength coming from Baidu call is smart transportation.
Carl revenue reached to billings and maybe in the second quarter.
And we expect call as much hesitation to be important revenue drivers for us going forward.
I actually revenue grew 7.8 billion up 4% year over year.
Actually subscribers reached 104.9 million in its membership.
It was up 19% year over year.
I changed our business was down 28%, you'll get impacted by the challenging macro environment in the delay releases Uh huh.
Non-GAAP cost of revenues was 12.9 billion down 19% year over year.
Due to a decrease in traffic acquisition costs, So hoffman surcharges and cost of goods. So.
Topic acquisition costs decreased primarily due to a double digit decline in tech revenue our strategy on top continues to be optimizing profit rather than growing tech revenue at a loss.
Non-GAAP SGN expenses.
3.9 billion down 18% year over year comment due to less channel standing most likely.
To a lesser extent a decrease in personnel related expenses.
Non-GAAP R&D expenses were 3.7 billion down 2% year over year.
Non-GAAP operating income for by do was 5.6 billion up 187% year over year.
Non-GAAP operating income for Baidu core was 6.5 billion, what my hundred and 17 more in US dollars up 18, 86% year over year.
Non-GAAP operating margin put by doing core with 34% up 16 point from last year.
Adjusted EBITDA was seven point.
Yeah ill begin with several growing up 100 might present, your and adjusted EBITDA for Baidu quote with 7.8 billion or 1.1 billion U.S. dollars.
63% year over year.
And adjusted EBITDA margin for Baidu quote was 41%.
17.4 last year.
As of June Thirtyth.
20, cash and short term investments.
Well 154.1 billion.
In cash and short term investments for Baidu quote we're walking at 44.6 through it.
20.5, Bill in Us dollars.
Free cash flow was 7.3 billion and free cash flow for Baidu quote was 8.8, good were 1.2 billion in us dollars.
I do core had approximately 29300 full time equivalents as of June down 2% for last year.
During the second quarter, we took 540 known us dollars.
To shareholders under the 2020 stock repurchase program and cumulatively over the last two years.
Approximately in March and you are.
Oh Boy recently approved a change to our 2020 <unk> share repurchase plan, increasing the buyback.
When the U.S. dollars to Threed Bill in Us dollars.
Which is effective to the end of 2020.
Turning to third quarter guidance, we expect total revenue to be between 26.3, Berlin and 28.7 billion representing.
Okay of negative 6% to 2% year over year.
Our guidance it sounds like a CRO baidu core will grow between negative, 7% and positive 3% year over year.
These forecasts or current and preliminary view, which is subject to.
Central uncertainty.
Before I turn the call to the operator, let me summarize our second quarter achievements.
Our strategy to strengthen Baidu mobile ecosystem through our building block and marketing cloud platform is bearing fruit.
More than two thirds of by do up users are logging and daily.
In up search queries continue to grow above 20% year over year as CPM and in absurd continues to widen against traditional styles or search.
Content and services are extending at incredible rate on Baidu.
Hi, Joe how content network now holds 3.4 million publisher tells a 52% Europe Europe and the lumber.
Smart many programs joining Baidu network grew over five fold from last year.
Increases services along with improved.
Social video and monetization feature set.
Live streaming shopping is making baidu pop or more likely interactive.
More conducive to doing business for long tail Esa needs.
Sort of course and communities are forming which further enhances closely transactions and down the marketing funnel opportunities in the future.
In that revenue is growing double digits, making up a majority of searching through that means it up revenue together with new businesses, we'll do this.
The risk respectable growth engines for Baidu in the years to talk.
Our strong execution, it's ultimately what that bar result of increasing long GAAP operating margin for Baidu core by 716 points year over year, and adjusted EBITDA margin Baidu quarter by 17 point.
Strong operating results from Baidu core is the indication of by these prudent approach to investment and growing quality revenues.
Overall, we believe the tru measure of value creation, the ability to increase cash flow.
For our shareholders.
Operator with that let's now open the call into question.
Thank you.
Ladies and gentlemen, we will now begin the question answer session. If you wish to ask the question. Please press star one on your telephone at with brand name to be alone. If you wish to cancel request. Please press the pound or hash key.
This brings our request to restrict one questions at each time.
First question comes from July opt to use from Goldman. Please go ahead.
Thank you Robyn Harman for taking my question I really have one question centered around how your business is being recovering into the third quarter. You mentioned Hammond medical has started to come into its own which is very encouraging could you give us a sense of what percentage or some scale of how about.
How much it's come back and how much further we can expanded to expected to come back in the coming quarters based on the guidance you said for Threeq Q.
And related to the guidance and the medical is you talked about some of the other verticals where you're in the earlier stage of recovery you give us a field or how long that might take to come back and essentially a give us a tail Paul how the broader economy has been performing.
And I know you said one question only but there is a pronounced improvement in your gross margin in to Q.
Although.
Last quarter and versus the past is that and the gains you're seeing a b operating profit level sustainable.
Thank you.
Hi, fish Wow, that's a mouthful ah questions here.
Let me see what I can do.
With regards to a health care as I mentioned, you know when you look at on a year over year basis, we're still a down significantly.
Double digits, but when you look at how were recovery on a sequential basis, we've come back a pretty significantly and we expect at this current rate health care, a should probably be as good as a last year, probably sometime in Q3 given.
The current trajectory.
We're also seeing several other verticals or at the same.
Trend and that's why when you look at a our guidance Inc. Q3.
You are seeing as you know doing better on a year over year basis than Q2, and Q2 as and when we hit midpoint and in Q2, you know is much better than Q, what so I think on a whole that trend is right and as I mentioned in the prepared remarks, given that it's got Corbett.
Lighting pandemic you know we have seen you know.
Second wave coming back to Beijing. So I. The assumption here is that we would continue to have smooth sailing and that we don't have a further ways to disrupt the economy because part of our business.
Relies on the fact that stories need to be open so they'll come to buy due to buy a traffic.
To their stores.
With regards to.
<unk> gross margin and an operating margin I think that you can probably expect a signal that the savings that we had a in the last few quarters, you know as Weve talked about this.
Last year in May we promise you that we will go through our operations and actually go to and look at where should we put our investments in place on investment that would have higher our lives are we follow through six months after that and you saw starting from Q4 last year that we had a pretty of being a piano.
We've been going through with this strategy in Q1 and again in Q2. So you should expect us to continue into Q3 and Q4.
I would say that are part of two to cost structure, though is the fact that you know.
Several things to look at it you know consumable sales and marketing that's a function of whether we can actually spent like if our revenues coming in hard it probably will be harkless, just spend a marketing whether you're always promotions or whether it's you know trying to buy more app insulation, because smartphones are being sold so as the economy gets back there's.
More.
Apple inflation that we could buy with heart hire a good ROI. So we're going into the by and then similarly, you know going into Q3 Q4. It was harder to do interviews, especially when people come into the office, but as China opens up we're going to be able to do that and we're going to be able to a higher and go.
According to our budget, so I would.
Say that they are going from Q2, Q3, you should expect or a.
Cost of sales and operating expenses on a non-GAAP basis for by two core to increase probably but tend to.
In the teams I would say, that's probably a good way to engaged.
Thank you. Thank you it up.
Thank you for the question next question comes from 10 lie often editor of Bank of America. Please go ahead.
Combining guys just two questions.
No one could you comment on your whole lot opt out on the potential combinations are.
510 cents and a one off your competitors what that change the competitive landscape and how high cure cannot tress TV a potential changes.
No no material, probably more housekeeping question and you might have mentioned that coffee Kofi situation is aging effect at Ti Our second Florida coffee says so just wondering could you help much tool called like the okay sounds opting out potential impact on how much exposure.
The color pieces to the appetizers eaten up aging for example function.
Thank you for the question Oh, Eddie Oh, a ticket the first one on.
So it is actually not new between Ah. So go and Tencent trends are they have been working together for a long while I think it is not new in terms of the.
Collaboration so actually I mean, the mobile you know.
Era. So users can you remember each upsized key feature and you know by do add security has established at the.
Brendan that's the number one or general search engines. So am I thinking you know such brand awareness is very hard to a duplicate and it wasn't more you know for Baidu.
We have moved to chew that they do at a strategy to build our ecosystem, we seem to that so with that actually we are already improved user experience for from the traditional generous search engine. It is not just for you there to get information, but also helped.
The users to experience the close the loop I experience you know to completed the tasks in their mind not only so service, but also even for shop online. So.
The more we viewed our ecosystem and the more because features we can present to the users thing or was that I think baidu will keep leading innovation in the second market and then.
Keep doing well.
Let me add to what don't just said.
Eddie So it's important to understand that different product positioning right. When you have a for example, a we chat is a social network. So the purpose of social network is a good people together when you try to connect people with people or other people that are no. The purpose of surgeries not trying to connect people to people.
Just trying to connect people to a certain content, whether its techs, whether it's a photo whether it's a video. So when you go for example, a into a social network. You know you have their Lucy and what you wanted to is it's usually trying to.
A very short and you want to choose kind of get get up very a quick update and want to go to a lot of feed whereas when you're going to search sometimes your interest in a topic as we mentioned in.
Her remarks by Robin you have people listening to live broadcasting port for it maybe an hour on a certain topic, but you'd want just very rich content, usually it's from a you know whether it's a social accounts, whether it's from certain apps and we have a managed page where there was some websites. So the more information you have on that specific content.
The more deeper you could dive in that person who's doing the search what feel more comfortable that that they have while important information. So when you start building up a lot of search functions and social that you might be banker that search, but you will lose that social function. So it's a question of whether tests that was.
To make the source product more search oriented and search centric and less social because if they start doing that then they lead the door opener for someone to go a better search product.
I mean for a better so into got better social product.
Yes.
No exposure to last 18 hubs.
Yeah.
The exposure from Beijing, you know it's.
Not very significant 12 overall revenue, but it it will have some because some of our advertisers or a in the north part a a china. So so a I wish they say publicly.
In the no single digit.
Rather than you know more sooner than that.
Hi, good Harman Hammer upheld.
Thank you for the questions next question comes from July off Alicia Yap of Citi. Please go ahead.
Okay.
Oh.
Thanks for taking my question.
My question is related to the revenue from the managed page, which is quite a increased to 30% right off the call marketing revenue is that a timeframe.
Got you anticipate order revenues to be fully migrate to the 100% manage page if they see football on four out of so.
Much of that previously on H five website.
What I, what do you start the fact, they jump that merchandise to already switch over to the manage page suppressor cells are yet to shape or what.
And then just quickly follow up.
Can you describe the advertiser 17 months do you feel that the attitude after spending has dramatically change all affected in the last two month in light of and not a lay off the U.S. on China attention. Thank you.
I will start with the first part.
So that actually a you know robins a opening remarks, you already mentioned about censorship the.
Ending on the.
When its pages so some of the in the beginning for the managed to pages. So our.
Intention is to make the experience for users safer and you know to getting more.
True inflammation, so well their own we're seeing more and more advertisers actually they start to use the managed to page by themselves without our involvement.
So.
This is because we or adding more and more features to the managed to pages. So they can significantly improve their ROI. So in terms of the number as advertisers adopting.
Manage pages and it is even higher numbers because managed to page is now can help this means to easily to do business on our assistant.
Products. So that's why we were seeing more and more advertisers they or adopting managed to pages by themselves and I Badger No I think with more features and more advertisers realizing the HM advantage of demand in pages. So.
Youre going to you know the read for a atop station will be even.
Hi, a faster.
Yeah, and let me add to that we show.
Your question was you know do we have a set target for managed page. We don't have a set target I think as we mentioned many times you know using or building blocks. The idea is that if we can't get content on by this platform.
We'll have better user insight can provide better user experience.
So the idea is not to have a 100% or revenues from managed page, but to have a from managed fish to have it from smart many programs because that content services for the ABS to have it from a by John halt so that we could promote creators and publishers and so forth.
So obviously the more of that the better but because we are a search engine will open up we want to also be able to search content. That's now on our platform. So you have to worldwide web. So I think that the goal is trying to have as much of the worldwide web on our platform. So that we're trying to improve user experience not just.
Managed page and we're seeing a lot of content coming over to Baidu platform since we've been focusing on this shrinking our mobile ecosystem.
With regards to advertiser sentiment on geopolitical tension.
We think that currently our advertisers.
The sentiment is more a function of the economy in China is more of a function of the kind of policies, we have a allowing people to actually cold storage the shops.
Outside and so forth so as China opens up more as people are more freely to run about I think our business what would come back.
I don't think right now.
Geopolitical tension has a meaningful impact.
Our business.
So far.
Thank you gentlemen, thank you though.
Yes.
Thank you for the questions next question comes from the Lyle James Lee of Mizuho. Please go ahead.
Great. Thanks for taking my questions on Herman I was wondering maybe you can comment on.
The bite do after you decline sequentially.
The more to do to suspension of yours and or is it was more people returning back to work here and just curious are you taking in initiatives.
We tried to you you growth in the second half or do you few you have to critical mass.
At this point in time and also secondly are we going to SCC inquiry on I Ci and its independent review and just curious how is the ball is the fight to management its process and especially on the internal review sites. The Chick Fil a thing the advisor here.
To make sure it's a credible and impartial process for this important matter. Thanks.
Yes.
Okay.
So.
Jason Let me answer the first question I'll answer in part and then I'll.
Turn over to door to answer the second part, which is how do we improve Oh idea you growth and so forth. So.
As you know China was hit hard coking I changed in a.
First quarter.
I think the.
We we came to a you know probably the top of of our economy and you know people were very stringent with a you know social listening in February and even going into March people.
Well, so should the scene and you can see that throughout China. So a lot of stores in our open up and so forth. So a lot of people staying home you'd have schools opened so when you compare that.
Our days is reported in the third month of each quarter. So when you compare March two joo Arthur.
Obviously in June.
You see a lot of places in China are opening up a lot of store opening up.
You see some of the schools you know the opening up to I think the big differentiation between.
March and June is the fact that people were getting about outside of the house and as a result to have probably less time spent on their apps. So when you look at you know.
Basically the top apps and try to get across mobile is a good example, you can see that it's not just by two app it's pretty.
Consistent trend with all the top apps that that March was very high can't go into June and you're just going to have a less traffic I think it with a company that just reported over the last few days you're seeing the same track.
With that let me turn over to Doe and talk about.
So what we're doing trying to improve your growth.
Okay.
So we do have a and many approaches to Ah well count to and I saw this issue. So as we said no we are adding more and more content and services to the at night. So that we can increase the engagement between the users and our product. So this will help.
Personally know to get you, there's thing or longer longer and more frequent Tom This is Pat and also.
And.
So we are adding more on features not only content the service, but also more a new features to this product for a different groups of users say now we are developing some a specific products for the college as you know when they come back to a universities Kemper's you know.
They are going to how they're trying to use our new a product. So with that you know I think we already see the trend coming back but.
For now is not because in the summer break so.
We are going to see.
How our solutions or working or not.
Near future.
Yeah, and let me comment on.
She FCC investigation.
At by do we have a zero tolerance for plot.
When there's a short seller port issue again.
Oh subsidiary, especially one that is quite autonomy. It is important to get an independent appear.
The audit committee of I'd, she stepped in and they Selman the internal audit as well, it's hard to independent external advisor.
This process is part of good corporate governance, and we think this validation process, it's important to our investors Trust.
Since I am part of the parent company I am not directly involved in the independent investigation and death I am not in a position to comment on I cheese situation specifically.
Perhaps I can talk about my understanding how the parts. It usually works. In addition to looking at short seller report it as customary for independent external advisors to also performed forensic procedures on the rest of the financial numbers, which means that popped it will take time.
The fact that the FCC is involved they may ask the independent external advisor questions and the independent external advisor may end up doing additional procedures.
I hope it 19 in the backdrop, we should expect this process to be longer than normal.
Past cases without it pandemic, we've seen investigations last few months and sometimes be on a year.
The positive side is that we have very qualified independent external advisor looking into the situation.
Typically if that's the evident comes to life.
That there is reason moved out to believe a company.
It's fraudulent and that their numbers are not viable then the company.
Auditor, we'll pull their audit opinion and withdraw from the engagement.
Again, having a independent set of eyes viewing that situation is meant to put the allocations to rest.
Hi by do we take.
We will take action to ensure a good corporate governance.
Necessary and operate with our.
Interest in March.
Only this way, where we'd be able to tap the capital markets in the future.
I hope that answers your question.
Thank you for the questions for next question comes from July off can hold off Th capital. Please go ahead.
Yes.
Yes.
Th capital. Your line is now open please ask your question.
I'm sorry to move onto the next questions from Gregory Chow from Barclays. Please go ahead.
Hi, Good morning management.
Okay My question.
I first wanted to touch on.
Marketing or advertising for research transformation means a press release right.
No cloud related business as well I have to Smartstack transportation.
If you come important to revenue our driver in your core church for Easter future philosophy, our five year, our three year horizon blue seem to be so I'm not talking peacemaker revenue can be kind of possible to exceed your current advertising revenues from day.
Oh, no quick follow up for share repurchases.
The mountains grief from $1 billion, just repeating I knew you have a reach onshore cash preservation yarn be having also recently finished the 1 billion CASM offering.
You have planned to converge on be more on the Andrew you asked order for the buyback or usually more cash more often masseurs central refund money for the buyback. Thank you.
Hi, Greg.
Thanks for your questions with regards to a house and that's going to or a non AI business or non AD business can be a I think what it will do is it will become a important growth.
Driver for us.
As you can see or by due course or non advertising a piece is getting bigger and bigger it's pretty a in a significant now and because of that size, though that we think there's potential to be really helping drive the overall growth.
Our business and we talked about in my prepared remarks that just the cloud business alone. We're talking about 2 billion room and be a this quarter, obviously when you're at all.
The other businesses such as you know there's shall do speakers you you're talking about smart transportation and so forth the sizes is bigger than that.
With regards to our share purchase program, where we expect from wander into three billing us dollars.
We have several ways of getting worse dollars. Obviously, we would just based upon earlier this year, but going all the U.S.
We also can do a several things as you mentioned one is to convert renminbi into a U.S. D.
And obviously it would take advantage of that went with the opportunity arrives. The second thing. We can also do is sell down right investments and we've been steadily during that you know we look at the kind of you know market prices and so forth and then we look at our cash needs a U.S. dollar cash needs and what sell or a embed.
And then bell.
The appropriate if we feel like we do is no strategic me for a previous investments.
Thank you.
Thank you for the questions.
Onto the next questions once Kim from 10 Ho Hum Th capital. Please go ahead.
Hi, good morning, and Herman Jan.
Wrapping a so let's face it related to your investments. It. So if I look at your basements with no. We can to name a separate then I saw one party consumer facing net.
Let's say youre really at building blocks.
The other part is that this is facing that Youre College.
Hello.
I can imagine.
Each of those Ah Ah area, you can do a great deal. So what's the plan what's your investment plan.
Second half when that here and you have to ramp that not what is your parity matched.
Thank you.
[laughter].
Yeah. This is a robin let me try to answer your question I think our consumer facing business and then facing businesses are.
Ah all quick businesses are they each have their.
They're on potential.
The consumer facing one or bought during the prepared remark Kathy handsets from Doe and Herman.
You can see that yeah do a lot of things, we can do especially using technology to provider to provide better content 10 service system to show our users.
And ER provide better conversion for our advertisers.
But oh afford that been spacing opportunities saw a the sector as well grahl apparently faster.
In the consumer facing one and we will continue to aggressively embarked in areas, where we have picked and this area well brawl year after year for.
Many years down the we are eating a in almost all the caddick ways, we decide to to get in Florida been facing a opportunities.
Yeah, and let me just add to that are we talk about parties I think it's been pretty clear we've been very consistent with our priorities. When you look at our to see business is a in App services, but and then outside of our AI businesses.
We talk about the three businesses.
That we have and particularly cloud it's at a bigger scale and it's a huge market and we do have more advantage of having a leading.
Hi capability. So so are we they I businesses. In addition to the Enap serves as our top priority and I think among the I businesses I think they all get they're all growing.
You know nicely in the and then I think a pilot that bigger scale and that's probably something more emphasis on.
Thank you.
The interests of time, we have time for one question.
Last question comes from Binnie Wong of HSBC. Please go ahead.
Hi, Good morning management. Thank you for the time here.
So congrats on the earnings it without meaningful margin in personal my question. He is on the Smartmoney program right looking at all competitors strategy that is meaningful grant and show now what I said, what can actually could get back to sustain does relationship with that users and advertisers catchy theories that Patrick domain. So how would that be far out we changed the F.
I see industry landscape and also our positioning in the Smart maybe program and then a quick follow up here is that I called broadband in your opening remarks, you mentioned that video is accounting for 70% offices. So I wonder if you can't discuss fall apart the pricing because they can your competitor mentioning that ought to shift from fan.
As to whats fees has seen a like a meaningful interest then aimed at pricing so a meaningful increase into pricing I meant so what do you see this is also going to be one off I'll try fit into the second half to see if I said revenue growth from here. Thank you.
Well there a smart.
Program, so its running or a nascent and so we see the increase in terms of the.
I mean, your monthly active users actually a if and when we talk about the 10 spanned smartmoney programs and so the gross is even.
Much higher so it means that okay. Mcmickle wins is on you know leading to.
Hi be in kidney between the users Anderson providers. So we already see you know the numbers to the transactions through the mini programs and also the.
Budget dollars you know.
Using smart mini program the lending page four there campaigns and then also you know the a month of the transactions I.
I mean in terms of such and these are also growing so we see pretty good trend for that Mark a mini programs in our ecosystem.
And then all this happens because it is.
You know.
Lighting, you know better user experience to users and it's a good wage connected with theirs and instead its providers.
So literally in a willing to share more information and data about.
For a minute minute programs and then.
With that I would I would.
To a run it looks like.
Yeah onto a video or content for advertisers are also very effective for our advertisers as well as users.
Pat.
Sure.
You do have.
Right.
And but it.
It to improve the conversion for many off our advertisers are therefore Ah. That's you know most all our advertiser or AD budget a performance oriented.
So the pricing for or create a creative for that video content is generating higher than the knowledge.
Yeah that what you asking.
Thank you Ben essentially reply.
We need to have anything to add.
Oh, Yes, I was just asking is that in terms of the pricing because we see more video advertising. So I think there for the color on the compression, but what about underpricing side do you think we can't also charge higher pricing with the video ads on the easy Pinsight. Unlike traditional my trip and.
And then that should help us to be another like the growth driver into second half.
Yeah. The simple answer is yes, because of the advertisers are mostly performance driven a when we can improve that conversion.
Through video or through other means that the pricing will follow.
Thank you very much better trends for the answers, ladies and gentlemen that does conclude teleconference. For today. Thank you for your participation you may now disconnect your lines.