Q1 2021 Baidu Inc Earnings Call
Got you a haulage he didn't know who you are.
For you and should can't cut Robin Chokwe tissue, both on your tissue thought yet.
<unk> 19 at the colt hub.
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Time for participants are in a listen only mode. After management's prepared remarks, there will be a question and answer session. Today's conference is being recorded if he would have any objection you may disconnect at this time on.
Now that the meeting over to your host for today's conference Trendy Baidu director of Investor Relations.
Okay.
So on and welcome to Baidu for first quarter of 2021 earnings Conference call Baidu earnings release was distributed earlier today and you can find a copy on our website as well as unusual or services on the call. Today, we have robbing me on co founder and CEO Penni, our CFO and the debt.
Ocean, Oh EVP in charge of phishing feed after our prepared remarks, we will hold a Q&A session. Please note that the discussion today will contain forward looking statements made under the safe Harbor provision of the U S. Private Securities Litigation Reform Act of 1995.
Forward looking statements are subject to risks and uncertainties that may cause actual results to differ materially from our current expectations for detailed discussions of these risks and uncertainties. Please refer to our latest annual report and other documents filed with the ICC and exchange Baidu does not undertake any obligation.
Update any forward looking statement, except as required under applicable law. Our earnings press release on this call include discussions of certain unaudited non-GAAP financial measures on our press release contains a day.
Installation of the unaudited non-GAAP measures to the unaudited most directly comparable GAAP measures and is available on our IR website at IR Baidu Dot com.
Reminder, this conference is being recorded in addition, a webcast of this conference call will also be available on Baidu IR website, I will now turn the call over to our CEO Bobby.
Hello, everyone. We delivered strong results in the first quarter Baidu core revenue growing 34%.
There are two RMB 25 billion on.
Our business was strong across the board, particularly in our new AI businesses.
Including <unk> smart transportation and intelligent driving.
Non advertising revenue within Baidu core growth, 70% year over year to RMB, one 2 billion.
Accounting for 21% of Baidu core.
China on how the two session annual congressional gathering party March and technology innovation was repeatedly mentioned.
Besides that number has jumped China innovation being more important to the development of China.
Kind of acute on innovation through technology to boost long term growth and productivity will further expand the use of AI.
We have witnessed he likes.
That forms for AI powered infrastructure, enabling applications disrupting market for us.
Simple we entered the smart device market for three years ago. Despite two dominant market leaders with strong manufacturing and distribution capabilities.
We leveraged to Baidu, leading AI technology, including natural language processing and speech recognition to make durable at smart assistant.
Understand humans better.
In turn has resulted in making shell do smart play number one in shipment globally.
He further changed the market dynamics by introducing smart devices over RMB 1000, compared to the RMB 100 for devices that are peers focused on.
AI powered platform are changing the technology landscape Newby.
New vehicles built on be equipped with sensors and E on capabilities, both internally and externally on the externally to provide intelligent driving and in vehicle infotainment.
Oh, it'll serve as the AI platform that powers.
Two quick little function on intelligent vehicles.
Hello, Autonomous driving is making new breakthrough and over one 5 million vehicles have been sold in China pre installed with dual glass for auto.
Installation of Doer, who asked for auto saw continued strength in the first quarter volume over 100% year over year.
According to IHS over 50% of the vehicles sold in China. This year.
Got it to be connected and the percentage.
It too right.
We're excited to be between <unk> vehicle to infrastructure across China.
<unk> enables connected vehicles to be more intelligent.
As the continuous upgrade of telecom networks since <unk> has enabled mobile phone to become better and smarter, we believe Apollo smart transportation infrastructure can be continuously upgraded to make connected the vehicles more convenient safer greener.
And in general more intelligent overtime.
As we view <unk> infrastructure and cities across China, we are getting request to expand our smart transportation offering through greater use coffee into mass and solutions to digitize public parking and highways.
The expansion on a whole smart transportation beyond <unk> into different facets of transportation.
Metropolitan and highways, leading into them well create a powerful net working back.
When the solutions on integrated and the synchronized a transportation network powered by Baidu brain.
Our divestment on path for different industries, and empowering our customers with marketing cloud are further examples on how the ice platform on changing industry dynamics.
From digital transport nation to mobile Internet.
On the latter we have a big opportunity to expand online marketing from sending traffic to empowering merchants with AI powered on marketing cloud and improve search to transaction conversion.
Our strong Internet foundation, coupled with growing user engagement provide us with another driver for non advertising growth.
Turning to Q1 operational highlights our AI cloud continues to see strong adoption due to a holistic approach, including a large coupon per community self designed chips best in class machine learning services and large patent portfolio.
But increasingly I adoption in China, Baidu pedal pedal has become a top one deep learning framework globally in terms of quote request.
Long side with Facebook and Google Tensorflow According to Github.
We have spent years developing AI chips to optimize workload and improved cloud cost structure. Okay.
Let's turn on demand for GPU chips, and Baidu Quinlan completed its first from funding on a post money valuation of U S dollars 2 billion in April this year.
Baidu easy B L. A simple to use machine learning services for non antibiotic Earth, what's weighted number one in terms of usage in China per IDC topping the list for the second time.
Customers are telling us that's been on choosing baidu due to us having the largest AI patent portfolio in China Baidu.
Decades long experience with AI technology, and our large patent portfolio he had customer confidence.
We can deliver end to end cloud solutions, this path and fast that meet their needs.
Last quarter.
Illustrated AI solutions that we're scalable and replicable across different industries, such as our automated AI call Center. We are also seeing customers implement baidu AI path.
Return for repeat purchases for.
Example, we helped a major retail bank in China implement Baidu AI path, which has led to five follow on purchases, including application to automate customer service and customer loan approval and the recent pictures off of private cloud.
In the media sector, we partner with online arm of China's largest television networks CCTV to implement Baidu AI past it.
Capabilities to automate video creation and Peng from live broadcasting and use smart assistant to quickly locate desired video content.
During the two sessions.
So the people the CPT com.
Gently and a real tough question on meeting participants.
I reported powered by Baidu brain and the timely share this.
On the Internet.
Smart transportation is becoming a way to digitize the transportation industry in China to improve traffic condition and dose safety and reduce carbon emissions.
Our <unk> vehicle to do infrastructure has helped reduce traffic congestion time by 20% to 30%.
Counting which implemented all of the two X last year and opens the door for Apollo into Western China re engaged with US this year to make the smart transportation infrastructure.
Enable laying the foundation for our future rollout.
<unk> taxi ride hailing.
Tom do the capped off Sichuan and a leader in science and technology development recently partnered with Apollo to implement B two X two.
Turning to intelligent driving safety its founding eight years ago Apollo has accumulated over 6 million miles number for autonomous driving testing models on.
The gold and over 600 million miles of stimulated testing.
Our portal continues to be the leader in autonomous driving in China with our early investment open platform strategy and comprehensive technology infrastructure.
A poll on all homes driving.
Operator, well up on Apollo for Homestyle income operate independently on vehicle sensors and he is uniquely empowered by Baidu HD maps, our AI cloud and Apollo Smart transportation.
The comprehensive dataset and integration.
But he is smart transportation network, we believe well enable on portal to offer better driving behavior and reduce instant weight.
Yeah.
Following the opening up of Hanmi testing for autonomous driving in January.
Total received the permit to opera.
At night and under special weather condition on puppet Golding Beijing.
Upon also received a permit to pilot fully autonomous driving in Beijing, Hangzhou and Changsha.
Apollo goal kind of first for fully autonomous drive heating services.
No one in the driver's seat.
I'll open to the public at Lasalle Gum Park, <unk> 'twenty 'twenty two winter Olympics at site.
Right are priced at 30 RMB H.
In March our Pogo began two charges net robo taxi ride hailing Hangzhou based on the distance traveled starting with.
Minimum fare similar to regular ride hailing.
Due to alcohol and intelligent EV company established in partnership with J D.
Appointing discharge.
If he previously served as CTO at <unk> and.
Their risk positions at Fiat Chrysler and Ford.
We welcome <unk> to the Baidu family and look forward to his contribution to innovate the smart EV sector.
On a total self driving GAC group joins a total network of over 10, leading local and multinational automaker to install a half day services aimed at new vehicles.
According to China insights consultancy on market research and consulting firm the Tam for Apollo intelligent driving which includes robo taxi ride hailing he.
And self driving services for automakers.
Well reach you.
U S dollar.
467 billion almost nine times the size off on advertising Tam of 53 billion in 2025.
Apollo platform powers do you do in other automakers as well as a whole on go robo taxi.
He is in a unique position to be well founded and widely adopted.
Such COVID-19 is positioned as the burn baidu, the leading Chinese company selected for the video category in autonomous driving by Gang Hospital sites previously non Navigant research.
Second consecutive year.
Turning to mobile ecosystem in March Baidu, App and they use reached 558 million.
Creators by Yahoo, more than doubled and the number on smart mini programs growth of 74% from a year ago, our AI building blocks, coupled with our marketing cloud continue to attract more third party content and service providers onto our platform, which improves you.
Third experience.
Merchants are adopting our direct to consumer model to get closer to their customer.
Traditional e-commerce tends to accentuate a platform over the strengthening of individual brands and merchants.
Baidu on the other hand empowers merchants to build their own online presence and growth are brands by leveraging our social and live streaming capabilities.
E Commerce features an AI tool from our marketing cloud on.
Our AI building blocks, coupled with marketing cloud help merchants acquired customer better understand them engage with them and perform lifetime customer management.
Such a search to transaction close the loop experience improve user stickiness, resulting in daily lock on.
Users on Baidu, app, reaching over 75% debt.
16 points from a year ago.
Social and interest debate communities.
Our search users sometimes have questions on your search results with professional content providers like attorneys and designers opening.
Enterprise for icon on Baidu, how they are able to respond to search query and interact directly with users.
8% off on a tough one for Treehouse now enable users to ask questions and interactive original content provider Baidu.
Baidu health has attracted approximately 300000 doctors and medical experts to provide in depth authoritative content and online consultation to consumer.
As our user adapt to more services.
On Baidu, we see a great opportunity to offer non-GAAP services are on to meet the need of our large user base.
When you couple that with the robust growth of our AI business non amortizing revenue could possibly exceed advertising revenue with baidu core within Baidu for the next three years.
With that let me turn the call over to Herman to go through our financial highlights.
Thank you Robin Hello, everyone welcome to Baidu, its first quarter, 2020 one call.
All monetary amounts used in my discussion are in Bremen, b unless otherwise stated.
In March we listed on the Hong Kong stock exchange under the ticker at number nine H, a H <unk> $3 1 billion in U S dollars.
Two weeks later, we were added to the Hong Kong Tech for Huntington Tech Index, the composite index and the China Enterprise Index lifting.
Lifting closer to our user base with strong brands and unique profile as a leading AI company with strong Internet Foundation generates incremental interest for Baidu and increases our stock liquidity.
Retail trench during the Hong Kong listing was 111 times over subscribed on a day.
Daily trading liquidity on the two exchanges in aggregate average eight 4 million shares last week, a b S. Adjusted and approximately $1 6 billion U S dollars in amount compared to say $2 8 million average daily traded shares last September will approximate 300.
Net 50 million U S dollars and Mt.
That is an increase of four five times and David tritium amount on baidu over the past seven months.
Sustainability is an important focus for baidu we.
What diligently on ESG and upgraded twice by MSCI last year.
Green piece, a global environmental organization published report on China.
Cloud and data center companies like Baidu, Baidu top suite and cloud services and number one in the utilization of renewable energy.
Based on their April with per report entitled Clean Cloud tracking renewable energy use in China's tech industry.
Turning to highlights financial highlights for the first quarter of 2021 baidu revenue reached $28 1 billion renminbi.
For <unk> 3 billion U S dollars up 25% year over year, driven by the growth of Baidu core whose revenue reached $20 5 billion Renminbi was $3 1 billion U S dollars up 34 per cent year over year.
Non advertising grew 70% year over year accounting for 21 per cent of Baidu Core's revenue.
Let me give you more color on each area.
Cloud was $2 8 billion up 55 per cent year over year, and we expect our AI cloud growth rate to accelerate in the future.
Our cloud growth benefited from customers from the Internet media financial services and other high tech sectors as well as from the strong adoption of our Pollo Smart transportation.
By city seeking to modernize and digitize transportation and network vehicles.
Intelligent driving and Oh Gee I revenue also grew rapidly.
Paula self driving or E. S. D. So a small base grew over five times from last year a S. D revenue its book up on vehicle shipment and revenue is recognized ratably over the contract period into services provider over the air in other words upgrade it regularly.
Revenue per shall do smart devices and services saw robust double digit growth in the first quarter.
Online marketing revenue was up 27 per cent year over year, driven by Baidu App.
Growing over 30% year over year.
Most of our top AD vehicles performed well D. P M was up double digits.
Managed page group.
Managed page reached 35 per cent of Baidu core online marketing revenue and for kicked up our advertisers have adopted baidu marketing cloud, which is a one stop shop to purchase online marketing bill audience and leverage Baidu AI to enable use of lifetime management.
Strong adoption of our managed page and marketing cloud shows our customers preference and move from managing the on website. So operating their hosted insight on baidu to better leverage Baidu advanced technology and tools to improve closed loop transaction.
<unk> revenue reached <unk> 8 billion renminbi up 4% year over year, and it's net losses now to 1.3.
Maybe 1.3 billion on and be up down from $2 9 billion last year.
<unk> subscribers reached $105 3 million, serving as a strong foundation to support their over 50 in House Studios and produce entertainment blockbuster originals cost of revenue was 15 billion up 2% year over year, primarily due to an increase in Tac and cost of goods sold.
Offset by a decrease in content costs and amortization impairment of intangible assets Baidu core's cost of revenues increased 15% year over year as Tac revenue increase while <unk> cost of revenue decreased 10% year over year.
Operating expenses were 10.
$10 3 billion up 25 per cent year over year, primarily due to an increase in channel spending and promotional expenses as well as R&D related personnel expenses SG&A for Baidu core was up 58 per cent, partially reflecting the ramp up of our sales force, especially to support the pipeline of our new.
I didn't as we look out the next six to 12 months.
In addition, we accrued for bad debt allowance on <unk> yeah.
Business, which holds accounts receivable unlike on online marketing, which generates revenue mostly on a prepaid basis.
Non-GAAP operating income for Baidu, and Baidu core where $4 for billing and $5 1 billion or 773 million U S dollars respectively.
Non-GAAP operating margin for.
Core was 25%.
Adjusted EBITDA for Baidu and for Baidu core were 5.9 billion and $6 5 billion or 990 million U S dollars, respectively. Adjusted EBITDA margin for Baidu core was 32 per cent compared to 30% last year.
Cash and short term investments for Baidu and Baidu core as of March 31st 2021 were $172 9 billion and one on 59.6 bullet well.
Our 24 point for U S dollars respectively.
Cash flow for Baidu, and excluding <unk> were $2 6 billion and for billing.
Or 615 million U S dollars, respectively, Baidu core had approximately 34000 full time employees as of March 30 Force 2021.
<unk> 18 per cent from last year, turning to second quarter guidance for the second quarter of 2021, Baidu expects revenue to be between $29 7 billion for 5 billion U S dollars and $32 5 billion for 5 billion U S dollars representing growth rate between 14, and 25% year over year, which assumed debt baidu.
Core will grow between 20 and 33 per cent year over year on this guidance does not give any potential contribution from the acquisition of why wildlife. The book forecast reflects our current and preliminary view, which is subject.
Subject to substantial uncertainty.
Before I turn the call back for the operator, let me summarize our first quarter results. We continued to see strong momentum in our business powered by our leading AI non advertising revenue grew 70 per cent from last year accounting for over one fifth of Baidu core revenue China's goal to drive innovation through technology will serve as a tailwind.
Our new AI business.
Embarking on the digitalization of transportation and connected vehicles, it's like investing in a new telecom network to drive economic growth and productivity, except this time is on the transportation network and the connected computers are smart vehicles that they're on a smartphone.
Transportation is 16% of Chinese economy.
AI platforms that power smart transportation at homes driving an in vehicle infotainment working in tandem can bring incredible operating efficiencies and convenience as well as to improve traffic safety reduce carbon emission for the transportation sector.
Apollo autonomous driving continues to be the leader in China with fully autonomous ride hailing open to the public in Beijing.
Apollo go ride hailing is now available to the public and three cities. We are quite encouraged that Paula go ride hailing is gradually permitted to charge a fee for example in changzhou as well as in Beijing.
Over 10, domestic and multinational auto makers have signed up with appalled to install ESD and the new vehicles, a recognition by the auto industry that partner with Apollo is the preferred choice versus a committee to heavy investment and at times driving for the next decade, when maybe too.
Apollo's open platform and diversified monetization to support at times driving through a S. D. G do auto and Apollo go right here, we put a pilot in a unique position to be well funded and well widely adopted.
D C ranks baidu number one in a time solutions for public cloud by focusing on AI past, our AI cloud is differentiated in the market. We are seeing the inflammation implementation of our AI paas, drawing repeat purchases and over the long run we expect.
Paul business to have higher margins as we build on our Paas and SaaS business compared to pure players.
Advertising revenue growth was solid at 27 per cent year over year merchants are adopting our direct to customer model to get closer to their customers and Baidu is the open platform model to accentuate that.
The merchants by allowing them to build their brands on baidu access their own user data on leveraged Baidu AI powered cloud services is a huge opportunity for our mobile ecosystem.
ESG is an area that we focus on in addition to leading the industry in cloud and data center construction, we hope to contribute to sustainability in a big way as we hope cities across China deploy smart transportation to significantly improve the flow of internal combustion engine and promote the crossover to EV baidu.
He is also developing smart he be empowering automakers with intelligent driving services and providing robo taxi he wisely and mobile buses, which are all powered by E D.
Baidu returned 300 million U S dollars to shareholders under the 2020 share repurchase program this year, bringing the cumulative repurchase from last year.
Two $2 2 billion U S dollars, we are confident about our future on the strong profitability of our search and feed business and where you. How we are using the AI technology developed from this business to fuel growth in the new AI business, which along with our other non AD business has a can.
10 times the size of our online marketing business and three times the CAG of growth to 2025, even when you exclude robo taxi hailing right Haley According to CIC, operator with that let's now open the call for questions.
Thank you ladies and gentlemen, we will now begin the question and answer session. If you wish to ask a question. Please press star one on Internet Sun and wait for a name to be announced if you wish to cancel your request. Please press the powerful husky.
He spends on a request to restrict one question at this time.
Last questions comes from the line of Alicia Yap from Citigroup. Please go ahead.
Hi, Thank you, but he think managed.
Hum.
Robin and Herman Thanks for taking my questions. Congrats on the solid results and guidance on.
My question is related to cloud.
So wondering if management could share some of the operating metrics for some for.
The total number with all the cloud customers and also the industry. If I recall that you on you know.
And then also on for example, like you know how how much or how big it is coming from the GAAP a month or the big enterprises, but that's the smaller SME.
But it comes.
Using a cloud basis and also debt to the current loss ratio on that.
Okay share and how you envision your coffee to grow into in the coming quarter, yes. Thank you.
Yeah.
Yeah.
Come on here.
Uh huh.
Hello.
Hi, Alicia yeah. So so.
So yeah, you guys hear me okay.
Yes.
Yeah. So I think the way, we look at our cloud business.
The way, we look at our cloud business as you know in our AI cloud there are several segments to our business are number one is our familiar.
Infrastructure cloud, where we have as well we have passed on where we have that right in that segment.
Have on key accounts and then we have our SME, which is a much smaller smaller.
Cloud providers.
So so you know you have your typical our key accounts and then when you have Smes we have a minimum.
Customers debt.
In addition, we also have.
As customers for our smart transportation.
And in that space, so that would be you know the debt.
Key cities.
Top tier cities that we are in a in China.
We don't have this exact number prepare for you Oh, if it just for today, but you can think of our segment, it's mostly a smart cities and mostly our key accounts.
Yeah on cloud.
Our top sectors are things like our Internet media financial services, but in transportation.
And when you look at on how we're growing I think our last quarter. We said we were growing at 67 per cent year over year. This quarter, we're going to live with <unk> 55 per cent part of the reason is because if you recall last year had COVID-19 started toward the end of January. So we did a we had a pretty.
A good base.
In Q1, because typically if you think about.
You know, but COVID-19.
COVID-19.
The impact of us a lot, but when you think about the beginning of the quarter, we had a higher base. So the way I would look at it is we think that we can continue to grow at the way we did last quarter.
Higher than what we'd have a 50 55 per cent of this quarter, we think that we see in our pipeline debt that we should be able to grow at a higher rate.
Okay. Thank you.
Thank you for the questions next question comes from the line haul Piyush mobile he of Goldman Sachs. Please go ahead.
Hi, Robin Herman Thank you for taking my questions.
When I look at the core of the core seems to have bounced back very nicely in both the first quarter as well as based on the guidance, you're providing for the second quarter and be marketing revenue was up 27% I suspect in the second quarter based on the high end of the range of 33%. It would be a similar number could you just take us through some of the verticals where you are seeing.
Spending come back very nicely.
And try to so that we can try and see whether this is sustainable through the rest of the year with clear emergence of a trend coming back very nicely.
That's the first question and if I might slip in a second question you talked about the Tam for ride hailing I Wonder if you could just take us through what your strategy is and how do you. If you want to go thank you.
I'll ask Joe to answer your first question I'll take on the second one okay for the first one actually we see pretty good performance for most of the top verticals actually not just by a single one.
I'm actually talking.
Talking about the performance of the AD revenue I think it's not only because of the low base of the law.
And last year's first quarter comps I want to actually give the credit to the three building blocks we have been.
Working on in the past few years as Robin mentioned in the prepared remarks by Dr Ho.
From a minute program in horses and managed pages are.
Quickly and you know this building blocks actually they provided high quality content and also the services to the users so that the users they can not only get them the information as before but he can also go to the service in the close loop experience and with that you know the.
Either they can.
Completed their tasks like book, a flight or buy a book as you know in one stop step you said for dropping away. So all of these building blocks actually they can to build to the monetization capability we have.
Built on them, especially for Baidu AVP. So he can see it actually grows even faster than the average 27% you know he is more than 30%.
So with that actually we are seeing pretty good.
Performance for the verticals on the way down this growth.
Yes, so Florida.
On Tam.
Total he.
It's very large and right now it's growing very fast.
If you recall, we started to invest in Hum.
Hung is driving roughly eight years ago over the year on total have morphed into a very comprehensive.
Now for them that support all kinds of.
Models and.
Hum directions that isn't true robo taxi by giving that includes.
Software service provider for a debt OEM and also that's going to expiring on.
On a smart E D.
Thank you.
I'll I'll upset.
FERC.
Well feedback on.
Data and other kinds of marketing technology.
Two the Apollo power for them.
Mason Apollo.
Stronger and.
Better price.
Platform for bolt on homes, driving and smart.
Smart transportation and we were very excited for that.
Each of those directions.
Including our debt.
On Smart Transportation project, we were building for many many cities.
Because.
It all.
Can be integrated together and provide a much more efficient transportation system for the city for the society and provide a better experience for their drivers and our consumers and it all come together and we.
Very happy we bought it early and we start to react to the benefit cost for all of it.
Directions.
Thank you for the questions next question comes from Alex Yao of Jpmorgan. Please go ahead.
Okay.
Oh, Hi, good evening management. Thank you for taking my question I have a couple on front of our questions on the trials.
Robin you mentioned.
Deployment and talk to us.
Ex infrastructure.
I would generally to net right.
Network effects on to.
To your broader upon on strategy can you elaborate on that network effects that have been more and also what strategic benefits on the broader Apollo ecosystem.
Benefiting from the buildup on offshore between ex infrastructure in China.
In the near term financial question is from on you you think that you mentioned despite the strong in addition to them on a strong growth momentum in the first quarter you expect for cloud revenue to further expand our reach into the coming quarters.
You're talking about the fundamental driver to the strong revenue growth momentum.
Particularly in the.
Smart city market.
On a what is more competitive and so who do you see as the biggest competitor.
And what are the unique value proposition you bring to this market segment. Thank you.
Oh, yeah for the <unk> projects.
It's quite clear debt.
The day sensor skewed on the <unk>.
<unk> and communicate with the vehicle therefore vehicles be it.
Hum on.
Striding capability for all or not.
Ah connected so they can get signals.
Signals from the infrastructure and therefore.
Become more informed.
When deciding on their driving behavior. If there is a driver on the on the car we can alert on any risk that is.
Not directly visible by a human eye, because there are sensors our surroundings.
Surrounding that the involvement that can.
Okay alert the driver and also better tracking driver behavior and in some cases for example in the city of Guangzhou.
Some commercial cost.
License plates could be covered by mud.
The drivers were not afraid of violating it.
The traffic laws.
But now it's <unk>.
Infrastructure and on vehicle.
Is that somehow.
Sometimes he thought on on those trucks.
On the city regulators.
Much better.
Jack the only violation therefore make.
Making that gold a safer and more.
More efficient.
Of course with the vehicles with.
Striving capabilities.
Can be.
Be assured that day.
The interest structure, he can send signals to both kind of vehicles and helped the vehicles to better assess.
Does the environment, therefore improve the accuracy are.
Also on the planning and controlling process for autonomous driving but the more on <unk>.
<unk> project, we deploy.
More cars can benefit from this kind of non stop.
He infrastructure therefore day.
On its driving capabilities.
Improve faster and also become safer for our for the passengers on the car.
But also it can reduce.
The cost on a single part because sometimes you don't have to rely on very expensive Hum on board.
Goodbye.
Chad for high end like ours in order to really.
Dry 40 on economy.
Yes.
Yeah and to add to what Robin just said I think a couple of things.
You know you you asked us for for Smart transportation on what are the growth drivers.
Well one thing is recognize you know how it works right that the more data you have synchronized becomes more powerful so what <unk> does for example in Guangzhou is 102.
On intersections, where we are offering a solution that allows the.
Catholic lives to be synchronized throughout that whole part of the city.
Okay. So when you think about that and you know that the chance of getting debt phase III. So that the first phase of the project that he does a nice where the second day that would give you that kind of network effect. So that's why for example, when you see in the city about doing when we first had a free first phase will call back for a second phase because you want that second.
Set up lights do that's a part of the city to be synchronized and then we even see for example, now a third part of the phase as we continue to expand the stock price. So that's one way to expand our our our business is to continue to take in one area of the city and for me was synchronize all of the.
On the top supplier synchronized topic for Okay and last is our competitor we see competitors in the area, but we don't see them focusing on a whole book.
Part of the city there they are more looking at once light at a time, where we're using baidu brain to power the whole thing and our opportunities. In addition, as Robin mentioned in the prepared on wipes. Once you go into would be to actually have the opportunity to go in there with Macerich masses are open platform in which he.
Controls robo taxi and mobile buses like in Guangzhou is not only does it.
Apologies.
Taxi set up a call or have you also have a little more buses from there you also have another brand on a robo taxi that are massive point. So you can think of it as the operating system for that part of the city and whenever there are other robo taxi transportation. So forth. The government uses our mass to kind of.
Our power those aerobic culture of local places so that you could prioritize the rise and so forth and then there's other product expansions like for example, going to highway going to parking and so forth. So the more of these projects are synchronized obviously through AI and so forth you can make the traffic.
Smoother, so you're seeing too.
<unk> one is as we're going into cities, where we're getting multiple stages, we're expanding the products and you'll also see us entering a new and more and more cities because a lot of cities in China, and now you'll leverage on technology to improve the infrastructure rather than clothing downloads and taking on more on land.
While on the goes to basically reach the same goal.
Thank you for the questions on next questions comes from July on Jerry Liu of UBS. Please go ahead.
Hey, Thank you thanks for management.
Right.
Ill go back to your earlier statement about how non AD revenues surpass AD revenues in the in the Baidu core in three years.
So I mean that makes me feel that you know.
Do you guys see more I have a bit more visibility and confidence of this mix shift so I just wanted to ask.
What are some of the drivers you're seeing here now obviously.
Cloud of Paulo, maybe you all our lives often contribute to that.
But I'm just wondering what are maybe the biggest fibers.
This mix shift thank you.
Hi, Jerry this is robin.
Don't know if you've noticed that.
He.
What kind of company Baidu.
We see that we are on.
Leading AI company with strong Internet Foundation.
That means that we can not only.
Benefit from the investments we did over the past 10 years to one two tube.
Getting into more new benefits like intelligent driving smart cloud we also can.
Leverage our AI capability too.
Better monetize our strong user base.
We have accumulated over the past for like 20 years, if you compare the baidu mobile ecosystem with other leading mobile ecosystems in China, you'll notice that we are probably one of the very few that has.
Online marketing revenue.
The majority of our total revenue.
This is not.
A very.
<unk>.
On a situation.
Our hundreds of millions of users can enjoy other kind of services on baidu not just taking on that so they can.
If they can pay for premium content that they can do e-commerce transactions, where they can play games they can.
Watch live streaming on it and tip.
<unk>, Inc.
Influencers.
There are a lot of things, we can do and.
Absolutely.
Deploy more social.
User experience, we think that the baidu app and as we leverage our he I agree.
For instance to better recommend services and.
Better on.
Understand users.
Needs.
He can.
Monetize.
Growing user base through multiple ways.
That's how we look at the Sun.
Netscape.
Yeah.
And just let me add to that too to Robin.
He asked is what are the key drivers I think Robin was very clear when you look at it mobile ecosystem on non advertising like here, because we can leverage our huge user base way, we're reaching over 1 billion mobile devices for.
For months right. So in addition to that we talk about how you look at our cloud.
It's a pretty significant in size right now and it's still growing very robust.
I think as we mentioned before you know there's two main area. That's driving the growth one is our English words for cloud you have us differentiating with AI solution.
Like on the per.
Per our remarks, you know whenever we go into a big customers with AI past, where.
Seeing them, you know, having cross selling and having upselling. So not only does it sell more pass on applications. You'll also seen them. For example, you know crossing into us.
For example, we gave one bank started buying private cloud as a result of building a relationship with us. So we're going to see that digitalization of enterprises drive ourselves I think particularly in a.
I pass, particularly on the application and its also going to allow us to go into a deal.
<unk> of that business.
Smart transportation, we talk about we think that that's a huge opportunity. When you look at for example, just last year and the number of projects that are China has with with.
Transportation and so forth, there's probably over 300 cities I think there's 300 in two cities are quoted by the.
Government.
How about transportation projects, so there's huge opportunity for us in that area and then when you look at O G I.
We look at a few areas you know you look at you look at for example, our duo S with smart display smart devices and so forth Youre looking at for example, our call on self driving we're signing up a lot of Oems are starting to ship their cars in the next few years, you're going to see more and more come on for example.
For this year just for example, a S D waves sooner in the pipeline by the end of year, we should have on maybe for automakers.
He has deep right and then and then on top of that you know we're already testing a robo taxi ride hailing for example, one life in Beijing.
And so we should see that are pretty exciting in next couple of years. So so tier just somebody on areas that we think that there's a.
Potential for growth and because the Tam is 10 times on the cankers three times of on advertising.
And you look at the pace that we have gone through like if you recall just two quarters back on our non advertising on school and 14% last quarter. You know you know we said it was a little bit higher at 52 per cent and this quarter was 70% so you're seeing us really.
You know starting with a.
Firing power flow on non advertising.
The book businesses that we have incubated over the last day to start to mature and start to monetize.
Thank you next question comes from July on Miranda Trung from Bank of America. Please go ahead.
Thank you on go even the management. Thank you for taking my question.
Congratulation on the very strong results on the outlook. So my question is about your EBIT business can management provide any color on the scale of the financial investments that we're planning for the EBIT business. This year and also as well as if there is any update to the product online.
Remember that in last earnings call match them on nation about planning to launch the E V. A car in three years' time on.
We would like to check if there is any update to this plan given that the EBIT market how should we since when he is coming more and more crowded with more newcomers on more capital inflow on so.
Just want to check all the time and also just wanted to get a sense of what for our <unk> business will.
Look like and what kind of key business milestones can we expect to see you in next year. Thank you.
Yeah, as you know that they've been in theory on.
He has a relatively independently operated.
Company controlled by Us.
The goal is to make.
Our Lady of 10 call it <unk>.
Technology available on the market asked on that it's possible we may.
Mention that we intend to launch that's within three years.
For the team is trying very hard to.
On to make it.
Available.
Earlier on.
As possible and R. R. A T C.
Remain unchanged.
Because I apologize for very comprehensive platform for all kinds of off for all kinds of technologies.
And we've been investing in the Sun for many many years that we see a lot for them.
Opportunities too.
All for unique.
Their experience and technology through a seamless integration of software and hardware as well for.
He take advantage of infrastructure, that's available to to the consumers.
Come on do you have any financial color to add on that.
I think you know that the C. O just a sign on I think you know we're still working through our business plans, but you know he is to.
If you look at that whole E beam market you can actually there's a there's quite a few analysts that they have given projections on that on the size and so forth I think where we are is we're lucky in the sense that the hardest part if you think about it on a.
He does and so forth it's on.
What's driving.
Debt that ability for being able to build intelligent driving and also being able to power infotainment within within the car. So debt so that youre, having more intelligence both within the car as a person drives and also are you know outside of the car. So I think that would give us.
Debt that ability to actually be able to design a car and to have those kind of on technologies on products ready. So we don't have any particular numbers to give out now but you do have.
Our projections on whether E D.
He was going to be in three years and.
You do have a you know other automakers that debt to have a show in the last few years. So so we're going to be looking at that kind of model and we're gonna be looking at you know the market that fits us.
On a profile.
Robin mentioned, so that you know in this model.
Maybe another way to look at this if you look at our you know where a lot of the EV cars are going a lot of them are going direct to customers right. If you look at the model with intelligent just like all of our speakers and so forth you know in the past that the speakers and people sell hardware right. When you think about he these nowadays.
You look at for example, some of the cars when they sell a day.
So also trying to swap batteries, so that they can get on it users to actually have more frequent contact so that they can also make more money. After the post sales of hardware so that they could sell more services right. So when you think about our business number one we're already selling a lot of services like intelligent driving.
Already you know getting a lot of for infotainment install in Oems and so forth. So this whole business model of <unk>.
Even more contact with the users with the consumer wants to build the brand and also be able to drive more services. After the initial so far where there's something that we're very familiar with so I think we'll be more prepared as we go into that model on EV and adapting to the direct to customers rather than the traditional way of just trying to make the dollar.
He is by selling just hardware.
Thank you. The next question comes from Gary Yu Morgan.
Stanley. Please go ahead.
Hi, Thank you Robin Herman and Sharon.
I have one follow up question regarding your three kind of revenue mix outlook.
Given to date, but the biggest part of your non marketing revenue is coming from AI cloud.
So how should we look at contribution from various businesses in three years' time, when all marketing surpass your marketing revenue should we still expect kind of AI cloud to be dominant driver on that or we expect some of these autonomous driving driving revenue and also car hailing rapid he will start to become on material.
And a related question to that is how should we look at margin given the revenue mix shift.
So.
How should we look at the mobile ecosystem margin trend going forward.
By what time should we expect the non marketing business.
For two to become profitable. Thank you.
Yeah on the.
Revenue mix.
You look at our AI cloud, we've been disclosing day.
Revenue in on brand growth rates for a number on a quarter and you can probably do it.
Projections based on the path to performance and.
Many other ways that we can monetize our strong user base and AI technology.
Through either intelligent driving or other things mentioned by myself and.
And I think that.
When that all adds up to credit issues.
Represent.
More than half off on our our toil on revenue.
The foundation that we've been accumulated.
The user base for the past 20 years, and we've been investing in AI technology for.
For more than 10 years, and they all come together and.
Opens up.
A lot of new opportunities for us to.
For all of our revenue.
Our net permit on top on the manor margin question.
Yeah Yeah.
So you know on on the margins, let me answer simple ways I think number one obviously.
<unk> mobile ecosystem searching fee that is a mature business growing not as fast when you have a business that's debt where are you now and where were our search it's the largest in China, where.
Where we have tremendous amount of traffic, obviously, you're going to you're going to have a very good margins.
At the same time, you know with our mobile ecosystem, we were able to have for a lot of investments in these on a ice and we're leveraging into new businesses. So it helps us.
Allocate some of that cost structure into other businesses, but as we're ramping up you know two type of businesses. One is to be business right. When you think about.
Going into enterprises, and we're also ramping up on two key business going into cities working with municipalities and so forth right, so you're going to see us.
Getting impacted by the margins on several ways number one is nimble you're going to have a cost itself right, whether we're selling more AI solution projects.
Of course themselves, whether we're selling them more.
You know projects with smart transportation, whether we're selling more displays you're gonna have caused yourselves. Furthermore, when youre seeing a strong deep.
Steep ramp up of our AI cloud business.
Smart transportation and so forth we have to hire ahead of the curve we have to be looking at for the next six to 12 months, where ourselves gonna be and hired those salespeople in early so that we can train them now for two quarters or so forth and then they can start going out there get orders. So I think for the margins as you're seeing exam.
You've seen a very robust Q2.
Revenue guidance, then you should assume number one is a lot of debt growth is coming from new AI business.
See you know our gross margin.
Compared to last year, you're going to see a gross margin issue.
Incrementally from there. So you got to consider debt and secondly, you got to consider the fact that we're going to increase our sales and marketing to support the <unk>.
Volume growth and also for next few quarters you should expect for example, as you know are.
Accrual for bad debt, because you cease new business to be in too cheap. They all have he our allowance is unlike our.
Advertising. So these are the things.
<unk> considered so let me just summarize I think when you look at non amortizing debt. The opportunity is there and are you a.
Typical cloud business, it's in smart transportation.
Oh Gee I think the key drivers are going to be a related to it.
Intelligent driving such as our E S T a.
And we think that Oh, he D and a robo taxi and then lastly on.
Our smart devices for here that we did a few areas and then in terms of margins cost itself you can see a damper on you're already seeing that for example in Q1.
And then we'd have to prepare for our sales and marketing and also our G&A.
Okay.
Thank you for the questions next question comes from James Free of Mizuho. Please go ahead.
Great. Thanks for taking my questions. Two here first on the cloud basis, and clearly you guys are having a lot of success in AI point solution through customized project and maybe can you talk about how you plan to make the business more scalable how close are you in building a standard I.
The solution.
He can expand across various industry.
Using third party developers and system integrators and also do you have a backlog numbers. So we can get a better understanding of the underlying trends and second is for second quarter. Herman can you talk on maybe your expectation on expense growth and to the extent you can break out between core advertising in new investments.
Yeah.
Yes.
First of all I think.
A lot of Sun.
Projects, we arent, taking or holiday very scalable.
The solution can really be standardized to.
Vertical industry basis, we've been talking about smart transportation for transportation project being one city it can be easily copied to another city and.
Although it is lossmaking right now but.
Gross margin.
Good at this time alrighty and going forward as we do more and more of that kind of kind of a project.
Projects, I think margins will improve and.
Net investment in R&D, well gradually pay off.
No.
<unk> solutions.
Pretty standard.
From city to city and Uh Huh.
More broadly.
I think other industries be it on the financial industry or anything.
He industry.
We've been building.
<unk>.
Layer.
Mainly on the path to pass on a service layer, we have a lot of.
AI capabilities speech recognition capabilities text to speech capability OCR capability natural language processing capability.
Yeah, a lot of things that can be standardized and we do work with on system integrators to deliver.
On a turnkey solutions too.
Many of our customers.
We will continue to sell and going forward on I think the standard card are you on cloud solution will become a bigger and bigger part of the total cloud revenue.
Thank you for the next question comes from the line of Han Joon Kim of Macquarie. Please go ahead.
Great. Thank you management Hum.
You know as we book that's all the cloud revenues for you or perhaps larger peers in the market.
<unk> noticed a few of their key accounts depart recently, partially sometimes for extenuating circumstances, but others. Maybe just you know those customers on a bill out there on services and so forth.
So as we think about our stickiness from Ireland.
Revenues from perhaps dependencies on on key accounts can you give us any kind of indication of how we think about the stickiness of that and yeah. Just in general some observation I would have had about the market situation. Thank you.
Hi, Yeah, I think at the end.
On an early stage, we may be very sensitive to one or two key customers, but at the.
The base becomes larger and larger.
Any single.
T O com customer.
Well contribute a.
Lower and lower percentage of our total revenue.
I think this is kind of different from <unk>.
Standard.
Solutions provide.
Provided too.
Those.
Internet on media customer like.
From our peers do we were being.
More focused on <unk>.
The industry would be providing more.
On AI empowered to cloud solutions, I think that's a more defendable approach and.
He direction, that's not so sensitive to any.
One or a few large customers.
Thank you next question comes from Tien Ho of cash capital.
Yeah. Thank you.
Thanks for.
Taking my questions on the book.
A quick question.
On the EV car area. There are a lot for for new players in the market, let's say wildly right now it's like Uh huh.
Our non stop so they they have to EV cars.
I think on maybe it is better for the.
Audience share for this.
On the staff.
What's the advantage of Baidu EV cars.
Hi, there guys.
A simple question. Thank you.
Yeah.
Mentioned that we've been investing in that for many years for.
2013, and we've accumulated.
In class autonomous driving capability and over the years, a falloff on morphed into a more comprehensive.
On a platform that offers all kinds of.
Capabilities to <unk> capability or.
Infotainment for Endeavour.
Individual vehicles.
I think at this time nobody on this.
On the planet has a more comprehensive solution than way do for <unk>.
Mark.
<unk>.
That's why we are very confident when we launch our on car we can provide that.
Best user experience and better.
Price to performance ratio for our consumers our technology is just a more.
Advanced and paying for the mature than any other people.
In this industry and on the.
Broader.
Note.
Think.
Baidu has been investing.
Very aggressively and if you think about autonomous driving it's.
Almost use it.
All kinds of AI technologies.
And we've been investing in this for more than 10 year for and we spend roughly 20 billion RMB in R&D.
Last year.
Without.
Can you to aggressively invest in R&D over the net 10, maybe 20 years and we'll make sure that Oh are <unk>.
<unk>, our AI technology and on our autonomous driving technology, while continuing to lead.
In this market, it's very hard for any one who come on the street.
On new and it makes this kind of.
Claims and.
It's very hard to imagine a ebay maker.
With a smaller market share in that day.
If they outnumber floor on number five in terms of on market share. They can afford this kind of continued intensive.
On the management team.
R&D and <unk>.
Think it's widely known that Oh on homes.
He will not become mature for the net Tam or even 20 years ago. This kind of sustained intensive investment R&D if necessary to keep that lead.
In terms of technology.
Thank you management with that ladies and gentlemen that does conclude our conference for today. Thank you for your participation. He may now disconnect your lines.
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