Q2 2021 Baidu Inc Earnings Call
[music].
Hello, and thank you for standing by for Baidu.
21 earnings.
Cool.
All participants are in listen only mode.
After managements prepared remarks, there will be a question and answer session.
Today's conference is being Rick if you have any objections you may disconnect at this time.
I'd like to turn the meeting over to your host for today's conference Ms. Journaling, Baidu director of Investor Relations.
Hello, everyone and welcome to Baidu second quarter 2021 earnings conference call, but I did unequally distributed earlier today and you can find a copy on our website as well as on newswire services.
The call today, we have Robin Li Cookie them.
Another example.
In addition, our EVP in charge of efficiency after our prepared remarks.
We will host a Q&A session.
The discussion today.
<unk> made under the Safe Harbor provisions of the U S. Private Securities Litigation Reform Act of banking 95 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.
I can see and I'm going to change.
<unk> does not undertake any obligation to update any forward looking statement, except as required under applicable law.
The earnings press release, and this call discussions of certain unaudited non-GAAP financial measures.
Please continue.
You shouldn't be unaudited non-GAAP measures to the unaudited most directly comparable GAAP measures and is available on our IR website at IR Baidu Dot Com as a 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 another solid quarter with Baidu course, when you're growing 27% year over year.
Accelerating to find non advertising revenue.
It's like salt growing 71% year over year in the second quarter.
We are entering a new era, where our technology is becoming more powerful and we are benefiting from the deployment of technology to upgrade China industrial competitiveness.
Urban cities and improve mobility.
Trying to plan for the next stage of growth.
It rests upon us to recognize the need to align our been strategy excel.
Involvement that's the I'll put him in the future that we want to build with our states okay.
With all our stakeholders.
Yes, you highlight a shared future.
Entity.
To support China's attached to achieve carbon neutral at sea.
<unk> 2068, Baidu aims to reach carbon neutrality by 2033.
Through the use of <unk>.
I think data centers smart office buildings and.
In addition, we hope to improve urban traffic fall and lower carbon emission.
100 metropolitan areas across China, with all the people of alcohol Smart transportation and accelerate this week two E beam.
For the math through our investment in taxi and talking to me.
Leveraging technology to serve a larger population to achieve inclusiveness as part of China's growth plan.
In June we introduced Apollo Moon fifth generation.
Apollo Robo taxi vehicles.
That's once again saw a 60% drop in cost per mile.
It's a rapid pace of autonomous driving technology advancement and cost efficiency improvement.
Apollo Robo taxi stands to become much cheaper than driver for higher ride hailing in the coming years.
Which will make robo taxi ride hailing much more accessible.
Baidu houses that another example, expanding resources to a broader population.
For improved bleeding.
We are enabling closed loop telehealth online prescription and home delivery.
Free up hospital resources for.
Critical treatments.
Concurrently we are helping hospitals.
<unk> patients.
I think you know illness.
That match their treatment of specialties.
Leveraging our AI powered search and smart mini problem.
We see great opportunities to use technology to advance sustainability and inclusiveness.
As we go through our quarterly highlights you will see other examples.
I call it happens naturally aligned with the schools.
This is due in part to our belief and using technology to build a better world.
Turning to Q2 operational highlights.
Our AI cloud continued to see strong growth.
IDC once again granted to Baidu AI cloud the number one cloud provider in China in 2020 report.
Cloud.
Over the past decade as has been the growth driver for China market.
That's up a strong foundation to implement AI solution desktop industry specific problems and flight urban leaving upgrades.
By differentiating with AI solutions, we have the opportunity to provide repeat.
This expanded applications and become a one stop shop across.
Selling.
Cross selling.
And the other studies.
In the past, we discussed empowering financial services utilities, and Internet media sector with AI.
Let me give you an example of how our AI empowered.
Empowered the auto sector.
We are helping G V.
A leading automotive manufacturer to develop a multiyear digitization plan.
We can tell one.
One starting off their private cloud infrastructure to moving chili's business onto a cloud suite, leveraging baidu AI solution to advance GB high Tech manufacturing capabilities, such as I O V security and risk management.
And for enabling Judy to provide cloud services to their automobiles.
To their automotive supplier and customers.
Baidu AI is deployed into multifaceted involvement.
Example, triangle Fujian a city of population.
Million implemented Baidu AI solution at its water treatment plant.
Our smart monitoring capability was used to provide early protection of malfunction that equipment.
Placing labor intensive patrolling in a customized machine learning model was developed to predict water usage and dynamically adjust the water pressure of different water pipelines cutting electricity needs by 8%.
Our employees feel a sense of pride when natural resource is optimally managed and sustainability is indirectly.
In healthcare cloud, we have expanded into over 400 hospitals in 29 provinces.
And over 1500 primary care clinics in 11 provinces.
Leading solutions like our feed DSS, resulting in rapid revenue growth.
At 245% year over year for the first half.
According to Idc's June report Baidu deep learning platform became the most widely used in China, surpassing google's.
Our pedal pedal developer community reached $3.6 million up 62% year on year and if adopted by 130000.
Baidu feed the harsh the Boston community helped improve our machine learning models and in mid July our AI tools and technologies.
Moving onto <unk> Smart transportation as of June Apollo has signed with 20 cities to fly <unk> Smart transportation up from five cities a year ago based on a contract the amount of RMB 10 million and about.
Apollo also renewed agreements with nice it is to roll out their next phase off Aces more transportation.
Beyond urban growth Apollo signed with <unk>, Quebec to deploy <unk>.
Smart highway.
Enabling the city to remotely I didn't find the need for highly maintaining.
Our first go to closure or poor weather conditions and identify travelers.
Dodge tall terminals.
Turning to <unk>.
Autonomous driving.
Apollo continues to see strong momentum.
Level of forecasting on public to go past reached at 12 million kilometers for $7.5 million miles.
Apollo has received a 278 a D permit.
Lacking 80 piloting.
In dispersed geographic region and on the wide ranging test scenarios.
Apollo monetization.
In Q2, Apollo go ride hailing expanded into Guangzhou, our fourth city operation and provided 47000 rides to the public.
Up 200% sequentially.
Customer satisfaction for Apollo goal has been high.
User rating of four nine out of.
Five zero.
As pointed out earlier, our fifth generation Robo taxi vehicles.
There's 60% drop in cost per mile.
Paired to an average decrease of 62% in the first four generations of <unk> vehicles.
We plan to rollout Apollo go ride hailing across 30 cities over the next two to three years.
Okay.
E S T.
Wall Motors become the latest the automaker to announce plans for ASD.
Apollo automated valet parking will be installed in your wheat multis SUV flagship.
Out later this year.
Infotainment Duer OS for auto asking installed in one 8 million vehicles.
265% year on year.
12 auto OEM.
The lifestyle Ford GM, Toyota and Honda.
<unk> have signed with Duer OS for auto for installation in 17.
And do all that.
<unk> continues to innovate the smart home device market for example, the always on durable as smart assistant allows one to conveniently other fresh home delivery flowers and other commonly used to good.
In a matter of seconds civil conversational AI.
China's elderly population is slated to exceed to exceed 300 million.
<unk> smart displays connect elders, there's immediate senior.
Community assistance and serve as a virtual companionship around the clock to conversational AI improving their quality of life, while allowing family members to monitor their loved one health and safety from remote.
During the June 18 E Commerce basketball, <unk> smart display and Yahoo, Smart pass for education market top the self warn them that ANZ our respective category.
Leading E commerce platforms like J P dot com.
So I'll do is receiving high customer satisfaction spending well a higher price point product line and topping the list on units sold demonstrating how hardware can be differentiated intermediate behind such as new input modalities and services.
Turning to mobile ecosystem in June Baidu, App, I mean use reached $580 million up 9% year on year.
And daily login users reached 77%.
S and opened in App search App Baidu App offers users instant reply on various topics.
For example, mainly depending house consultation on Baidu health surpassed the 2 million in second quarter up 47% year on year.
In addition, more than 8000 industry expert spanning 14, other verticals, such as legal finance and fashion.
To instantaneously reply to user search inquiries.
Through our AI building blocks.
When users.
Specific information necessary Baidu search assistant.
Assistant advantage.
Managed page now accounts for 40% of Baidu core advertising, reflecting merchant opening storefronts baidu as opposed to operating their own sites.
For example, our local moving company chance moving changed the our search landing page to its managed page and site daily orders doubled five weeks after adoption.
<unk> managed to page users are able to browse services.
Interact with the merchant schedule of malls and pay on deposits all seamlessly on Baidu.
Managed page also monitors merchants activities on Baidu AI for added personal safety for example.
Moving service Intel's strangers come into your house.
Before I turn the call to Herman I'd like to congratulate him for his new role as Chief strategy Officer I do.
And then well continue to act as CFO until we find a quantified replacement.
He will spend more time on corporate strategy and.
Divestments afterwards.
Over the past four years Herman has helped to Baidu transform from a mostly search company to a leading diversified AI company.
With demonstrated leadership, a holistic view of our business and a keen sense of the capital market I'm confident in premise ability to help talk of course for our long term growth and success in the H O.
Hi.
Is that let me turn the call over to Herman to go through our financial highlights.
Thank you Robyn.
Hello, everyone welcome to Baidu second quarter of 2021 call.
All monetary amounts used in my discussion are in renminbi unless stated otherwise.
Baidu second quarter was.
Baidu second quarter revenue was 31 four.
One 9 billion in U S dollars up 20% year over year, driven by the growth of Baidu core revenue, which reached two 4 billion or $3.7 billion in U S dollars up 27% year over year non.
Non advertising for Baidu core reached.
<unk> 5 billion or 21% of Baidu Core's revenue yeah.
Cloud revenue was $3.3 billion.
To sum up 71% year over year, which is an acceleration from the 55 quarters.
Our cloud growth is benefiting from the demand of enterprise customers looking to use AI to transform the industry and strengthen the leadership position for example customers from the Internet media.
Financial services from energy.
Manufacturing sectors.
We're also benefiting from the urban cities seeking to adopt Apollo a smart transportation to modernize and digitize the transportation network AI solutions and smart transportation are showing fast growth serving as catalysts.
Now to grow faster than the overall car market with as being a smaller part of our cloud business.
Intelligent driving and other growth initiatives, we continue to make a dentist product development by leveraging baidu AI capabilities, such as speech recognition MLP in computer vision and our strong Internet Foundation Sogou has become the leader in smart display globally based on shipments.
Shall do speakers enter this smart home device market in 2018, competing on sub 100 product lines home devices equipped with AI features can be sold and much higher price point. For example in May we introduced shall do Kim Ken key 10.
<unk> smart display with Kols key features at an MSRP of 16.99.
Through our innovation shall do services revenue such as advertising and membership has grown five fold from last year now accounting for over 110th of shall boost revenues.
So I'll do PAH Baidu L. S has transformed the smart speaker market from selling hardware to selling AI powered features and services.
Operating system for the automotive industry is a much larger market Apollo has an opportunity to leverage its leadership in the tonnes driving and infotainment operating system to enable every passenger vehicle to be a smart vehicle.
Just as shall do transform the home device market Apollo hopes leveraged baidu capabilities, ASD and existing OEM channels to Bruce computing intelligence and transplant the automated industry.
Moving to <unk>.
<unk> marketing.
Q2 online marketing revenue was $19 billion up 18% year over year in that advertising was solid growing 26% year over year.
Partially offset by the slow growth of Union and PC AD revenues most of our top verticals continue to perform well <unk> saw double digit growth, especially for in App online market.
<unk> revenue was $10.6 billion up 3% year over year <unk> subscribers reached $106 million in June we support for large in house production of entertainment blockbusters cost of revenue was $15.9 billion up 21% year over year, primarily resulting from an increase in tax and cost of sales.
With new AI businesses.
<unk> expenses were 12 billion up 30% year over year SG&A for Baidu core was up 40%, primarily due to an increase in channel spending and promotional activities as well as an increase in sales hiring, particularly as we look out for the next six to 12 months to go our cloud and also our.
Our intelligent driving our business.
Okay.
Non-GAAP operating income for Baidu core was $6.5 billion for $1 billion and non-GAAP operating margin for Baidu core was 27%.
Adjusted EBITDA for Baidu core was $8 billion or $1.2 billion U S dollars and adjusted EBITDA margin for Baidu core was 33%.
Cash and short term investments for Baidu core as of June 32021 was $167.7 billion.
Six.
Billion ex U S free cash flow for Baidu, excluding <unk> was $6.9 billion for $1.1 billion U S. Baidu core had approximately 36000 full time employees as of June 30 of.
24% from last year.
Turning to Q3 guidance for the third quarter Baidu expects revenues to be between 36 billion and $33.
5 billion, representing a growth rate of 8% to 19% year over year, which assumes that baidu core revenue will grow between 9% year over year and 20% year over year.
The above forecast takes into consideration of the current Covid 19 situation in China, which is evolving and business visibility is limited.
The above forecast reflects our current and preliminary view, which is subject to substantial uncertainty.
Before I turn the call back to the operator, let me summarize our second quarter results Baidu mobile ecosystem continues to be strong Baidu core online marketing revenue was up 18% year over year in the second quarter with in that marketing revenue growing 26% year over year, Baidu App and they use.
$580 million up 9% year over year and daily user logging with 77%.
Four years ago, we committed to strengthening our mobile ecosystem and D with AI, our search and feed is stronger now with AI building blocks and marketing clout and non marketing has become sizeable and growing quite fast we have to deliver on our goals and we are very proud of our team for their strong execution.
Many investors have inquired about the recent regulatory landscape.
Governments generally favor fair competition, and maybe even so when mobile Internet is well penetrated received this theme play across Europe and in the U S.
Search fundamentally is open.
Exclusivity is bidding for the largest players this will allow more players in each internet sector to exist, which gives consumers more choices.
And make search more useful.
Some investors have asked about government incentives and special tax treatment.
It's important that we elevate this to see the overall direction of China development plan.
Consumer Internet has been in China.
Yes.
And the country is promoting new growth sectors, such as industrial Internet retracts autonomous driving and the monetization of city government.
It.
It would not be surprising.
If certain incentives for the older industries.
But gradually decrease while the new economy benefits from government incentives. We believe government policy will also be adjusted to support these new growth areas.
Our new AI business is well positioned in sectors of the new economy, such as AI cloud and smart transportation of times, driving smart devices and AI chips.
In the second quarter.
I'm sorry.
Baidu, we returned $566 million to our shareholders under the 2020.
Share repurchase program this year, bringing the cumulative repurchase from last year to $2.5 billion U S. Dollars. We're excited about baidu future excited about baidu durable search and feed business and our new AI businesses to support China's growth, while advancing sustainability and exclusiveness.
On August 18th starting at nine a M 930, a M. Beijing time, we will be hosting Baidu will on CCTV. Please join us to fall the latest on our product development.
And lastly.
It's truly been a privilege to serve as Baidu CFO and witness our growth initiatives like AI cloud solutions, Smart transportation self driving solutions and smart devices.
Put into a fifth of Baidu core business using the steady profitability of our search and feed to fund and accelerate Baidu is growth I'm excited about my new role as CSO, which will allow me to spend more time thinking about technology opportunities.
Operator with that let's now open the call to questions.
Thank you ladies and gentlemen, we will now begin the question and answer session.
If you wish you have a question. Please press star one on your telephone them like for your name to be announced.
If you wish to cancel your request please press the pound key.
Participants are requested to restrict to one question at a time if you have follow up questions. Please request to rejoin once again Thats star one for questions.
Our first question comes from the line up of Alicia Yap from Citigroup.
Ask your question.
Hi, Thank you and good evening Robin Herman and Sharon Thanks for taking my questions. Congratulations for your new role.
As the CFO.
To follow up your question, you're kind of my brief remarks about the regulation I actually have a.
Questions on the state of security key what could be the impact on baidu and things that we need to.
To order changes that we need to do to ensuring compliance by September 1st 40 stayed out security law and then very quickly. After you finish the Summer Olympics and with the Winter Olympics coming up can you provide some update in terms of the latest robo taxi or even the robot.
Bus commercialization surveys are any expectations on these right killing demand in this upcoming winter games do you think Baidu driverless car service.
Average.
Events to drama commercial usage and hence the branding thank you.
Okay.
Hi, Allison.
Data security is very important to us.
And we have consistently.
Proved the matching of our.
Internal data security system over the past them.
Two years, we have I mean data privacy committee.
And our management team.
Overseas.
I guess that's off the whole company.
We are also active in assisting Mr setting industry standards, and we share our CRM system.
The dialogues with authors.
To ensure that we are on top of our industry best practices.
Look at our F.
That's behind Baidu sleeping on data privacy and data protection.
One of the highest compared to our peers. So I'm quite confident we'll be able to cope with the new regulatory environment well in.
In terms of data security and privacy.
Uh Huh Olympics.
Yes.
We do plan to do something with our global taxi.
I'm doing that.
Winter Olympics, but what's important is that we are.
We just launched the fourth study.
The tech the operation, which is Guangzhou.
I think we will continue to rollout our robo taxi services.
Thing.
In different cities different regions and number of clients that we are providing.
Been growing very quickly as I mentioned during the prepared remark.
We deliver.
<unk> delivered a 47.
<unk> thousand right.
For our customers, that's a 200% growth over the first quarter of this year. So we believe that the scale well and grow very quickly and we will be able to.
Learn.
All kinds of corner cases, and quickly improve our technology I'm quite optimistic that robo taxis.
Commercially available in.
More than 30 cities in two to three years.
Yeah, and I, just wanted to add a point or something.
What Robin just said.
You asked specifically about Winter Olympics, if you look at today.
So gone park in Beijing, We believe we're the only sector.
Tonnes grading card.
Our company in the World, where you actually have a car driving without someone at the driver's seat. So I think that shows the number of yours experience that we've been doing contracting. It also shows the fact that we've been doing operations for the country for a while and that's why we can get the permit and actually started testing that so.
It's open to the public.
For you to come and look at how tons driving is being done without someone like the driver's seat.
Yes.
Alright. Thank you. Our next question comes from the line of Piyush whereby from Goldman Sachs. Please go ahead.
Thank you Robin Herman.
When I look at it.
The way or ride hailing business is expanding.
I can't help but think that you'll soon be running our business without the cost of the driver to factor in.
If you could just take us through the math as you see it evolve to getting to 20 cities at what point in time does it get to be a revenue line that you spell out separately and talk about the profitability if at all.
Thanks.
Oh, Yeah, we continue to work very hard to.
Drive down the cost of the robo taxi vehicles.
They'd have to come down.
60% of our fifth generation vehicle and.
In the meantime, we are running more testing miles and taking more orders to learn from all kinds of corner cases and quickly improve our technology base.
Based on our own.
Our current projection.
I think the but by the year of 2025, we will.
Cross the line, which means that.
The total cost of.
But all the testing a ride hailing will be lower than man vehicle.
<unk> and <unk>.
After that I think that the the scale well.
B.
Able to where all of much larger than <unk>.
Then it is today and I think.
Around that time, we should be able to report things.
Definitely.
Yeah, and just to add to that appears if you look at the economics.
<unk> talked about how from fourth generation to generation, we do it by 60% and cost per mile. If you.
Look at the prior four generations, we average around 62%. So we've been consistent decreasing cost for the last five generations and at around 60% each time.
If you look at what Robin just said you know go back to 2025, what Youre seeing in the economics of this debt.
Right hailing with accurate drivers look like.
Sort of a person labor cost when it goes up it doesn't go down overtime, but youre competing with technology competing with the fact that that that the more.
Miles that we have the more data that we have.
Operational experience that this team will continue to go down so I think that the sexiness of this our business model. If you look beyond 2025 and look at the next five years, we have internally, we can drive that cost down a lot lot more based on what we have seen in the first five generations. So should this thing would be very interesting once you're past 2025.
Technology.
<unk> technology operational improvements compared to labor cost.
Thank you and next question comes from Alex Yao from J P. Morgan. Please ask your question.
I have a follow up question to peers question.
You got it.
In 2025 P. P M.
Your Apollo solution could be cheaper than human driver.
My follow up question is.
When do you expect the phase.
Thank you Rachel.
Or you're a total solution to be safer than a human driver and then for these two.
Condition to materialize to what does it take.
Is it.
The accumulative mileage to reach a certain level or is it something else. Thank you.
Yeah, that's a great question, we take FID.
<unk> started seriously I think we've been testing for like more than 10 million kilometer, we haven't had a serious injury yet.
Yet.
So that demonstrates that they'll stop once we decide to upgrade a certain what Paul.
A robo taxi hailing services, we have the confidence that the.
The service has the higher safety levels than human drivers.
That would be.
Minimum bar for us to roll out services.
Without human drivers.
My expectation is really that we should be 10 times more safer.
Safer than us.
Human driver, so that kind of benefit it's quite clear and it's absolutely a short.
What's the second part of the question.
Okay.
What does it take for these to condition to play offs I E.
Yeah, that's right yeah it'd be cheaper.
Right, Yeah, Yeah 500.
Meaning are there are 5 million kilometers of wealth in China and the.
Conditions vary greatly.
The approach, we're taking at a very gradual one we carefully choose a rock that we have a high confidence that can be operated with all that.
Human driver, that's why you're saying that we were pacing ourselves carefully speaking areas Dan rock. So that we have a high confidence that we can operate.
Robo taxi.
Alright. Thank you. Our next question comes from Gary Yu from Morgan Stanley. Please ask your question.
Hi, Thank you management for a particular next question, but I actually have two questions both of which are full up of the previous questions. The first is a recreation.
I appreciate the management comment about data.
Piracy.
How about on data security issue have we heard anything from kind of rack later goffman level, where they are.
You know for sure is comfortable for a private company Tech company like us to have full control of the sensitive road.
Data traffic.
On a system or is there any discussion on potential.
Formation of stay on the joint venture company, having access to these data is that a pretty on the hands of private company. So that's the first question related to data security.
My second question is also related to.
A robo taxi, so we talk about the cost.
The opportunities are.
How about you know rapidly after 2025 or even longer term how should we project in terms of penetration mobility penetration a shamble proliferative penetration that we think will be kind of surface certified.
Driverless.
Car. So the reason I am asking Christies question is seems like that currently.
Let's call it limited to certain states scenario.
With with specific locations. So how should we look at kind of penetration going forward. Thank you.
Yeah on the regulation.
The securities, we maintain a constant dialogue with them.
Later and.
As I mentioned, sometimes a week we participated in feed.
Turning off industry standard.
So.
I would say that we have a very high standard and.
We haven't heard.
Anything that you know very.
At raft or are you now.
That's gonna have adverse impact on our <unk>.
Since the operation yet.
Hum.
On the penetration of Robo taxi.
Right.
Like I mentioned, we're taking a gradual approach there are certain road that is suitable for a while with taxi yeah, no that's not suitable.
To robo taxi, we are carefully selecting what we all have to operate a.
But if you looked at the overall market I think about hating have liked up probably 50 million orders per day.
If the costs can become let's say once once it starts with the corn cost I think that the number of orders picked up easily double.
So it's a huge market it just depend on how fast the weekend.
Improve our technology and our scale out.
Terrific.
Alright. Thank you. Your next question comes from Jerry Liu from UBS.
That's true.
Okay.
Hi, Thanks for taking my question, Yeah, maybe let me ask a question on the advertising business are mainly if I look at the third quarter guidance. We were talking about some of the you know covid 19 resurgence a potential impact. So I just wanted to ask first of all is this.
Something we're already seeing or is it more preemptive.
And then secondarily well also see some potential covid or regulatory impact across different sectors in the whole industry. So wanted to get a sense about them on the strengths and weaknesses of the different verticals at the moment or we see a further impact.
For example, online education E commerce or other verticals. Thank you.
Yeah.
Okay.
Thanks for the question Gerry.
Youre right. So we already see the impact could.
<unk> 19 for the Q3.
Especially for travel.
Or is it those trends even though you are in their early few weeks for them to three but certainly you know the Covid 19, just to stop that train accident.
Pretty quickly.
On the other hand, you know we did some pretty good progress on the media and the extra minutes vocational education.
Of course, so talking about the regulation.
Hum.
So far we see pretty clear provisions or on the K 12 education and some other verticals with different sources that the K 12 education itself.
Pretty big vertical for us to come with <unk>.
More.
Quotation.
Hum.
And also you know for the.
Hum.
Nation I know, we are pretty optimistic about it because we see two potential good things number one inside of wheat or expecting any more.
Quality, along with feed cost because everything is good.
And second one of course, I know so some of the resources or moving to a vocational head of patient, which is a very good vertical we are pretty strong at.
No.
This is Gary.
Yeah.
Thank you. Our next question comes from Eddie Leung from Bank of America Merrill Lynch. Please ask your question.
Because even right now I would like to ask a question on your cloud business.
It seems like a strong growth a couple of Florida's potentially driven by new projects.
Wondering if you could.
Could you give us some rough timelines when could cause it to the government space that.
Rove, how pieces, which is more driven by your.
Your existing clients.
Uh huh.
He surfaces and Empire more calls like more from the usage of existing clients rather than opening up a new oh, what's that.
Yeah as you know that our housing is still growing at a very high rate on that.
Hum.
High double digit growth rate.
So by nature, you'll get back Youre right that there are a.
A lot of new projects from new customers.
What what I can say is that our customer retention has been.
Very good and it is also improving as we expand our customer base.
More often wealth Davis at MTV.
You benefit.
If we want to maintain a very high growth rate.
I met the board that we will have a large percentage of new.
New project so.
At this stage I wouldn't manage the percentage off Paul.
New customers or existing customers, we will try to grab the opportunities that.
That's presented to us.
You know AI.
Cleveland.
Solution or cloud solution.
That is our fine I'll try to do as much as we can.
And let me add to that.
I think a.
It wasn't summarized it pretty well you know when you're growing at 71% year over year, clearly you cannot be reliant on one driver what youre seeing actually is.
Two two drivers number one is you are seeing us getting a repeat solutions right. We talked about for example, smart transportation look we're in 20 cities.
Look at contracts over a timberland neither of them have a heavy renewals right.
If you if you look at for example.
Talk about the G V. We didn't just when our first phase was building a private cloud for them and then we talk about three year plan and then we talk about the other things that we're gonna do and Robin talked about those four steps because so clearly that's not a one to one time that is a repeat solution right.
Join us for what I call for Baidu World, We're actually going to go to.
AI solutions for many different industry and you'll see what I'm talking about basically our motto is we.
Serve them with AI past that the AI engine and if they wanted to do different things. They would then come back with different phases to add applications. So those you can see it because that the original engine is on Baidu cloud applications that will come back to us to add on that very similar to 10 with smart transportation at the tracks.
And then you can expand to different applications of the tracks. So you can see our business model enables us to do repeat business at the same time, if we don't expand to different industries that will add to our customers. We cannot keep up with the kind of growth that we have look you look at our Q2, our annualized revenue based on Q2.
2 billion U S and growing at 70%. So you have a very exciting business in order to complete that robust growth you really have to accelerate from products from different industries, and adding to some of our customers.
Thank you. Our next question comes from James Lee from Mizuho. Please go ahead.
Great. Thanks for taking my questions just wanted to follow up Eddie's question on cloud maybe you can you guys talk about the improvement that you guys are making to make you're offering more scalable I think last quarter, you talked about developing a standardized solution layered out in April 3rd Party developers and system integrators.
Customized for their clients.
Can you give us some I'll say on that and also secondly, the adoption for machine learning AI for cloud in the U S is much smaller I'm a slower in the U S. Can you help us understand why we're seeing a faster adoption cycle in China.
Okay.
Right onto our cloud solutions.
As we do more projects and we serve more customers we are able to.
More on the standardized our solutions.
So.
In the beginning we can only take those.
More of a system integrator role.
To get all the deals but at this stage.
We are able to provide a.
Seeing a lot of cases Denver.
Packages the ore.
Part two the other people who are a system integrator, who will get.
You know a large part of those total solution project was that that you know.
That demonstrates that our capability to continue.
Continue to improve.
The standardization of our.
Uh huh.
And the adoption of machine learning.
I think.
The difference between U S and China is that are.
U S tend to that point.
The product or solution.
A more hard in total.
Fashion.
Mainly that the past Pat and Scott.
Each at each layer you have now.
A large player. That's there are all kinds of different industries.
But in China.
We can easily see more also vertically integrated.
Solution provider for them.
Handful for Baidu, we we provide smart transportation solution for a lot of cities.
That that sometimes include hardware software cloud and on premise all kinds of things but.
That doesn't mean it.
Oh not.
The standard sizable it's actually quite.
Quite similar from city to city and from customer to customer and five vertically integrate off by providing.
Pollution.
End to end solution, we can actually innovate a lot more.
Two really.
Improvement efficiency and serve the customer better.
Therefore, the customers are better served and when do you can vertically integrate a lot of things AI or machine learning naturally.
They are much more important role.
And let me just give more granularity of what Robin just said.
When you look at for example, our smart transportation, we started with a V to X Ray you Artem Youre trying to synchronize the traffic light we posted with the project back in a ball game. So obviously, we had the product, but you know you're going into a city, they're trying to understand their systems and so forth and a lot of times you got to think connect to the system. The legacy system in order to make it.
But as you go into different cities in China.
Once you have certain tools that are set up to two two to deal with the same legacy system and so forth.
Get number one that that would proceed from the operational experience and secondly, a lot of tools that we've built up so when you think about us doing be track specifically to synchronize that tropical ice because we've done this for several years Youre actually seeing a very high scale authority, you're actually seeing better margins. So so far it because we've been doing this so now you see us start expand.
In two different scenarios, where for example into highways math, and so forth and what I would predict based on our past experience is that these margins will improve as we find more to move their environment same thing as we're going into enterprises, where we talked about automated call centers. The first one we did win a unit combos.
Profitable and then they start expanding into different call centers throughout the country. So all of a sudden we're familiar with the backend system you just have to buy another.
Our service.
Software and Theyre, all of them, saying youre up and running because you've already train the machine learning model for a specific client and then once you started expanding into different industries, you get one or two meeting our customers again, they're not repeating a lot of things that youre doing all of a sudden you get that in Russia. So I think AI solutions very similar too.
So the enterprise solution that you have.
The software and so forth in the U S. But it takes time whenever you're getting into and do.
Industry into a new customers that want their environment connecting the legacy system.
Stay familiar you get there in Asia.
The pages after that.
Great. Thank you.
Cancer Nathalie Roos from high Tele International. Please go ahead.
Hi, good evening, Thanks for taking my question.
Okay.
That's nice a nice idea and extending your campus recruitment this year.
Moving out to really trying to understand that they are committed.
So just wondering.
Sure sounds good that's it now that I've met with expansion.
And how did you do see a mark.
Each man I'm fine.
Cool.
So if they simply look at some market related weakness in Baidu core.
Wondering what's the margin profile of that segment.
Thank you.
Yeah.
Yeah on the head count growth.
Look at our growth.
Growth rates.
Our cloud.
It's very high and this is kind of fall into.
Industry solutions require a lot of Uh huh.
Head Count addition.
If you compare the compare our car T with some other industry peers I think that that's the head count for Baidu.
It's not that high it's actually quite reasonable and we can do.
A lot more people to come up to deliver our services.
Yeah, and then on the margin for Baidu core.
If we're looking at a non-GAAP basis, you look at Q3 My estimate right now would be we're probably going to increase.
Cost of sales plus Opex, maybe go into a branch or.
And then b on a sequential basis sure Howard.
Look at this and you guys have.
Last few quarters I would look at the non-GAAP for Baidu core and then I think you guys have a very clear trend.
Yeah.
Thank you. Our next question comes from Tien Ho from Th capital. Please go ahead.
Hi, Robin Herman the questions related to your AI crowd, so for their normal cloud and their AI cloud. So I wonder if with nitrogen to type of calls. So you know from a financial point of view can I say, a I cloud is much more higher.
Merger, so cut can I treat that as a difference that's number one what kind of clients who get a.
I call it what kind of clients.
<unk> Com <unk>.
So that's a perfect question because I don't want you send money to page has already increased to a bigger portion of the online marketing. So what's the outlook for this Oh man you could pay going forward. Thank you.
Yeah, just the margin for AI cloud is higher significantly higher than on the more general policy, especially Ah I.
You all know that the.
As in C D and Jonathan has a lower margin.
But I would say.
Thanks.
Me AI filed and general cloud.
They need all kinds of technology.
Technology and solution it's a.
Our you know our strengths is that we will.
They're not fast.
And we find that by integrating our AI technology solution.
To really solve our customers' problems.
We are able to do a much better job. We do provide asked what do we do private channels.
Services.
But I think the marketing their market is large enough and growing very quickly and we are gaining market share.
Very attractive space.
And let me just add.
You asked about who needs a AI.
You look at our customer set.
We see several.
Specific one is for example, Internet media right. When you have a media win for example, with some of the media companies, it's very data heavy but when you look at for example, our industrial sectors, you know different areas of our manufacturing and when you look at our utilities energy and so forth. They all have a lot of dataset.
You look at for example, smart transportation the government has a lot of dataset. So our AI solution basically says if you are a customer you have a lot of datasets you need to improve operational efficiency and so forth our machine learning models. When we go into our Baidu brain. We can help you a lot of things that you have to do that only before we can automate that we can do a much faster.
But AI computing, social because some companies or industries that have a lot of dataset. We can automate for example, you know you look at financial services, rather than computing, improving every loans have examples a few million customers we can.
To me that whole competition, where you just asked baidu brain, rather than having somewhat randomly compute all the different ratios and all the other numbers that particular customer. So you can see that usage are very helpful, especially in China's economy.
Uh huh.
I cannot I would take the second one you're right. So the main stage now accounts for about 40% of the book.
Baidu core advertising, so actually amongst peers.
We treat it as part of their marketing cloud, we had been discussed few times, including the managed page and host of the tools, we provide to the merchants and should make it easy for them to run campaigns on Baidu.
So as we always do.
So we are always fun.
So men's piece together with by Yahoo, and if my milligrams. The board together, you know or the building blocks for the mobile ecosystem actually with nice because we can provide even more.
Closed the loop experience, which increased the.
As for the engagement between the user and the Baidu App.
So as a result, we can see.
That can vary right.
The building blocks.
Or much higher than before.
That's why we can see since the Covid 19 outbreak in Q1 last year. So we are online marketing business actually rebounded and are consistently in the last five quarters, especially for the U S market because of the three building blocks.
As much of a 26 year over year, so that side of it we will keep working on the men's pages because it will improve the user experience and almost all of that monetization capability.
Great. Thank you very much.
Ladies and gentlemen, we have reached the end of the question and answer session. So with that we conclude our conference for today. Thank you very much for participating you may all disconnect.
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Yeah.
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Hello, and thank you for standing by for Baidu.
Health in 'twenty, one earnings call.
At this all participants are in listen only mode. After management's prepared remarks, there will be a question and answer session.
Today's conference is being Rick if you have any objections you may disconnect at this time.
I'd like to turn the meeting over to your host for today's conference Ms traveling.
I, just director of Investor Relations.
Hello, everyone and welcome to Baidu second quarter 2021 earnings conference call, but I did unequally distributed earlier today and you can find a copy of our web site as well as on newswire services on the call today, we have Robin Li.
Hmm.
Okay Cool innovation, Oh, EVP in charge of efficiency after our prepared remarks.
A Q&A session.
W discussion today.
Forward looking statements made under the Safe Harbor provisions of the U S. Private Securities Litigation Reform Act of banking 95 forward looking statements are subject to risks and uncertainties that may cause actual results to differ materially from our current expectations.
A detailed discussion of these risks and uncertainties. Please refer to our latest annual report and other documents filed with IDC and how long has changed baidu.
<unk> does not undertake any obligation to update any forward looking statement, except as required under applicable law.
Earnings press release, and this call discussions of certain unaudited non-GAAP financial measures <unk> press release contains.
You shouldn't be unaudited non-GAAP measures to the unaudited most directly comparable GAAP measures and is available on our IR website at IR talked Baidu Dot com.
As a 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.
<unk> delivered another solid quarter.
Of course, when you're growing 27% year over year.
Accelerated need to buy some advertising revenue.
It's like salt wrong, 71% year over year in the second quarter.
We are ignoring.
New era, where our technology is becoming more powerful and we are benefiting from the deployment of technology to upgrade China industrial competitiveness digitize urban cities and improved morbidity.
Trying to plan for the next stage of growth.
Apollo to recognize the need to align our strategy with state involvement that's the al protein.
The future that we want to build with our state Hogan.
All of our stakeholders.
Yes, you highlight a shared future humanity.
To support China's attached to achieve carbon neutral or buy something.
Your 2068 Baidu aims to reach carbon neutrality by 2030.
Through the use of <unk>.
Greens data centers Smart office buildings and uncertain.
In addition, we hope to improve urban traffic salt and lower carbon emission.
100 metropolitan areas across China, with all the butyl alcohol smart transportation.
And accelerate this week to E D.
For the math.
Our investments in taxi and car T V.
Leveraging technology to serve a larger population to achieve intrusiveness.
China's growth plan.
In June we introduced Apollo Moon fifth generation of Apollo.
The robo taxi vehicles.
Once again saw a 60% drop in cost per model basis.
It's a rapid pace autonomous driving technology advancement and cost efficiency improvement Apollo.
Well the taxi stands to become much cheaper than driver for higher ride hailing in the coming years.
Which will make robo taxi rock getting much more accessible.
Baidu Health is another example of expanding resources to a broader population.
Improved bleeding.
We are enabling close the loop telehealth online.
<unk> prescription and home delivery.
To free up hospital resources.
Critical treatments.
Concurrently, we are helping hospitals buying patient specific illness.
Their treatment specialties by leveraging our AI powered search and smart mini program.
We see great opportunities to use technology to advance sustainability and inclusiveness.
As we go through our operating highlights you will see other examples of how our AI powered happens naturally aligned because the schools.
This is due in part to our belief using technology to build a better world.
Turning to Q2 operational highlights.
Our AI cloud continued to see strong growth.
D C. Once again granted to Baidu AI.
<unk> the number one cloud provider in China in 2020 with for a public cloud.
Over the past decade as has been the growth driver for China plasma market, which sets up a strong foundation to implement AI solution that solve industry specific problems and flight urban leaving upgrades.
By differentiating with AI solutions, we have the opportunity to provide repeat.
Business with expanded applications and become a one stop shop across selling.
Cross selling.
And the other services.
In the past, we discussed empowering financial services utilities, and Internet media sector with AI.
Let me give you an example of how our AI cloud empowered the auto sector.
We are helping G V.
A leading automotive manufacturer to develop a multiyear digitization plan.
We can tell.
One setting off their private cloud infrastructure to moving tea leaves fitness onto cloud suite, leveraging baidu AI solution to advance GB high Tech manufacturing capabilities.
I O V security and risk management.
And for enabling Judy to provide cloud services to their automotive.
To their automotive supplier and customers.
Baidu AI is deployed into multifaceted involvement.
For example, triangle Fujian a city of population.
Million implemented Baidu AI solution habits water treatment plant.
Smart monitoring capability was used to provide early detection of malfunction that equipment.
Replacing labor intensive controlling and customized machine learning model was developed to predict water usage and dynamically adjust the water pressure of different water pipelines cutting.
Christy need by 8%.
Our employees feel a sense of pride when natural resource.
Ophthalmology managed and sustainability is indirectly.
Yeah.
In healthcare cloud, we have expanded into over 400 hospitals in 29 provinces.
And over 1500 primary care clinics in 11 provinces.
Leading solutions like our C D S F.
Resulting in rapid revenue growth at <unk>.
245% year over year for the first half.
According to Idc's June report Baidu deep learning platform became the most widely used in China, surpassing google's.
Our pedal pedal developer community reached $3.6 million up 62% year over year.
And if adopted by 130000 pins.
Baidu is large the Boston community helped improve our machine learning models and in mid July our AI tools and technologies.
Moving onto Acu Smart transportation as of June Apollo has signed with 20 cities to flag AC <unk> Smart transportation up from five cities a year ago based on a contract the amount of RMB 10 million and about.
Apollo also renewed agreements with nice it is to roll out their next phase of all AC Smart transportation.
Young urban roads, Apollo signed with <unk>, Quebec to deploy smart highway.
And the city to remotely I didn't find the need for highly maintaining.
Assessing the closure for poor weather conditions and identify travelers.
Oh gosh tall terminals.
Turning to.
Autonomous driving.
<unk> will continue to feed strong momentum.
Level of forecasting on pumping to go past reached 12 million kilometers for $7.5 million miles.
Apollo has received 278 <unk> permit.
Lacking 80 piloting.
And dispersed geographic region and on the wide ranging test scenarios.
Apollo monetization.
In Q2, Apollo go ride hailing expanded into Guangzhou, Our forest City operation and provided 47000 lives to the public.
Up 200% sequentially.
Customer satisfaction for Apollo go has been high.
Use of reading a whole 0.9 out of.
Five zero.
As pointed out earlier, our fixed generation robo taxi vehicles, so another 60% drop in cost per mile.
Baird to an average decrease of 62% in the first four generations of E D vehicles.
We plan to roll out Apollo go ride hailing across 30 cities over the next two to three years.
Yes.
E S P.
Great Wall motors become the latest the automaker to announce plans for E. S T.
Apollo automated valet parking will be installed in your wheat multis Suvs flagship.
Out later this year.
Infotainment door OLED for auto has been installed in $1.8 million vehicles.
265% year on year.
12 auto OEM.
The lifestyle Ford GM, Toyota and Honda.
<unk> have signed with Stuart last for auto for installation in 17.
And do all that.
<unk> continues to innovate the smart home device market for example, they always hung door, Alaska assistant allows one to conveniently other fresh home delivery flowers and other commonly used to go up in a matter of seconds civil conversational AI.
China's elderly population is slated to exceed to exceed 300 million.
So all those smart displays connected elders.
Mediatek senior.
And then maybe assistance and serve as a virtual companionship around the clock to conversational AI improving their quality of life, while allowing family members to monitor their loved one health and safety.
Malte.
During the June 18 E Commerce basketball, <unk> smart display and Yahoo, Smart pass for education market top the sell through on them that means your respective category.
Leading E commerce platform like J D hit on comp.
So I'll do is receiving high customer satisfaction spending well a higher price point product line and talking with Linda on units sold demonstrating how hardware can be differentiated high.
Hi.
As new input modalities and services.
Turning to the mobile ecosystem in June Baidu, App I may use reached $580 million up 9% year on year and daily login users reached 77%.
As an opening in App search App Baidu app, all sorts of users instant reply on various topics.
For example, mainly depending health consultation on Baidu health surpassed the $2 million in second quarter up 47% year on year.
In addition, more than 8000 industry expert spanning 14, other verticals such as legal finance and fashion are able to instantaneously reply to user search inquiries.
Through our AI building blocks.
When users.
Specific information austerity Baidu search.
And at vantage.
Managed page now accounts for.