Q3 2021 Baidu Inc Earnings Call

Hello, and thank you for standing by for the quarter too.

'twenty one earnings conference call.

At this time all participants are in listen only mode. After management's prepared remarks, there will be an answer session.

Today's conference is being recorded if you have any objections you may disconnect at this time.

Now I'd like to turn the meeting over to your host for today's conference Lynn.

Lynn Baidu as director of Investor Relations.

Hello, everyone and welcome to Baidu third quarter 2021 earnings conference call, but I did the earnings release was distributed earlier today and you can find a copy on our website as well.

As long as we're so they said on the call today, we have Robin me, Oh, cofounder and CEO, Don <unk>, our CFO Bocian, our EVP in charge of Baidu mobile ecosystem and how many you our CFO after our prepared remarks, we will hold a Q&A session. Please note that the discussion today.

It will contain forward looking statements made under the safe Harbor provisions of the private Securities Litigation Reform Act of 1995.

Forward looking statements are subject to risks and teeth that may cause actual results to differ materially from our current expectations for detailed discussions of these risks and uncertainties.

Moving to our latest annual.

Report and other documents filed with the ICC and hunger changed Baidu does not undertake any obligation to update any forward looking statement, except as required under applicable law. Our earnings press release and this call include discussions of certain unaudited non-GAAP financial measures. Our press release contains a reconciliation of the.

Unaudited non-GAAP measures to the unaudited most directly comparable GAAP and.

And he is available on our IR website at IR Baidu Dot Com as a reminder, this conference is being recorded.

A webcast of this conference call will also be available on Baidu IR website.

I will now turn the call over to our CEO Robin.

Hello, everyone.

We delivered another solid quarter in Q3 with Baidu core revenue growing 15% year over year, driven by a guy called growing.

73%.

Many years ago.

We double down.

Believing that it would expand our market opportunity and accelerate baidu for long term growth.

No no revenue accounted for 21%.

Baidu core revenue in Q3 and remains a strong growth engine for us.

Yeah, we are.

Bringing innovation across the consumer price and the public sector on the backdrop of policy tailwind.

And the rising tide of Tech innovation in digital transformation.

Drawing Tonight.

T and intelligent mobility.

[noise] Baidu AI cloud.

Empowering enterprises from traditional industry, and the public sector to better serve customers and faster.

Greater efficiency.

At Baidu World in August.

Which was broadcasted on CCTV.

We showcased baidu AI solution, including smartphone.

Smart quality assuring to automate the screening or electronic component manufacturing Assembly line.

Smart logistics.

To optimize the fleet management.

Smart monitoring to ensure a steady energy supply from the utility sector.

We are excited.

Excited about Baidu AI call computing.

Fast growth.

Leading companies across the industry.

Opting baidu AI cloud solution to improve their operation.

And we are all working hard to standardized such a solution.

Industry adoption.

An example.

With our end to end solution can postal asked path and VAT for financial services sector.

Our AI cloud customers are recognizing baidu baidu spanning proposition with strong consumer internet reach.

For example, we are winning.

Smart public parking project with our solution offering the convenience of collect public parking fees by a baidu maps without the need for me to make.

Hospitals are choosing baidu for our cloud solutions that fit patients trips to the hospital with continued.

Patient care for chronic disease.

At home through Duer OS smart display.

According to the World Health organization.

On one screen.

$5 million low traffic deaths every year.

Apollo autonomous driving aims to.

Reduced traffic accident.

Salary mobility to EV and provide greater passenger safety, especially after dark.

Upon algo has become the largest robo taxi service provider in the world based on our estimate.

Yeah.

Our leadership position in autonomous driving well land trends to ft, and due to auto.

Deep way a JV between <unk>.

Hi, Duane line breach.

Leading trucking company in China recently unveiled its first generation EBIT.

EBIT truck powered by Apollo to automate rote front.

Marking Apollo entry into the multi trillion dollar truck market.

Deep way, Leverages, Apollo, leading autonomous driving capabilities and lionbridge at market wage.

<unk> is making great progress.

Asset plan to release, the FERC content production car at the Beijing Auto show early next year.

So you do well showcased apollo's intelligence self driving and incoming features.

With the aim to deliver.

Mass production.

2023.

Okay.

For the third quarter, China's GDP growth four 9% much slower than the 18%.

Percent and seven 9% growth rate in the first two quarters.

Our app.

<unk> has been impacted by sectors like education.

Will estate and home furnishing travel and franchising.

We expect this headwind to continue in the near term.

As we look forward there are also positive coming into play.

For example.

Baidu App is reaching over 600 million users each month.

Our hosted marketing solution is becoming ever more popular.

With like owners and the trend is for the internet to become more open.

Non AD mix up over one fifth of module.

Corbin and grow over 70% year over year.

We stand to benefit from China's plan to leverage technology to grow the enterprise and public sector part of the economy.

ESG is at the heart of Baidu absolutely.

As we leverage our strong Internet foundation to grow our AI at scale.

Apollo mission is aligned with lowering carbon emission from making traffic in large cities smoother to accelerating the adoption of evs through Gee do Saul.

Software for EV and EV powered right.

And Haley.

In June we announced our goal to become carbon neutral by year 2030.

Our young Gen data center was awarded the carbon neutral Datacenters leader certification.

And MSCI named Baidu, that's one of the two companies.

In China with transparent reporting on greenhouse gas emission.

It's net zero tracker.

Turning to Q3 operational highlights.

Baidu AI cloud continues to see strong growth leveraging our world class AI technologies and our.

Capabilities to provide one stop shop solution to our customers.

Our AI solutions are being increasingly adopted across different industries and for different scenario.

We enriched our cloud offering is the release of an end to end AI cloud.

<unk> solution.

Powered by Quinlan, AI cheap and deep learning framework to help financial services firms digitize and automate their operational processes in lifting leading customers like China life and bank of Jiangsu.

Baidu AI cloud is expanding into industrial internet by partnering with industrial Park and municipality.

Our deployment to serve large pool of enterprises is importantly.

Last year, we spent Panama implementing our AI path in.

Korea, economic and technology development loan.

Serving approximately 100 enterprises.

Our deployment of AI path to enterprises in tangshan, including those in their economic development zone took only three months.

Thompson host 40000 impacted most.

Most mostly manufacturing base and we believe our AI solution has helped the company improve their operational capabilities.

Baidu AI cloud.

Moving into its marketing.

Lithium.

NASA co heritage.

Spike with 800 year old bridges and waterways.

Southwest, China, if using Baidu AI solution to keep the cities safe and clean for visitors.

Leveraging the digitization of tourist areas Baidu AI cloud help local authority timely detect and.

Address infection, such as illegal parking and public littering.

Our success in Lithia is leading to project with Chengdu sooner in other cities.

Moving to <unk> Smart transportation Baidu has been adopted.

Adopted in 24 cities up threefold from last year based on contract size over RMB 10 minute.

About half of Acu project signed in Q3 came from repeat customers.

In addition to support.

In addition to.

Supporting policy tailwind.

He is benefiting from the value we deliver to the public sector.

For example, the Acu Smart transportation solution that was deployed in Guangzhou earlier, this year helped improve congestive traffic by over 30%.

Smart parking has made it easier for local that then to find available parking spaces shortening travel time.

Turning to autonomous driving.

Apollo level for testing has accumulated over 10 million MAU or 16 million color.

<unk> setting.

New milestone.

We continue to receive green light in our application or autonomous driving testing.

We demonstrate to local authorities Apollo progress in technology and operation.

Apollo has received 411 autonomous driving permit.

An increase of 200.

37 permits from a year ago.

Our progress in autonomous driving technology.

Operation and continuous cost reduction positions us for ride sharing monetization in a few years at.

<unk> paid right scale.

In July Baidu opened at third Apollo Park in Shanghai.

10000 square meter facility housing Apollo cloud and data operations.

Shanghai marks Apollo goes first ride hailing service opened to the public following the series.

And Beijing, Guangzhou culture and tundra.

In August we introduced the Chinese brand for Apollo Global quite Paul.

Phonetic interpretation of robot taxi in China.

Apollo is resonating with ride hailing passengers with total right.

Is clean quarter on quarter to reach 115000 in the third quarter.

<unk> is off to a good start.

We set an ambitious goal to expand operations into 65 cities.

The year 2025, and 100 cities by year.

Year 2013.

Turning to AFC enduro App in vehicle infotainment software, we motor Chinese EV OEM signed with Baidu to install Apollo navigation pilot in its new W. <unk> SUV.

<unk> Apollo.

The partner network to 31 mix, including those from automakers like.

G M Port Toyota Honda and Great wall.

Turning to do auto.

<unk> has completed its first vehicle when panel testing.

Upon full side oil and clay model.

We have identified the model design schemes and engineering development and design optimization are underway.

Do you do well showcase the latest ASD demonstrating the appeal of smart Tvs.

Advanced autonomous driving and smart in cabin features.

We hope to success. After you do well increased appeal of Apollo solution to other automakers.

Onto our OS.

So I'll do my game was ranked number one in marketplace.

<unk> globally and number one in smart speaker in China based on second quarter shipment According to strategy analytics.

Donnelley and IDC.

A key growth driver for southeast market play, it's a shift of user time spent at home to large screen.

For services like Carol Alky, shorthand long videos online games education services video conferencing and other visually oriented activities.

Popular mobile App.

Hearing duer OS skills.

Like doing quite show right.

Damping 58 Dot com.

And Kentucky fried chicken.

Name a few.

In addition, sardou completed its series B financing and a market valuation are fine.

Four five.

$5 1 billion in August.

Nine months after a series a financing at $2 9 billion.

<unk> remains a super majority shareholder after the series B round.

The continued strong performance of our new AI been would not have occurred without our relentless investment in technology.

And our pursuit of.

Better product and more customer adoption from our technology leadership.

Baidu released a plateau ex Apple the worlds first 11 billion parameter pre trained dialogue generation model.

Achieving breakthroughs in Chinese.

Chinese and English conversation.

Plateau allows for different kinds of conversation with users, including chitchat knowledge based dialogue and conversation on Q&A.

Which will be incorporated into shall do in the future.

Turning to mobile.

<unk> ecosystem daily.

Daily logged in user in Baidu App reached another all time high at 79% and in App search queries was up 11% year over year, reflecting a better search experience.

From Baidu App.

We.

Continue to focus on deepening the service offering of our key verticals.

For example, Baidu health has built a strong community of.

Medical expert that allow users to <unk>.

Frictionlessly move from search to telehealth consultation.

We recently enabled doctors in our network.

The right prescription for online consultation and home delivery.

Baidu App now offers instant reply to search queries from over 30000 industry participants spanning 19 industry verticals.

Instant replies.

<unk> were up five votes from a year ago, and 40% are paid services.

For example, users to search for tips on job interviews.

Readily connect to career advisors to get help on reviewing their resumes and selecting career training.

Graham.

Instant replies have enriched the baidu search experience further driving the vibrancy of our in App search.

Revenue from managed page reached 43% of Baidu core advertising.

As we make doing based online for merchant simpler.

Through Baidu hosted marketing cloud.

For example, mania in one health.

Physical checkup clinic.

<unk> in Shanghai opened a managed page storefront, allowing users to grow its services.

With customer service make payment.

<unk> leave comments and share reviews.

Monthly orders increased 443 months after using managed page promotion.

Search by nature is open.

And we are benefiting from the trend to make the internet more opened in China.

Our E Commerce feature is seeing good progress.

In September the number of third party SBU from China's top E. Commerce site surgical on Baidu reached almost $1 billion and E Commerce CMV on Baidu, though small growth 90%.

Tony.

The open nature of our mobile ecosystem is leading smart speakers smart maker.

Smartphone makers to select Baidu Smart mini program at the landing page for their browser search.

<unk> from such.

The Corporation has reached $24 million and we believe such trend will enhance user experience and monetization or union search.

Last but not least.

I want to welcome Gordon who has joined US recently at our new CFO.

Your own brands.

<unk> cloud financial management and capital markets experience.

I also want to thank <unk> for his four years of service at Baidu, Seattle, and we expect more great things from him.

CSO.

With that let me turn the call over to Laura to go through the financial highlights.

Wenger Robin.

Hello, everyone.

Im very excited to have joined Baidu recency.

Participating on my first earnings call at Baidu.

I look forward to meeting with everyone in the coming months.

Now, let me walk you through the details of our quarter 'twenty to 'twenty one financial results.

<unk>.

Used in my discussion.

<unk>.

As stated otherwise.

<unk> revenue was RMB 31 billion.

<unk> dollars 5 billion up 13%, one three year over year.

Baidu cost Q3 revenue reached RMB 27 billion August.

A monitoring epilepsy.

15%, one five year over year.

Not advertising for Baidu core reached RMB five 2 billion.

21% of Baidu core revenue.

Cloud revenue was RMB.

8 billion up 73% year over year.

Our AI cloud growth is benefiting from the demand for cloud services by customers from the Internet and media financial services energy manufacturing and public sectors.

ACS matches, what patient is another growth driver for AI cloud revenue.

We're fighting that.

Automakers, who subscribe to our infotainment solutions.

So interested in Apollo SP, plus we are reclassify asti revenue into AI cloud as the revenue is quite small now.

Approximately 1% growth year over year to AI cloud.

Net result, after the offer.

Retroactive adjustment.

IP and OTI subtle continues to grow great progress.

For higher ASP products is growing.

Customers come to appreciate the value of deal.

Certain services revenue continues to grow.

Baidu core revenue was RMB 19, 5 billion up 6% year over year.

In App search advertising was solid partially offset by the weakness in G&A or revenue <unk> revenue was RMB seven 6 billion up six.

Assist that year over year.

<unk> subscribers reached one 4 million in September and the membership revenue was up 8% year over year, mainly due to the refund Matt.

Membership strategy improved monetization capabilities.

Cost of revenues was RMB $16 one.

Personnel up 26% year over year.

I'm really resulting from an.

The increase in pack content costs, and our cost of sales associated with new AI business.

Operating expenses were RMB 13, 5 billion up 46%.

<unk> per year.

During the third quarter, we incur a contingent loss of RMB 976 million pertaining to the legal proceeding you're welcome former advertising agency.

Excluding such contingent loss operating op.

Operating expense was up 37.

35%.

Primarily due to an increase in channel spending.

Promotional marketing personnel related expenses.

Non-GAAP operating income was RMB four 6 billion.

$731 million.

And non-GAAP operating margin was 15% one five.

Non-GAAP operating income for Baidu core was RMB, five 8 billion or USD.

U S dollar and $904 million and non-GAAP operating margin for Baidu core was 24%.

Adjusted EBITDA for.

It was RMB 6 billion.

$925 million.

Thanks.

Adjusted EBITDA margin was 19%.

<unk>.

Our adjusted EBITDA for Baidu core was RMB 7 billion U S dollar.

One 1 billion.

Adjusted EBITDA margin for Baidu core was 28%.

Cash and short term investments for Baidu call as of September 30.

2021 was RMB $183 6 billion.

<unk> dollars 25 data.

Free cash flow for Baidu, excluding IC was RMB, two 9 billion <unk>.

$449 million.

Baidu call has approximately.

Snacks solving price ourselves to a temporary facility 2021.

As Robin mentioned.

China's GDP growth has slowed over the last three quarters and sectors in our businesses such as education.

Hey.

Punishing.

So that level and franchisee has been negatively impacted.

The resurgence of COVID-19.

<unk> recently local governments are putting in place preventive measures.

Routing currencies travel suspension mass testing.

Consequently, our own advertise.

<unk> tightened business remains soft.

The quarters before normalizing.

Turning to Q4 guidance.

For the fourth quarter of 2021.

Baidu Express.

Revenue to be between RMB 31 billion, which is U S dollar.

Chunk billion, RMB 34 billion, which is U S. Dollar five 7 billion, representing a growth rate of 2% to 12% year over year, which assumes that baidu core revenue will grow between 5% and 16% one six year over.

<unk>.

The above forecast takes into consideration that the current COVID-19 situation in China, which is still evolving and business visibility is limited.

The above forecast reflects our current and preliminary view, which is subject to substantial.

<unk>.

Before I turn the call to a preacher, let me recap the quarter, China is adjusting its economy costs drivers wasted the introduction of a new five year plan in March of this year historically, the Chinese economy has been very resistant to such adjustments and new drivers allowed.

And so GDP growth to come back.

We are optimistic about China's future, especially when the current COVID-19 situation.

Under control.

It's quite clear that China will leverage technology to grow the enterprise and public sector portion of the economy.

Leveraging.

Aging AI R class services.

<unk> business continued to outperform the market.

Growing 73% year over year quarter, Apollo has been making great progress.

Al for autonomous driving testing, surpassing 10 million test miles.

Allow me to robot taxi ride sharing doubling rights.

Sequentially too.

Ft, signing on new partners to do to finish the wind tunnel testing of his first model eight months after it's Z or chunks to build a team.

Moving out of China.

China is starting a new policies to support energy, we are hopeful that baidu.

Baidu will benefit from the promotion of decoupling, nitration, us where leverage AI to minimize Chevy conjunctions and thousands of cities across China.

Have a salary the switch to EV.

Due to ASP.

Our political robot taxi.

Our mobile ecosystem.

Right.

Reached 600 or $7 million up 12% and then logging reached 17, 9%.

Our app business is susceptible to macro.

<unk>.

While women and what <unk>.

Gross rate to peak.

When GDP grows salaries, operator with that let's now open the call to questions.

Certainly thank you ladies and gentlemen, we will now begin the question and answer session.

If.

You ask a question. Please press star one on your telephone Lake for your name to be announced.

Alicia cancel your request please press the pound or hash key.

Participants are requested to restrict to one question each time.

Question comes from the line of Alicia Yapp from Citigroup.

Please ask your question.

Hi, Good morning, good evening robbing wrong, Dan Congratulations on your new role and thanks for taking my question.

I actually try to feeding two if I may so for the fourth quarter Baidu core revenue.

If you win.

You provided a wider range, which is 5% to 16% can management elaborate this scenario in this situation that you're baking into the low end of the 5% what would that imply.

<unk> revenue growth.

AI cloud.

Revenue growth.

<unk> got we are not in the know.

Similarly, what would be the scenario.

Hi, Dan.

Okay.

Would that come from better macro.

<unk> Kop project that will be closing.

And then secondly.

Just India.

Overall broader.

Eregulation backdrop, so half Baidu started to have any of these questions with other major internet clear as it related to these potentially opening up of your social network content to the search engine.

Well go ahead.

What.

Is management view on the potential benefit and upside to Baidu fundamental going forward and also any discussion you have with some of the ecommerce leading player to allow baidu to call into the E.

E Commerce content item on Debbie's yourself.

So any.

These color you can provide would be appreciate it. Thank you.

And these are only allowed to have Herman answer your first question and I'll answer your second one.

Hi, everyone.

So with regards to our guidance, we normally guy.

Truly assume that we will.

Hit the mid point.

<unk>.

What do we factor in.

Or would it be it goes to the low end I think.

Obviously Robin has mentioned.

21% of Baidu core is non advertising.

Almost 80% is advertising and.

As we're in the process of trying to.

Control COVID-19 that obviously is the highest rates right now in our model, we assume that COVID-19 will be under control.

Yes.

For the most part in China by the beginning of December we have seen since guangjo's.

Situation that normally.

Normally.

Yes.

60 days after that happens.

It gets under control at this time.

Spreads to several cities.

But given the pattern that we've seen given the for example in Beijing, we have seen the cases slow down we think that that's doable situation.

Secondly is.

No.

The other side of the businesses.

Cloud right. So when you think about the cloud.

Trying to recognize revenue trying to make sure that the software is.

Install.

It's a more complicated process than advertising so as youre getting.

To your end.

The risk there is that we deliver the software, but it is not up and running.

So we cannot recognize revenue and Thats always the case when you have a <unk> businesses. So I think that there is a risk there with our cloud business. There is a risk there with our transportation. So I think those are the key.

In this factory.

I would call out.

But as we said normally when we.

Go out with the guidance given the information that we have today, we think we're more likely to be somewhere in the middle.

Hi, Alicia I'll take the second one.

<unk>.

Reiterates that open and with the living of being able to share content across apps provides a better user experience and also we are delivering on this will be going forward trend.

So actually we already see it.

Things are happening around this direction. So for example, you know some developers or more willing to open up there.

Ecosystem nowadays because it's also good for their own business, so as Robin already mentioned.

Our e-commerce effort, almost 1 billion skus from the top E Commerce says or now such bolt on Baidu.

And then the GMB.

Baidu.

Gross 90% sequentially.

Another Great example, I wanted to share, which Robin already mentioned <unk>.

The major smartphone makers in China, or adapting our open source Smart mini program framework for their in House brothers.

This adoption users.

We will have better experience and are the developers or significantly can significantly extended their reach through the meter brothers in China.

Youre right you know we believe we know.

We will benefit from the openness of the whole <unk> and we are seeing things are happening that way.

Thank you.

Great. Thank you.

Comes from the line of peers from a buy from Goldman Sachs. Please go.

Piyush. Your line is open. Please go ahead.

Thank you for taking my question.

When I look at the guidance that you talked through Herman it appears to be generally slowing down and we realize it's a very high base for the cloud business in the fourth quarter of last year. So as we look at that pace of growth and we go through the core which looks like it's 10 to 15, 5% to 16% range and we try to.

We're all in the advertising vertical the weaknesses and whether it's COVID-19 related or macro related or third party related.

As you exited third quarter, what was the pace of decline that debt with the commencement of the fourth quarter. If you could take us through that pace. So we can understand where we might.

And up to a certain degree and also I know, it's very early to talk about it but broadly speaking into 2022.

With the opening up of platforms wait so much that's going on from a business perspective on the AI front as well as on the client front.

What is the sort of pace of growth.

Can we expect on the call.

Can you repeat that last sentence I missed that.

As we as we look at so we have seen a slowing down into the third quarter, which is probably one of the reasons why you're giving a very wide range for.

<unk> for the call.

But there's so much that's going on that is.

Leads to a level of optimism for what 2022 would look like including the opening of the systems opening up of platforms. How much search you can you can originate.

E Commerce vertical and Thats just the e-commerce.

Space.

I don't know how many other vertical that you can tap into so as we think through 2022 and the core pace of growth.

Any feel is around how that would be would be great.

Oh.

Okay.

The answer to that.

So so.

We talked about.

Q3, right. So when you look at the advertising Q3, we've been gradually slowing down in terms of our growth and.

In Q3, what we've seen tax sectors that have impacted us.

Some of these are pretty obvious like education, like real estate and home furnishing.

Like travel.

Franchising. This these will probably be more related to COVID-19.

So these kind of situations are.

Going to extend into Q4, and we suspect that this might be a multi.

Multi quarter impact.

So base.

Based on what we have seen right now we expect that.

Advertising for Baidu core, which was up 6% over year over year in Q3.

Probably.

Go into us.

Lower growth rate.

Q4.

Assuming that COVID-19 gets.

Under control by the beginning of.

December so a lot of uncertainty.

If that continues to.

Not yet.

If that continues to.

Have you cases every day and then our advertising <unk> performed worse than that.

So I think a lot of it has to do with our COVID-19, but other other.

Factors.

Impacting debt such as our regulations and so forth.

I think with regards to the <unk>.

Hi businesses I think.

COVID-19 does impact that a lot.

As we.

But before that are.

<unk> is based on our solutions and we have to customize with certain customers and so forth. So if we are unable to travel or we're.

We're not able to be as fluid as before that will have some impact on.

Others are just the normal end of the year.

Trying to complete these <unk>.

Enterprise solution, sometimes give.

Given the difficulties that we have right now traveling a balance and so forth why not make it.

So I think we're just putting that.

Uncertainty in there with regards to our range actually we've been pretty consistent if you look at over the.

We target.

At the Baidu consolidated level is always a plus or minus <unk>, 5% I don't think we've made any changes in recent quarter.

So going into 2022.

Kind of hard to look out so many quarters.

Into 'twenty, two but what we have seen.

Last year advertising as I mentioned, we think that this type.

Hi quarter impact because.

For example, COVID-19, it comes and goes and then the regs.

Regulations, and so forth and when we look at talk to our peers in the market.

There seems to be a consensus that this could be.

Beyond one quarter. So so I think thats, where we are advertising sure enough. There's also that upside with the opening up with a different options and so forth, but it's hard to bake that in until we actually see more development. So we'll keep you guys apprised as that comes.

The other side of this is that we're.

We're pretty optimistic with our.

AI businesses.

Robert.

Could be.

We've seen year over year.

Look at the last few quarters, we've been always growing above the market speed.

We continue to believe that we can grow above the market. If you look at our MBR for example, it's.

Been gradually improving or increasing.

So we're coming.

Feeling pretty good about that one of the thing.

Is that in our cloud business SaaS businesses, the past the peak right now.

We were ranked by IDC as the one with the largest.

Nice solutions in China, and this is a piece that the fastest of all our cloud solution.

So I think we're pretty.

Feel like we are in the spot right now because of the policy trends supporting technology supporting leveraging AI for enterprise is also for the public.

Yeah.

Yes.

Yeah, Let me just add.

About at the opening of alcohol e-commerce platforms that will enable.

Users to do transaction.

Baidu mobile ecosystem, especially.

Baidu App.

That's more easily.

Given that the e-commerce infrastructure in China has matured.

Very easy for people to pay using their mobile phone and.

It's a very quick to get something delivered to your home.

And.

Now that we can index.

Our flat Q on Baidu.

We expect.

Yeah.

A theory.

No no.

Quick increase in terms of DMV.

No David.

The revenue contribution directly from transaction well not be large but one.

Users get used to do transactions on the Baidu platform.

I think the overall conversion rate for our advertiser as well also improve so.

I think that the.

Benefit will be.

Well beyond simple transactions on the Baidu platform.

Form.

Sure.

Alright. Your next question comes from Alex Yao from Jpmorgan. Please ask your question.

Thank you management for taking my question, and then well come back to the Internet the investment community.

So I have two questions number one is we haven't seen a lot of regulatory and operating environment changes recently.

<unk> of course, the IDF pay policy change for example.

Implementation of <unk> on the first of November can you talk us through the.

Operational and the financial impact from those changes.

Particularly how should we think about the union business into the next couple of quarters.

And then second question is regarding the general corporate strategy.

Well the advertising revenue outlook.

In the week.

For the next couple of quarters, how do you guys think about the general corporate strategy. For example are you pushing the investments on headcounts.

And the user acquisition costs.

And I think.

In the past you.

Had a very tough.

Tough cost control and our topline was under pressure are you thinking very differently. This time.

Any thoughts on the general corporate strategy in the current advertising revenue outlook will be helpful. Thank you.

Yeah.

The first one.

So on the.

<unk>, so that because majority of Baidu core.

That business does not rely on user data.

It's not like the some of the U S companies do.

The impact on that side is less pronounced actually.

But in general you know.

Awesome.

<unk>.

Strives to be a global technical technology leader issues such of this type of data privacy and security has been taken into consideration for long well. So many years ago before this topic, even cognizant cut the industry's attention and we saw the need to establish internal committees.

Two defines could to policies and procedures to address data privacy data management and just curious.

And also we are working with the leading companies globally and domestic trade ideas and best practices, but we also share our experience with authorities to help the industry address this.

Complicated issues.

Given all the efforts we have been I think the impact is that is not that pronounced.

Okay.

Yes.

Okay.

Okay.

<unk>.

That's helpful.

Comes from James Lee from MS. Sorry go.

Yes.

Okay.

Yes.

So.

Alex you've mentioned about.

Our corporate strategy.

So.

Where we are at this time is that.

We have our expenses you can look at.

Mainly.

<unk> buckets.

One bucket of spending is related to our growth with our new business, whether thats in cloud, whether thats, an intelligent driving and so forth and you got it.

Ahead of time.

To make sure that your sales force is there to make sure that people who are doing a pre sells is there to support future growth and as we mentioned earlier.

That piece of the business is still growing very fast when you look at non amortizing we're growing over 7%. So you got to build the funnel you got to just get the people and so forth.

If that's going to continue secondly is a new AI business has higher cost of goods sold whether you were talking about selling.

Smart devices, whether youre talking about.

Delivery.

<unk> solutions or.

Smart transportation, Okay. So those things we have to factor in for.

Either new business, that's just part of it and we will look at the gross margin very carefully but you still have to fund.

The opex, the salespeople or the development people to support their business growth.

We're leading in those businesses, so we feel comfortable continuing to invest.

The second pool of investment that we.

This.

As with our mobile ecosystem, and where you see there.

Mainly it is.

Reported.

Our baidu ABP so.

A big part of the spending is channel expanding our marketing spending for the Baidu ABP. This year, we've been pushing of Baidu ADP.

We highlight.

Which will allow us to tap into users from lower tier cities and that has been working.

And in addition to that.

We've been beefing up some development in that area to help.

Search experience.

So I think we manage that.

That side of the expense expenses, especially channel spending.

NOI, so as long as we're seeing positive ROI.

We will continue to spend in the channel and marketing areas.

Yeah.

I'd like to.

Yeah.

Emphasize that our investment is pretty much packed with growth potential.

We see a lot of growth potential in the AI enabled new businesses.

We continue to aggressively invest in that area mobile ecosystem in general.

<unk>.

Now for Baidu, I think the overall mobile Internet marketing China.

Maturing so we will use.

Disciplined too to balance our investment and top end.

<unk> growth.

Great. Thank you. Our next question comes from James Lee from Mizuho. Please ask your question.

Great. Thanks for taking my questions. My question is on intelligent driving autonomous driving and obviously, there's a lot of moving parts in this business right now.

You guys, where you lay out your.

Plans for Robo taxi can you also lay out the road map and how Apollo can achieve a meaningful presence and connect it and infrastructure and OEM licensing your technology. So what I mean is that does your footprint, obviously smart transportation.

Rotation influence Oems decision.

To choose to autonomous driving solutions.

<unk>.

Yes.

Hi, James.

Apollo.

Platform for both smart transportation and automotive.

Autonomous driving it has.

Uh huh.

<unk> has gained a lot of.

Partners customers.

Okay.

And so on.

We are we being.

A leader.

In many of the France, including Robo taxi as a nation that property.

Largest robo taxi service provider in the world by number offline.

All right, we provide and.

Open to the public in.

<unk> cities in China and.

For many of those areas. We also have.

Smart transportation projects going on.

Government pay off too.

Install.

<unk> unit and also software systems to.

Better manage the traffic and health.

You know that I'm striving become.

Safer and greener.

We also worked with quite a number of OEM.

<unk>.

We also provide.

Infotainment system as well as.

You know.

Autopilot or navigation system.

Yes.

And we have gain on a number of OEM customers. So all in all.

The platform.

Hello connect.

Our transportation OEM.

Ride hailing services altogether, and we are quite confident that.

We will continue to lead the market and even become dominant in the future.

Thank you. Your next question comes from John <unk> from Barclays. Please go ahead.

Thank you very much for taking my questions.

First off.

<unk>, two both Permian and Rome Iron New Rose.

My questions.

Yes.

Related to your.

Apollo autonomous driving and a robo taxi as well just following up on the previous question could you elaborate a bit on the pipeline for <unk> two in terms of when the Assembly line manufacturing facility will be ready what.

What kind of scale, we're talking about we talked about mass production in 2023.

And you talk about your partnership with Lionbridge for semi truck.

And Judy just announced ambition for the EV semi truck.

A couple of days ago I think.

I'm wondering since you're a big partner do you have any plan to work with them for the semi truck EV.

<unk> and then lastly on Robo taxi.

I recall I may have read somewhere you may have commercial operations up and running for a robo taxi sometime next year is.

There you can share with us. Thank you so much.

Okay.

Alright.

Like I mentioned during the prepared remarks.

We are planning to launch the concept protection or early next year at the Beijing Auto show with those that car will be.

The final you know shift and.

Architecture.

Four.

<unk>.

One it is available for sale.

In the latter part of 'twenty 'twenty this way.

No.

By mass production, we mean.

Everyone.

One heavy consumer can place an order or two by the G. Jucar sometime in the second half of 2023.

Of course, it's too early to predict how many units we can sell at that time by the way.

All very excited there.

The features.

We're putting in and the value we can offer to our.

Consumers.

When it's available.

In terms of <unk>.

Trucking, it's a it's a huge market that we already have a partnership with Lionbridge.

As you know is a strategic partner of Baidu.

So we will we are open to all kinds of collaboration with them and.

Again, this kind of offer.

Collaborations are not excel.

School safe.

Apollo is an open platform we.

Can work with everyone and we would like to help a lot of.

<unk>.

Companies to become successful.

And on the commercial operation of Robo taxi.

We can charge right now in a couple of the areas in Beijing, and Hangzhou and we are applying such license.

Licensing in other cities.

It's a you know.

Very quick ramping up process, we are already providing we already provided 115000 right in one quarter.

Q3, and in Q4, I think that number well.

Continue to increase and this is probably much much larger than the reported number you can here anywhere else in the world.

Great. Thank you. Our next question comes from Natalie.

<unk> from Haitong International Please ask your question.

Hi, good evening, Thanks for taking my question Congrats.

My question is regarding your investment plans going on your own before.

So that's why it will take that.

Yes.

Let's look at our development history of Ali cloud when the revenue scale approach than we do.

Tend to be at its annually.

The loss ratio actually my oldest significantly so shall we expect the margin profile of company ought to improve next.

I felt I.

I called notable scalp, which also about I wanted to be.

Oh Harsha raised through the modern channel.

Our accomplishments.

What I want to walk.

So far that entitle joggle, what kind of the investment scam.

Sure.

For months to want to walk on how could that impact the margin.

Yeah.

Okay.

Yeah. So.

On the.

AI cloud.

I think.

Yeah Yeah.

Yeah, I think when you when you talked about.

The other.

Other cloud players Theyre talking about scaling with regards to US right as we've talked about before as it is a smaller piece of our business. What we're more excited about where we're differentiated in the market as our SaaS.

And as I mentioned earlier SaaS is the fastest growing piece.

<unk> of our business.

And when you look at us as a as we talked about at Baidu World.

If theres several factors would be close to our margin improvement right.

As we come out with new solutions working.

And new customers.

The first project first few projects, we might have to spend that extra time in order to integrate with your legacy system in order to build tools and so forth, but to go up and running when we're going into new industries.

That would also.

If there is that ramp up cost to be able to.

With that our current solutions to that new industry. So you are seeing with our fast growth as Robin mentioned, 73% year over year growth is much faster than market right now and we could not have done that without going into new industries with new solutions without you know consistently getting new customers. So at the.

Early stage, where.

We're just expanding market expanding customers, but youre not going to see good margins, but when you look at a particular solution over time, when you're looking at a particular customer overtime youre seeing margin improvements and we.

I went through that in very detail.

During the.

Two of our presentation and our IR can go through that with you.

Again.

On those things but.

This is a proven business if you look at our counterparts in the U S who are in the SaaS.

Market.

See the same trends, so we're pretty confident that as we.

Continue to.

Core businesses here in the beginning youre not going to have a good margin because you have to customize but as the product line becomes more standardized as we.

Become more standardized solution by industry, and so forth you're going to see that margin pickup. That's number one number two is the proportion of SaaS.

<unk>.

It is getting hired versus asked and asked as we know because it's a commodity cloud is just going to have lower margins. So you have several trends that are playing in our favor. So I can see it a few years out you're going to see.

Margins are improving.

<unk> intelligent.

Driving.

Intelligent driving I think there it goes.

Pieces as we talked about before.

Times driving is the technology and the out of that.

Ways to monetize right.

There is.

Yes.

Infotainment.

Business right.

There is the.

Well Paul.

The comps driving.

Navigation pilot so quick.

So that is a business, where you have to invest upfront with our R&D and so forth, but when we sell it on a gross.

And the level of that gross margin is usually a pretty healthy compared to other.

Businesses.

There is.

Other piece.

Piece.

Apollo is smart transportation Smart transportation is mainly.

With the government sector and so forth.

Rosemont is.

Very complicated solution so.

Those margins are.

Pretty healthy, especially when you compare to a business like that.

So I think when you're going into smart transportation.

Factors that impact the margin very similar to what I described earlier coming.

Out with new solutions.

When you are working with new cities, you got to make that investment.

With new solutions, but as we're working with the same city, we understand their legacy system will go out towards and so forth over time with a particular customers we're seeing them.

Margin improvement right so I'm.

I'm pretty confident because when you look at us.

Growing on the one hand.

Bob You mentioned smart transportation the customers went up by three four your year over year, so the new customers theyre going to do.

<unk> margin on the other hand half of that business.

Our repeat customers that's going to improve so I think over time.

We see as we go for the next few years that more and more revenue going to be reoccurring, which is going to have.

Okay.

Yes.

Yeah.

Alright. Thank you Amit your question comes from Gary Yu from Morgan Stanley. Please ask your question.

Alright, Thank you for the opportunity to ask questions I have one follow up question regarding the opportunities.

The open up open up off the Internet.

Besides there is great opportunity from both the e-commerce space and also potentially content space.

But at the same time.

Producers have already.

Got into the habit of doing those transactions some of the other competing platforms.

How are we going to kind of changing some of these user behavior to start doing more kind of e-commerce transactions on Baidu and as a result of that are we going to kind of go into another.

Tom do you have asthma cycle.

Crying traffic and end users.

On these transaction based.

Traffic. Thank you.

Yeah, Gary I'll take this question actually.

We see the users' behaviors in our web search you know.

Before that people do their making their final decision to buy something or not so they come to baidu.

For more information. So this is how we step in to help them to do the transactions actually.

So also as Robin just mentioned right so the infrastructure for.

Transactions in terms of the payment of delivery or.

It's pretty.

Maturity in China, So on that side and you know once a week gave the user a comprehensive information for them to make it right.

Even people will come back again for there.

Are there you.

No transaction.

In terms of the you know getting more traffic I think you know for.

For now we.

Still have tons of actually do their search volumes.

Baidu for not just the typical e-commerce, <unk> and or other questions you know priorities related to transactions.

So you know that's why at this stage and we are trying to.

I'll make the transaction experience as smooth as possible on Baidu as a platform.

We have been working on this for a while seems weight.

Started.

King.

Mini programs and managed pages.

And by.

So that's how we can not only get the right information, but also you know done.

Have the rest support for this transaction.

Relative to <unk>.

Bill.

Alright. Thank you. Our next question comes from Eddie Leung from Bank of America. Please ask your question.

Thank you for taking my questions.

Two questions on your.

Cloud thesis.

The first one is about hybrid calling private cow and the government is pushing for the awareness betas acuity are what will that be a potential increase in demand.

For private calling hybrid cloud versus public cloud and how might that affect your thesis.

And then secondly.

I remember Robin you mentioned that earlier.

Pretty interesting point.

You guys have been focusing your how pieces on a song and end to end solutions.

While some of your industry peers seem to be emphasizing more on the.

So we think the modules are they component capabilities and performance, so probably a bit more about.

A lethal form of marketing.

Baghdad right. So could you share your thoughts on and the difference between the client thought these two approaches.

As they get thank you.

Hi, I think I think youre right, given the regulatory environment changes I think more and more.

Customers would want to.

A private deployment or private cloud.

Cloud or hybrid cloud rather than public cloud and like Herman mentioned before that.

Our.

Hi, it's a growth area and also a higher margin area comes from those kind of private placements work or solution.

No that's offered to our customers typically end to end solutions leveraging our.

Strong capability in.

All kinds of AI.

Value chain.

Past past all included.

Yeah.

You know framed.

Frameworks.

Deep learning frameworks.

When we see fast.

It means more like end to end solution.

Which typically it would include the past part is just.

<unk> in.

China or path in general.

In China.

Not a big market yet.

Growing very fast, but it's very hard to charge a lot of money.

Four.

No.

Middle layer of the solution, but yes.

Yes.

A lot of.

Cheaper do value art and end to end capability.

Solution in terms of AI and <unk>.

I think oh.

Overall, it's a very large.

Market and.

Our strength is to really lever.

Baidu investment in AI and provide.

End to end solutions to our customers in.

Important verticals like Oh.

Industrial Internet.

Our transportation energy.

Okay.

Right John.

Financial services.

Kind of verticals that we think we have a very strong proposition.

Alright. Thank you. So we have reached the end of the question.

So this session. So with that we conclude our conference for today. Thank you for participating you may all disconnect.

[music].

Ed.

[music].

Yeah.

Yes.

[music].

Yeah.

[music].

Yeah.

[music].

[music].

Hello, and thank you for standing by for pace.

2021 earnings Vince Cole.

Well at this time all participants are in listen only mode. After management's prepared remarks, there will be and then answer session.

Today's conference is being recorded if you have any objections you may disconnect at this time.

I'd now like to turn the meeting over to your host for today's conference Lynn.

Lynn Baidu as director of Investor Relations.

Hello, everyone and welcome to Baidu third quarter 2021 earnings Conference call earnings release was distributed earlier today and you can find a copy on our website.

As well as on Newswire services on the call today, we have Robin me, our co founder and CEO, Don <unk>, our CFO the ocean, our EVP in charge offs, Baidu mobile ecosystem and how many our CFO. After our prepared remarks, we will hold a Q&A session. Please note that the discussion.

<unk> today will contain forward looking statements made under the Safe Harbor provisions of private Securities Litigation Reform Act of 1995.

Forward looking statements are subject to risks and that's the piece that may cause actual results to differ materially from our current expectations for detailed discussions of these risks and uncertainties.

For two hours later.

The annual report and other documents filed with the ICC in Hong Kong Exchange Baidu does not undertake any obligation to update any forward looking statement, except as required under applicable law. Our earnings press release and this call include discussions of certain unaudited non-GAAP financial measures. Our press release contains a reconciliation.

Of the unaudited non-GAAP measures to the unaudited most directly comparable GAAP and.

And he 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 Robin.

Hello, everyone.

We delivered another solid quarter in Q3 with Baidu core revenue growing 15% year over year, driven by AI cloud growing.

73% year over year.

Many years ago.

But leaving that it would expand our market opportunity and accelerate baidu for long term growth.

No not revenue accounted for 21% of Baidu core revenue in Q3 and remains a strong growth engine for us.

So AI we are.

Bringing innovation across the consumer price and the public sector on the backdrop of policy tailwind.

And the rising tide of Tech innovation in digital transformation.

<unk> Internet Iot and intelligent mobility.

[noise] Baidu AI cloud.

We double barring enterprises from traditional industries, and the public sector to better serve customers and faster.

Greater efficiency.

At Baidu World in August.

Which was broadcasted on CCTV.

We showcased baidu AI solutions, including smartphone.

Assuring to automate the screening electronic components manufacturing Assembly lines.

Smart logistics.

<unk> optimized fleet management.

Smart monitoring to ensure a steady energy supply from the utility sector.

We are excited.

Smart call about Baidu AI call continuing.

SaaS growth.

Leading companies across industries.

Starting baidu AI cloud solution to improve their operation.

And we are working hard to standardized touch solutions for.

Industry adoption.

An example.

Example, is our end to end AI solution can postal as Paas and SaaS for financial services sector.

Our AI cloud customers, recognizing baidu baidu spanning proposition.

Our consumer reach.

For example, we are winning.

Smart public parking project with our solution offering the convenience of collect public parking fees by a baidu maps without the need for me to make.

Hospitals are choosing baidu for our cloud solutions that fit patients trips to the hospital with continued.

Patient care for chronic diseases.

At home through Duer OS smart display.

Yeah.

According to the World Health organization.

On one screen.

$5 million no traffic deaths every year.

Apollo autonomous driving aims to.

Reduced traffic accident.

Accelerate mobility to EV and provide greater passenger safety, especially after dark.

Upon our goal has become the largest robo taxi service provider in the world.

Based on our estimate.

Yes.

Our leadership position in autonomous driving will lend strengths to ft and <unk> auto.

Deep way a JV between.

Baidu inline breach a leading trucking company in China recently unveiled its first generation EBIT.

EBIT truck powered by Apollo to automate rote front.

Marking Apollo entry into the multi trillion dollar truck market.

Deeply leverages, Apollo, leading autonomous driving capabilities and lionbridge it marketplace.

<unk> is making great progress.

Asset plan to release the FERC content.

<unk> car at the Beijing Auto show early next year.

Gee do we have showcased apollo's intelligence self driving and incoming features.

With the aim to deliver.

Production.

2023.

Yeah.

For the third quarter, China's GDP growth four 9% much slower than the 18, 3% and seven 9% growth rate in the first two quarters.

Our app.

<unk> has been impacted by sectors like education.

Will estate and home furnishing travel and franchising.

We expect this headwind to continue in the near term.

As we look forward there are also positive coming into play.

For example.

Baidu App is reaching over 600 million users each month.

Our hosted marketing solution is becoming ever more popular.

Despite owners and the trend is for the internet to become more open.

Non AD mix up over one fifth of Baidu.

Corbin and grow over 70% year over year.

We stand to benefit from China's plan to leverage technology to grow the enterprise and public sector part of the economy.

ESG is at the heart of Baidu absolutely.

As we leverage our strong Internet foundation to grow our AI been at scale.

Apollo mission is aligned with lowering carbon emission from making traffic in large cities smoother to accelerating the adoption of evs through G. Due.

Software for EV and EV powered right.

Yeah.

In June we announced our goal to become carbon neutral by year 2030.

Our young Gen data center was awarded the carbon neutral data Center leader certification.

MSCI named Baidu, that's one of the two companies.

In China with transparent reporting on greenhouse gas emission in its net zero tracker.

Yeah.

Turning to Q3 operational highlights.

Baidu AI cloud continues to see strong growth leveraging our world class AI technologies and our.

Hello, ladies to provide one stop shop solution to our customers.

Our AI solutions are being increasingly adopted across different industries and different scenario.

We enriched our cloud offering is the release of an end to end AI cloud.

<unk> solution.

Powered by Quinlan, AI cheap and deep learning framework to help financial services firm digitize and automate their operational processes in lifting leading customers like China life and bank of Jiangsu.

Baidu AI cloud is expanding into industrial internet by partnering with industrial Park and municipalities.

Our deployment to serve large pool of enterprises.

Importantly.

Last year, we spent cinema implementing our AI path Inc.

<unk> economic and technology development loan.

Serving approximately 100 enterprises.

Our deployment of AI path to enterprises in tangshan, including those in their economic development zone took only three months.

Thompson host 40000 impacted.

Most mostly manufacturing base and we believe our AI solution can help the companies improve their operational capabilities.

Baidu AI cloud move.

Moving into with marketing.

These young.

NASA co heritage.

Spike with 800 year old bridges and waterways.

Southwest China is using Baidu AI solution to keep the cities safe and clean for visitors.

Leveraging the digitization of tourist areas Baidu AI cloud help local authority timely detect and.

Address infection, such as illegal parking and public littering.

Our success in Lithia is leading to project.

John do solo and other cities.

Moving to Acs Smart transportation Baidu SCE has been adopted.

Adopted in 24 cities up threefold from last year based on contract size over RMB 10 minute.

About half of the Acu project signed in Q3 came from repeat customers.

In addition to support.

In addition to.

Policy tailwind.

He is benefiting from the value we deliver to the public sector.

For example, the Acu Smart transportation solution that was deployed in Guangzhou earlier, this year helped improve congestive traffic by over 30%.

Smart parking has made it easier for local rather than to find available parking spaces shortening travel time.

Turning to autonomous driving.

Apollo level for testing has accumulated over 10 million MAU or 16 million kilometers.

Supporting milestone.

We continue to receive green light in our application or autonomous driving testing.

We demonstrate to local authorities Apollo progress in technology and operation.

Apollo has received 411 autonomous driving permit.

An increase of 200.

37 permits from a year ago.

Our progress in autonomous driving technology.

Operation and continuous cost reduction positions us for ridesharing monetization in a few years at.

<unk> paid right scale.

And in July Baidu Open third Apollo Park in Shanghai.

10000 square meter facility housing Apollo cloud and data operations.

Shanghai marks Apollo goes first right hailing service opened to the public following the series.

Beijing, Guangzhou cancer and tundra.

In August we introduced the Chinese brand for Apollo Global Quiet Hall.

<unk> interpretation of robot taxi in China.

Cologuard is resonating with ride hailing passengers with total right.

Quarter on quarter to reach 115000 in the third quarter.

<unk> is off to a good start.

We set an ambitious goal to expand operations into 65 cities.

The year 2025, and 100 cities by year.

<unk> 2013.

Turning to AFC endure OIS in vehicle infotainment software, we motor Chinese EV OEM signed with Baidu to install Apollo navigation pilot in its new W. <unk> SUV.

<unk> Apollo.

The partner network to 31 mix, including lower from automakers like.

GM Ford Toyota Honda and Great wall.

Turning to do auto.

<unk> has completed its first vehicle when panel testing.

With a 45 oil and clay model.

We have identified the module design scheme, and engineering development and design optimization are underway.

Due to well showcase the latest ASD demonstrating the appeal of smart Tvs.

With advanced autonomous driving and smart in cabin features.

We hope the success of Q2 will increase the appeal of Apollo solution to other automakers.

On door OS.

So I'll do my game was ranked number one in marketplace.

Bally and number one in smart speaker in China based on second quarter shipment According to strategy analytics Cabela's.

<unk> and IDC.

A key growth driver for <unk> market play, it's a shift of user time spent at home to large screen.

<unk> global services like karaoke shorthand long videos online games education services video conferencing and other visually oriented activities.

Popular mobile App.

Hearing duer OS skills.

Like doing quite show right.

<unk> <unk> 58 Dot com.

And Kentucky fried chicken.

To name a few.

In addition, <unk> completed series B financing and a market valuation are fine.

Four five.

$5 1 billion in August.

The months after a series a financing at $2 9 billion.

<unk> remains a super majority shareholder after the series B round.

The continued strong performance of our new AI been would not have occurred without our relentless investment in technology.

Nine and our pursuit of better product and more customer adoption from our technology leadership.

Baidu released a plateau XL the worlds first 11 billion parameter Prescreened dialogue generation model.

Achieving breakthroughs in Chinese.

Chinese and English conversation.

Plateau allows for different kinds of conversation with users, including chip chat knowledge base to dialogue and conversation on Q&A.

Which will be incorporated into Sal do in the future.

Turning to mobile.

Core system daily.

Daily logged in user in Baidu App reached another all time high at 79% and in App search queries was up 11% year over year, reflecting a better search experience.

Baidu App.

We.

<unk> focus on deepening the service offering of our key verticals.

For example, Baidu health has built a strong community.

Medical expert that allow users to <unk>.

Frictionlessly moved from search to telehealth consultation.

We recently enabled doctors in our network.

To write prescription for online consultation and home delivery.

Baidu App now offers instant reply to search queries from over 30000 industry participants.

Turning 19 industry verticals.

Instant replies.

<unk> were up five fold from a year ago, and 40% are paid services.

For example, users to search for tips on job interviews can readily connect to career advisors to get help on reviewing their resumes and selecting career training.

Graham.

Instant reply have enriched baidu search experience.

Further driving the vibrancy of our in App search.

Revenues from managed page reached 43% of Baidu core advertising.

As we make doing business online for merchants simpler.

Through Baidu hosted marketing cloud.

For example, mania in one health.

Physical checkup clinic.

Cheng in Shanghai opened a managed page storefront, allowing users to brow.

Services chat with customer service mix.

Yes.

<unk> comments and share reviews.

Monthly orders increased four fold three months after using managed page promotion.

Search by nature is open.

And we are benefiting from the trend to make the internet more often in China.

Our E Commerce feature is seeing good progress.

In September the number of third party SBU from China's top E. Commerce site searchable on Baidu reached almost $1 billion and E Commerce DMV on Baidu, though small growth 90%.

Sequentially.

The open nature of our mobile ecosystem is leading smart speakers smart maker.

Smartphone makers to select Baidu Smart mini program as the landing page for their browser search.

Mou from such.

<unk> collaboration has reached $24 million and we believe such trend will enhance user experience and monetization or union search.

Last but not least.

I want to welcome Doron <unk>, who has joined US recently at our new CFO.

Your own brands.

<unk> also financial management and capital market experience.

I also wanted to thank <unk> for his four years of service at Baidu, CFO, and we expect more great things from him.

CSO.

With that let me turn the call over to long to go through the financial highlights.

Thank you Robin.

Hello, everyone.

I am very excited to have joined Baidu frequency.

Participating on my first earnings call at Baidu.

I look forward to meeting with everyone in the coming months.

Now, let me walk you through the details of our quarter 2021 financial results.

All monetary.

Amongst used in my discussion.

Unless stated otherwise.

<unk> revenue was RMB 31 billion.

<unk> dollars 5 billion up 13%, what three year over year.

Baidu cost Q3 revenue reached RMB 24, 7% August.

Okay.

Up 15%, one five year over year.

Not advertising for Baidu core reached RMB, five 2 billion up.

21% of Baidu core revenue.

AI cloud revenue was RMB.

8 billion up 73% year over year.

Our AI cloud growth is benefiting from the demand for cloud services by customers from the Internet and media financial services energy manufacturing and public sectors.

ACS merchants, while patient is another growth driver for AI cloud revenue.

We're fighting that.

Dollars automakers, who subscribe to our <unk>.

Payment solutions.

Also interest in Apollo ASD, thus way-out reclassify SD revenue into AI cloud SD.

<unk> revenue is quite small now and add approximately 1% growth year over year to AI cloud.

As a result of the.

Retroactive adjustment.

IP and OTI <unk> continues to grow great progress demand.

Higher ASP products keeps growing as customers come to appreciate the value of deal Oss.

And services revenue continues to grow.

Baidu core revenue was RMB 19, 5 billion up 6% year over year.

In App search advertising was solid partially offset by the weakness in <unk> revenue.

Revenue was RMB seven 6 billion up six.

<unk> percent year over year.

<unk> subscribers reached one 4 million in September and the membership revenue was up 8% year over year, mainly due to the refund Matt.

Members just strategy improved monetization capabilities.

Cost of revenues was RMB $16 one.

<unk> up 26% year over year.

I'm really resulting from an increase in tech content causes in our cost of sales associated with new AI business.

Operating expenses were RMB 13, 5 billion up 46%.

Year over year.

During the third quarter, we incur a contingent loss of RMB 976 million pertaining to the legal proceeding you're walking form of advertising agency.

Excluding such contingent loss operating op.

Operating expense was up <unk>.

75%.

Primarily due to an increase in channel spending.

Promotional marketing personnel related expenses.

Non-GAAP operating income was RMB four 6 billion.

$731 million.

And non-GAAP operating margin was 15% one five.

Non-GAAP operating income for Baidu core was RMB, five 8 billion or USD.

U S dollar and $904 million and non-GAAP operating margin for Baidu core was 24%.

Adjusted EBITDA.

Whereas RMB 6 billion.

925 million.

Thanks.

EBITDA margin was 19% one nine.

Adjusted EBITDA for Baidu core was RMB 7 billion are just dollar $1 1 billion.

The EBITDA margin for Baidu core was 28%.

Cash and short term investments for Baidu call as of September 30.

2021 was RMB $183 6 billion.

I'll just start with $28 five data.

Free cash flow for Baidu, excluding IC was RMB, two 9 billion or <unk> dollars $449 million.

Baidu call has approximately.

So let me next solving problems as of September 32021.

As Robin mentioned.

China's GDP growth has slowed over the last three quarters and sectors in our businesses such as education.

Hey.

Finishing.

Travel and franchisees have been negatively impacted.

The resurgence of COVID-19.

<unk> recently local governments are putting in place preventive measures.

<unk> currencies travel suspension mass testing.

Consequently, our own advertise.

Our title business remains soft.

Quarters before normalizing.

Turning to Q4 guidance.

For the fourth quarter of 2021.

Baidu Express.

Revenue to be between RMB 31 billion, which is U S dollars.

1 billion and RMB 34 billion, which is U S dollar five 7 billion.

Presenting a grocery.

2% to 12% year over year.

<unk> assumes that Baidu core revenue will grow between 5% and 16% one six year over.

<unk>.

The above forecast takes into consideration that the current COVID-19 to Asia, and China, which is still evolving and business visibility is limited.

The above forecast reflects our current and preliminary view, which is subject to substantial.

<unk>.

Before I turn the call to a preacher elaborate.

Quarter, China is adjusting its economy cost drivers wasted the introduction of a new five year plan in March of this year historically, the Chinese economy has been very resistant to such adjustments and new drivers allows.

And so TDP growth to come back.

We are optimistic about China's future, especially when the current COVID-19 situation.

Under control.

It's quite clear that China will leverage technology to grow the enterprise and public sector portion of the economy.

Leveraging.

A lot of tie our cloud services.

Sloppiness continued to outperform the market.

Growing 73% year over year quarter, Apollo is making great progress.

Al for autonomous driving testing, surpassing 10 million test miles.

So robot taxi ride sharing doubling right.

Sequentially to ASD, signing on new partners to do finish the wind tunnel testing of his first model eight months after its CEO join us to build a team.

Moving out of China.

China is building a new policies to support energy, where holford at Baidu.

Baidu will benefit from the promotion of decoupling nitration us with leverage AI to minimize Chevy conjunctions in dozens of cities across China.

Have a salary let's switch to EV.

S T a political robot taxi.

Our mobile ecosystem.

EMEA Youll reach 600 or $7 million up 12% and then logging reached 17, 9%.

Our app business is susceptible to macro.

<unk> and what your <unk>.

Gross rate to peak.

When GDP grows salaries, operator with that let's now open the call to questions.

Okay.

Certainly thank you ladies and gentlemen, we will now begin the question and answer his question.

If.

Wish you ask a question. Please press star one on your telephone wait for your name to be announced if you.

Alicia Counsel your request please press the pound or hash key.

Participants are requested to restrict to one question at each time.

Question comes from the line of Alicia Yap from Citigroup.

Please ask your question.

Hi, Good morning, Ugly evening Robin are wrong, Dan Congratulations on your new role and thanks for taking my questions I actually tried to feeding two if I may so for the fourth quarter for Baidu core revenue.

If you win.

You provided a wider range, which is fine.

Can management elaborate this scenario in this situation that you baked into the low end of the 5% what would that imply.

<unk> revenue growth.

AI cloud.

Revenue growth.

And now in the low <unk>.

Similarly, what would be the scenario.

In the height of the revenue guidance.

Would that come from better macro or a mall cop project that will be closing.

And then secondly.

Just in Dolby.

This overall broader.

Our regulation backdrop, so have baidu started to have any of these questions with other major internet clear as it related to these potentially opening up of your social network content to the search engine.

Well go ahead.

What.

Is management view on the potential benefit and upside to Baidu fundamental going forward and also any discussion you have with some of the e-commerce, leading player to allow baidu to call into the E.

E Commerce content item on debbie's retail storefront so any.

How long you can provide would be appreciated. Thank you.

And as I will have permanent answer your first question and I'll answer your second one.

Hi, everyone.

So with regards to our guidance, we normally guy.

<unk> assumed that we will hit the midpoint.

You asked.

About.

What do we factor in what would it be if it goes to the low end I think.

Obviously Robin has mentioned.

21% of Baidu core is non advertising.

Almost 80% is advertising and.

As we're in the process of trying to.

Control COVID-19 that obviously is the highest rates right now in our model, we assume that COVID-19 will be under control.

Yes.

For the most part in China by the beginning of December we have seen since guangjo's.

Situations that normally.

No.

60 days after that that it happens that it.

It gets under control, but at this time.

Words to several cities, but given the pattern that we've seen given the for example in Beijing, we've seen the cases slow down we think that that's doable situation.

Secondly is.

No.

But the other side of that.

Businesses.

<unk> cloud right. So when you think about the cloud.

Trying to recognize revenue trying to make sure that the software is installed.

It's a more complicated process and advertising so as you're getting.

Normally you.

And that the risk there is that we delivered the software, but is not up and running.

So we cannot recognize revenue and Thats always the case when you have to be businesses. So I think that there is a risk there with our cloud business. There is a risk there with our transportation. So I think those are the key.

Our risk factors I think.

I would call out.

But as we said normally when we.

Go out with the guidance given the information that we have today, we think we're more likely to be somewhere in the middle.

Hi, Alicia I'll take the second one.

<unk>.

Which by nature is that open ended with delivering or being able to share content across apps provides a better user experience and also with delivering on this will be going forward trend.

So actually we already see it.

Things are happening around this direction. So for example, you know some developers or more willing to open up there.

Ecosystem nowadays because it's also good for their own business, so as Robin already mentioned.

Our e-commerce effort, almost 1 billion skus from the top e-commerce.

Now such bolt on Baidu.

And then the GMB.

Baidu.

Gross 90% sequentially.

So actually another Great example, I wanted to share.

Robin already mentioned <unk>.

The major smartphone makers in China, or adapting our open source Smart mini program framework for their in House brothers.

This adoption users.

We will have better experience and are the developers or significantly can significantly extended their reach through the meter brothers in China. So you are right you know with living out.

We will benefit from the openness of the whole <unk> and we are seeing things are happening that way.

Thank you.

Thank you.

Comes from the line of peers from a body from Goldman Sachs. Please go.

Okay.

Okay.

Do you use your line is open. Please go ahead. Thank.

Thank you for taking my question.

When I look at the guidance that you talked.

Talk through Herman it appears to be generally slowing down and we realize it's a very high base for the cloud business in the fourth quarter of last year. So as we look at that pace of growth and we go through the core which looks like it's 10% to 15, 5% to 16% range and we try to estimate where all the.

The advertising vertical weaknesses, and whether it's COVID-19 related or macro related or third party related.

As you exited third quarter, what was the pace of decline that.

With the commencement of the fourth quarter, if you could take us through that pace. So we can understand where we might end up to a certain degree.

And also I know, it's very early to talk about it but broadly speaking into 2022.

With the opening up of platforms wait so much that's going on from a business perspective on the AI front as well as on the client front.

What is the sort of pace of growth, we can expect on the call.

Can you repeat that last sentence I missed that.

As we look at so we have seen a slowing down into the third quarter, which is probably one of the reasons why you're giving a very wide range for <unk> for the core.

But there's so much that's going on that is that leads to a level of optimism for what 2022 would look like including the opening of the systems opening up of platforms. How much search you can you can originate.

In the e-commerce vertical and Thats, just the e-commerce space.

I don't know how many other verticals.

You can tap into so as we think through 2022 and the core pace of growth.

Any feel is around how that would be would be great.

Okay.

The answer to that.

Nichols.

So so.

We talked about.

Q3, right. So when you look at advertising Q3, we've been gradually slowing down in terms of our growth and.

In Q3, what we have seen a tax sectors that have impacted us.

Some of these are pretty obvious like education.

Our real estate and <unk>.

Home furnishing.

Like travel and franchising. This these would probably be more related to COVID-19.

These kind of situations are going to extend into Q4, and we suspect that this might be a multi quarter impact.

Like <unk>.

Based on what we have seen right now we expect that.

Advertising for Baidu core, which was 6% over year over year in Q3.

Probably go into us even a slower growth rate.

In Q4, assuming that COVID-19 gets.

So I'm told by the beginning of.

December so a lot of uncertainty.

If that continues to.

Not yet.

If that continues to.

New cases every day and then our advertising even perform worse than that.

So I think a lot of it has to do with.

With our COVID-19, but other other.

Factors that in.

Impacting debt such as our regulations and so forth.

I think with regards to the.

AI businesses I think.

COVID-19 does impact that a lot.

As we've talked about before there are.

AI cloud is based on our solutions and we have the customized for certain customers and so forth. So if we are unable to travel or we have to we're.

We're not able to be as fluid as before that will have some impact on.

Others are just the normal end of the year trying to complete these.

Hi solution sometimes.

Given the difficulties that we have right now traveling about and so forth.

Make it.

So I think we're just putting that in.

Uncertainty in there with regards to our range actually we've been pretty consistent if you look at over the last year.

At the <unk>.

And our consolidated level is always a plus or minus 5% I don't think we made any changes in recent quarter.

So going into 2022.

It's kind of hard to look out so many quarters.

Into 'twenty, two but what we have seen.

Advertising as I mentioned, we think.

Baidu has.

Type quarter.

Impact because for.

For example, COVID-19, it comes and goes and then Reg.

Regulations, and so forth and when we look at talk to our peers in the market there.

There seems to be consensus that this could be up beyond one quarter. So so.

So I think that that's where we're advertising sure enough. There's also that upside with the opening up with a different apps and so forth, but it's hard to bake that in until we actually see more development. So we'll keep you guys apprised.

As that comes.

The other side of this is we're pretty optimistic with our.

AI businesses.

It has been.

B G.

We've seen year over year.

For the last few quarters, we've been always growing above the market speed. We continue to believe that we can grow above the market.

If you look at our MBR for example, it's been gradually improving.

We're increasing it.

So we're coming.

Feeling pretty good about that one of the thing.

Is that.

In our cloud business SaaS businesses, the fastener piece right now.

We were ranked by IDC as the one with the largest AI solutions in China.

And this is the piece that's the fastest of all.

Power solutions.

So I think we're.

<unk>.

Feel like we're in.

Right now because of the policy trends supporting technology supporting our leveraging AI for enterprise is also for the public sector.

Okay.

Yeah, Let me just add.

About that opening up on e-commerce platforms that we're in.

Enable users to do transactions.

The Baidu mobile ecosystem, especially.

Baidu app more easily.

Given that the e-commerce infrastructure in China.

Mature.

Very easy for people to pay using their mobile phone and.

It's a very quick to get something delivered to your home.

And.

Now that we can index on hot out flat Q on Baidu.

We expect.

Yeah.

Gary.

Yeah.

Quick increase in terms of DMV from low base.

The revenue contribution directly from transaction well not be large, but one users get used to do transactions on the baidu platform.

I think the overall conversion rate for our advertiser as well also improve.

I think that the.

The benefit will be.

Well beyond simple transactions on the Baidu platform.

Sure.

Yes.

Alright. Your next question comes from Alex Yao from Jpmorgan. Please ask your question.

Thank you management for taking my question, and then well come back to the Internet the investment community.

So I have two questions number one is we haven't seen a lot of.

Thanks, Sri and the operating environment changes recently for example of course the idea of a policy change for example.

And in patients with <unk>.

<unk> talked in November can you.

Got trucks through the.

Accretion and the financial impact from those changes.

Particularly how should we think about the union business each of the next couple of quarters.

And then the second question is regarding the general corporate strategy.

Well the advertising revenue outlook.

The week.

For the next couple of quarters, how are you guys.

Thinking about the general corporate strategy. For example are you still pushing the investments on headcounts.

And the user acquisition costs.

And I think.

In the past you guys had a very.

Tough cost control when the top.

On the pressure are you thinking very differently. This time.

First on the general corporate strategy in the current advertising revenue outlook will be helpful. Thank you.

The first one.

On the <unk>.

Yes.

With Iraq, so that because a majority of Baidu core AD business does not rely on user data.

It's not like the some of the U S companies do.

So the impact on that side is less pronounced actually.

But in general you know.

We.

Strives to be a global technical technology.

Knowledge leader issues, such as this type of data privacy and security has been taken into consideration for a long while so many years ago before this topic, even caught haven't cut the industry's attention and we saw the needed to establish internal committees to define strict policies and procedures to address.

Adjusted privacy emergent and disc securities.

Also we are working with the leading companies globally and domestically to trade ideas and best practices. So we also share our experience with authorities to help the industry address these complicated issues.

Given all the efforts we have done I.

I think the impact just that is not that.

Burnouts.

Yeah.

Okay.

Yes.

Hello.

Comes from James Lee from MS. Sorry go ahead. Please.

Okay.

So.

Alex you mentioned about.

Our corporate strategy.

So.

Well we are at this time is that.

We have our expenses you can look at it.

Two two buckets.

One bucket of spending.

It is related to our growth with our new business.

Whether thats in cloud, whether thats, an intelligent driving and so forth and you got it.

Ahead of time to make sure that your sales force is there to make sure that people who are doing a pre sells is there to support future growth.

We mentioned.

And earlier.

That piece of the business is still growing very fast when you look at non amortizing we're growing over 7%. So you got to build a final you got to get to get the people and so forth.

I think that's going to continue secondly is a new AI business has higher cost of goods sold whether you were talking.

About selling.

Smart devices, whether youre talking about.

Delivery for our <unk> solutions or <unk>.

Smart transportation, Okay. So those things we have to factor in for this new business that is just part of it.

And we look at the gross margin very carefully, but you still have to fund.

The OPEC salespeople or the development people to support the business growth.

And we're leading in those businesses, so we feel comfortable continuing to invest.

The second pool of investment that we have.

With our mobile ecosystem, and where you see there.

Mainly it is.

Supporting.

Our baidu ABP so.

Part of that spending is channel.

Channel expanding our marketing spending for the Baidu ABP. This year, we've been pushing of Baidu AVP light.

Which will allow us to tap into users from lower tier cities and that has been.

Working.

And in addition to that.

We've been beefing up some development in that area to help.

Search experience.

I think we manage that side of the expense expenses, especially channel spending.

Our lives.

As long as we're seeing positive ROI.

We will continue to spend.

In that channel and marketing areas.

Yeah, I would just like to know.

Emphasize that our investment is pretty much packed with growth potential.

We see a lot of.

So growth potential in the AI enabled new businesses.

Well continue to aggressively invest in that area mobile ecosystem in general.

Not just for Baidu I think the overall mobile Internet marketing China.

Maturing so we will use.

Disciplined too to balance our investment and.

And growth.

Great. Thank you. Our next question comes from James Lee from Mizuho. Please ask your question.

Thanks for taking my questions. My question is on intelligent driving autonomous driving and obviously, there's a lot of moving parts in this business right. Now I think you guys, where you lay out your plans of Robo taxi can you also lay out the road map and how Apollo can achieve.

A meaningful presence and connect it and infrastructure and OEM licensing your technology. So what I mean is that does your footprint.

Smart transportation influence OEM decision to choose their autonomous driving solutions.

Great Hi, James.

Apollo.

Our platform for both smart transportation and.

Autonomous driving it has.

Hum.

<unk> gained a lot of.

Partners customers.

Okay.

And so on.

We.

We have been.

A leader in many of the France, including Robo taxi as I mentioned when a property.

Largest robo taxi service provider in the world by number all right.

Right.

It's open to the public in five cities in China.

And.

For many of those areas. We also have.

Transportation projects going on.

Government pay off too.

Install.

<unk> unit and.

Also software systems to.

Better managed.

China Ethics and health.

The timing becomes.

Differ in the Green there.

Also have worked with quite a number of Oems.

To provide.

Infotainment system as well as.

Uh huh.

Autopilot, where navigation system, what we call yesterday and.

And we have gained quite a number of OEM customers. So all in all.

As a platform.

So connect smart transportation OEM right.

Heating services altogether and.

Sure.

Quite confident that.

We will continue to lead the market and even become dominant in the future.

Okay.

Your next question comes from John Michel from Barclays. Please go ahead.

Thank you very much for taking my questions are first.

First off big conquest to both home any wrong ion new rose.

My questions.

Related to your.

Apollo autonomous driving and a robo taxi as well.

Following up on the previous question could you elaborate a bit on the pipeline for <unk> two in terms of when the Assembly line manufacturing facility will be ready what kind of scale. We're talking about when you talked about mass production in 2023.

And.

Just talk about your partnership with Lionbridge for semi truck I understand Gd, just announced yeah ambition for the EV semi truck business. A couple of days ago. I think I was wondering since you're a big partner do you have any plan to work with them for the SA My truck EV.

Initiative, and then lastly on the Robo taxi.

I recall I may have risks and where you may have commercial operations up and running for a robo taxi. It comes sometime next year is there anything there you can share with us. Thank you so much.

Alright.

You like I mentioned during the prepared remarks.

We are planning to launch the concept protection or early next year at the Beijing Auto show, so that will be the.

The final you know ship and.

Architecture.

Sure.

When it is available for sale.

In the latter part of 'twenty 'twenty suite.

<unk>.

By mass production, we mean.

Everyone have a consumer can place an order or two by the G. Jucar sometime in the <unk>.

<unk> half of 2023 of course.

Early for us to predict how many units we can sell at that time, but we are all very excited.

The features that we're putting in and the value we can offer too.

Our consumers when.

When they start.

Level.

In terms of autonomous trucking it's hub.

Huge market that we already have a partnership with Lionbridge.

As you know is a.

Strategic partner Baidu too.

We are open to all kinds of collaboration with them and.

Okay.

Kind of collaborations are not.

Exclusive.

Paulo as an open platform, we can work with having one and we would like to help a lot of.

Companies to become successful.

And on the commercial operation of Robo taxis.

Taxi.

We can charge right now in a couple of the areas in Beijing.

Tom Joel and we are applying such license it in other cities. So it's a it's a.

Uh huh.

Very quick ramping up.

<unk>.

They are already providing we already provided 115000.

In one quarter in Q3 and in Q4, I think that number as well.

Continue to increase and this is probably much much larger than the.

Our reported number you can here anywhere else in the world.

Great. Thank you. Our next question comes from Natalie <unk> from Haitong International Please ask your question.

Hi.

We thought taking my question.

Hum.

Brian.

My question is regarding your investment plans are already on your own.

So that's what it would take a chance.

They're.

Department history.

When the revenue scale approach.

Hello, gentlemen, be tempted to go there and if I'm building.

The loss ratio actually my oldest example computing so shall we expect the margin profile of company off to improve next year I felt a icon marketing scout, which also about I wouldn't be tapping Q&A scale.

Harsha <unk> Martin Cheung.

Our comparable.

What I want to walk.

So far that pathogen joggle, what kind of the investments.

Garlaschelli Frankfurt amongst I want to walk him how coupon pocket no margin.

Cool.

Yeah. So.

On the AR.

AI cloud I think.

Yes, I think when you when you talk about.

Uh huh.

Other cloud players Theyre talking about scaling with regards to ask right as we've talked about before as is a smaller piece of our.

Of our business.

More excited about where we're differentiated in the market as our SaaS.

As I mentioned earlier SaaS is the fastest growing piece.

Of our business.

And when you look at us as as we.

You talked about at Baidu World.

There's several factors would require.

Margin improvements right.

As we come out with new solutions, working with new customers.

The first project first few projects, we might have to spend that extra time in order to integrate with their legacy system in order to build tools and so forth political up and running when we're going.

Close to new industries.

That would also.

Ramp up cost to be able to adapt our current solutions to that new industry. So you are seeing with our fast growth as Robin mentioned, 73% year over year growth is much faster than market right now.

We could not have done that without going into new industries.

These new solutions without consistently.

Consistently getting new customers. So at the early stage, where we're just expanding market expanding customers youre not going to see good margins, but when you look at it.

<unk> solution over time, when you're looking at a particular customer overtime youre seeing mark.

And we've.

Went through that in very detail.

During the Baidu will our presentation and our IR can go through that with you.

Ken.

Those things but.

This is a proven business if you look at our counterparts in the U S who are in the SaaS.

<unk> improved.

See the same trends, so we're pretty confident that as.

As we continue to.

Our business is here in the beginning youre not going to have a good margin because you have to customize but adds a product line becomes more standardized as we can.

Become more standardized solution by industry, and so forth you're going.

See that margin pickup that's number one number two is the proportion of.

<unk>.

It is getting higher versus as an asset as we know because of the commodity cloud is just going to have lower margins. So you have several trends that are playing in our favor. So I can see it a few years out you're going.

Market.

<unk>.

Margins are improving.

Okay intelligent driving.

Intelligent driving I think that goes.

Pieces as we've talked about before.

Driving is the technology and the out of that.

Ways to monetize right.

There is.

Yes.

Infotainment.

Business right.

There is the.

Paul.

Tom is driving.

Navigation pilot so forth.

So that is our business.

To see where you have to invest upfront with R&D and so forth, but when we sell it on a gross margin level.

Margin is usually.

Pretty healthy compared to other.

Businesses, Okay. There is the.

The other piece.

Piece.

For Apollo is.

Business Transportation Smart transportation is mainly.

The government sector and so forth it's usually.

Very complicated assumptions of what those margins are.

Pretty healthy, especially when you compare to a business like that.

So I think when you're going into smart transportation.

Certain factors that impact the margin very similar to what I described earlier come.

Out with new solutions.

When you are working with new cities, you got to make that investment.

With our new solutions, but as we're working with the same city, we understand their legacy system, we built out the tools and so forth over.

Over time with a particular customers we're seeing them.

Margin improvement right, so I'm pretty confident because when you look at us.

We're growing on the one hand.

Barbara mentioned smart transportation, the customers went up by three or four year over year. So the new customers that theyre going to dampen margin on the other hand half.

Half of that business.

Repeat customers.

That's going to improve so I think overtime.

We see as we go for the next few years that more and more revenue going to be reoccurring, which is going to.

Okay.

Okay.

Alright.

Thank you next question comes from Gary Yu from Morgan Stanley. Please ask your question.

Hi, Thank you for the opportunity to ask questions I have one follow up question regarding the opportunities.

With the open up for to open up off the Internet.

Seems like there is a great opportunity.

What unity from both kind of e-commerce space and also potentially a content space.

But at the same time keeping users have already.

Got into the habit of doing those transactions some of the other competing platforms.

How are we going to change some of the user behavior to start doing all kind of e-commerce transaction.

Section on Baidu and as a result of that.

Are we going to kind of go into it and the other kind of investment cycle in terms of acquiring traffic and end users.

On these transaction base.

Traffic. Thank you.

Yeah, Gary I'll take this question.

Actually.

We see the users' behaviors in our web search you know.

Before that people do they're making there.

A final decision to buy something or not so they come to baidu.

For more information. So this is how we step in to help them to do.

The transaction is actually.

So also as Robin just mentioned right. So the infrastructure for transactions in terms of the payment of delivery or its pretty.

Maturity in China. So that's tied to you know once a week gave the user a comprehensive information for them to make it.

Right.

And people will come back again for their another transaction.

In terms of the you know getting more traffic I think for.

For now we still have tons of actually do their search volumes.

Baidu for not just the typical.

E Commerce, <unk> and or other questions queries related to transactions.

So.

That's why at this stage and we are trying to make.

Make the transaction experience as smooth as possible you know on.

Baidu as a platform and actually we have been working on this for a while since we started building.

Smart mini programs, you know a man.

The pages.

And Baidu.

So that's how we can not only get the right information, but also you know.

Have the rest support for this transaction.

Really to inquiries.

Yeah.

Alright. Thank you. Our next question comes from Eddie Leung from Bank of America. Please ask your question.

Okay.

Evening, Thank you for taking my questions.

I have two questions on your cloud pieces.

The first one is Apollo hybrid calling private cow as the government is pushing for the awareness data security.

Will that be a potential increase in demand.

For private calling high because this is a public call and how might that affect yield piece.

Pieces, and then secondly, I remember Robin you mentioned that really are pretty interesting point.

Guys have been focusing your cow pieces.

<unk> Sars and end to end.

Solutions are.

While some of your industry peers are seeming to be emphasizing more on the <unk>.

So we think the modules or the component capabilities and performance, so probably a bit more about.

And lethal form of marketing.

Right. So could you share your thoughts.

A N. The difference between the time that these two approaches may get thank you.

Hi, Andy.

But I think youre right given the regulatory environment changes I think are more.

More and more.

Customers would want to.

Private deployment or a private cloud or hybrid cloud rather than public cloud and like Herman mentioned before that.

Now a high growth area and also higher.

An area comes from those kind of private placements work or solution.

Alpha to to our customers typically.

To end solutions.

Leveraging our.

Strong capability in all kinds of AI.

Our value chain.

Past the past all included.

AI chips.

No.

Works.

Learning frameworks.

We see snap.

It means more like end to end solution.

Martin, which typically it would include the past part it's just yeah.

And <unk> in China or path in general in China.

Not a big market yet.

Growing very fast, but it's very hard to charge a lot of money.

For Hum.

Middle layer of the solution, but yes, I I I.

A lot of cut.

Customers do value art and end to end capability.

Solution in terms of AI and AR I think Oh.

Wow.

Overall I V.

Very large.

Market and.

Our strength is to really leverage baidu investment in AI and provide.

End to end solutions to our customers in.

Uh huh.

Important in verticals like Oh.

Industrial Internet.

Our transportation energy.

Hum.

On financial services, this kind of vertical stack.

We think we have a very.

Very strong competition.

Alright. Thank you. So we have reached the end of the question and answer session.

That we conclude our conference for today. Thank you for participating you may all disconnect.