Q3 2022 Baidu Inc Earnings Call
Thank you for standing by and welcome to the Baidu incorporated third quarter 2022 earnings Conference call.
All participants are in a listen only mode.
There'll be a presentation, followed by a question and answer session.
If you wish to ask a question you will need to press the Starkey followed by the number one on your telephone keypad.
I would now like to hand, the conference over to your host for today Julie.
And Lynn <unk> director of Investor Relations. Please go ahead.
Hello, everyone and welcome to Baidu third quarter 2022 earnings Conference call Baidu at the earnings release was distributed earlier today and you can find a copy on our website as well as on east West or is it on the call today, we have Robin Li all the co founder and CEO .
L a seattle the ocean, our EVP in charge of Baidu AI, how cool and generally our SVP in charge of Baidu intelligent driving after our prepared remarks, we will hold a Q&A session. Please note that the discussion today will contain forward looking statements made under the safe Harbor provisions.
The U S Private Securities Litigation Reform Act of 19 Nike by.
For looking statements are subject to risks and uncertainties that may cause actual results to differ materially from our current expectations.
A detailed discussion of these risks and uncertainties. Please refer to our latest annual report and other documents filed with the ITC and Hong Kong stock Exchange Baidu does not undertake any obligation to update any forward looking statement, except as required under applicable law, our earnings press release and equal.
I'll include a discussion of certain unallocated non-GAAP financial measures. Our press release contains a reconciliation of the unaudited non-GAAP measures Judy and only the most directly comparable GAAP measures and is available on our IR website at IR Baidu Dot com.
Reminder, this conference is being recorded in addition, a webcast of this conference call will be available on Baidu IR website.
I'll now turn the call over to our CEO Robin.
Hello, everyone.
Recapping the third quarter in broth firm, we delivered improved bottom line results, despite a challenging macro environment.
Especially for the mobile ecosystem operating profit, we assumed a positive year over year growth.
Before he got a small operating loss and margin improved meaningfully both year over year and quarter over quarter basis.
Businesses across the line from mobile ecosystem to AI cloud to intelligent driving have been negatively affected by the resurgence of COVID-19.
Wow Baidu history, However, we have experienced many challenging environment.
Curious all counting.
Labeled us to emerge stronger given our relentless effort.
In long term growth.
We're using this period to ready ourselves for current business conditions to improve.
Our key short term tasks remain unchanged, which are efficiency optimization and continuous investment in the new AI.
Our new AI business actually had a guy called intelligent driving are well aligned with Chinese Tech innovation and National initiative.
By doing so we will further strengthen our leadership England.
And re accelerate business growth.
In Q3 kind of core AD revenue was down 4% year over year, but improved from the second quarter, 10% year over year decline.
Michael has improved gradually thanks, Joe.
Encouragingly revenues from health care, and retail reported positive year over year growth in the quarter.
Going forward.
Koby situations alleviate in major cities as well.
Across different verticals, such as travel franchising and local services should rebound.
For our new AI businesses.
I'm proud to report some highlights.
Revenues from AI cloud increased 24% year over year to RMB, one <unk> billion in the quarter.
Cloud Husky, a major growth driver from Baidu core non advertising revenue.
In Q3, non advertising accounted for 26%.
Total revenue up from 21% a year ago.
Baidu Apollo auto solutions continue to gain traction among leading automakers and the total projected accumulative sales reached RMB 11 4 billion recently.
More than 50% year over year.
Yes.
Hello, <unk> completed 474000 lives in the quarter.
311% year over year.
By the end of Q3, our Pogo has completed $1 4 million right on public schools.
We believe we remain the largest autonomous ride hailing service provider globally.
Now, let's review the third quarter operational highlights.
Revenue was from AI cloud increased by 24% year over year to RMB, four 5 billion in a quarter.
In Q3, the operating loss margin for AI cloud improved, notably both year over year and quarter over quarter.
Over the past quarter, we have made shifts away from some lower margin businesses to build sustainable growth for AI cloud.
Meanwhile, we continue to take measures to standardize our solution to cut down deployment cost athletes scale up.
Our effort here.
Have allowed us to gradually improve operating profit and margin.
I'll take the Acu Smart transportation as an example.
In the past quarter, we continued to grow revenue and improve.
Martin.
Smart transportation athlete gain scale.
Leveraging our strong AI capabilities and our insights into the industry. We have demand for the solutions for typical use cases, such as traffic management and me to ask for urban rail and highways.
Okay.
Previously we talked about how our projects helped improve traffic efficiency did you go in Beijing, Guangzhou, Hangzhou coaching and other cities.
Recently, two dose city and important transportation.
When I'm probably.
Adopted our smart traffic management solution.
Our solutions covered more than 70% of the major intersections in the.
District, Oh do we don't.
After adopting our solution delays have been reduced by 22% during rush hour in the covered regions.
By the end of the quarter Baidu Ice's Smart transportation solutions.
Being adopted 60 suites for lease up.
From 2004 cities, a year ago and 51 cities.
Erika based.
Based on the amount of over RMB 10 billion, a 10 minute per se.
Absolutely demonstrating our capability to use AI to improve transportation efficiency in more cities.
Smart transportation, well further expand its market share.
We're trying to repeat our successes and smart transportation in other key vertical such as manufacturing energy and utilities and the public sector.
We will empower our customer it's AI capabilities to help them increase productivity and cost control.
Because the AI cloud our customers will be better positioned to take advantage of digital and intelligent transformation.
We believe we remain well positioned in this early stage fast growing market due to a number one our capabilities to establish end to end solution based on our full stack AI capabilities, ranging from chip design to deep learning framework.
Two large language models to application level software and then through to our insights about customers pain points, and our growing knowhow and capabilities to solve their problems.
Yes.
While COVID-19 cost of delays in project implementation and complicated our sales teams' effort hampering new contract wins, we believe the long term twin digital and intelligent transformation remains unchanged.
Looking ahead, we will continue to focus on quality growth and aim to improve margin to achieve profitability for AI cloud.
In intelligent driving.
We marked several key highlights in the third quarter.
Our years of investments in intelligent driving hadn't begun bearing fruit.
Baidu Apollo's, although solution our total projected accumulative sales exceeded 11 4 billion recently.
Based on our current pipeline some of the major car models equipped with A&P and a b P.
Expected to be launched in the second half of next year.
We expect meaningful revenue contribution from this business to begin in 2024 and profit to expand one material revenue kicks in.
Such growth demonstrates the increasing demand for our auto solution in.
In Q3, we extended our partnership with one of China's largest automotive and technology companies.
A&P AVP and HD maps for one not be our popular models.
As of today, we have announced collaborations with many OEM partner.
Serving wherewith automakers have helped us standardize our auto solutions, making them compatible with more popular car model.
Well car equipped with our auto solutions get into consumer plan, we will continue to refine and update our solutions.
Considering the sizable in the bathroom and cost for high level autonomous driving technology, many auto makers seek partnership with reliable supplier.
We have strong brand and technology capabilities.
We have differentiated ourselves with all leading level four autonomous driving which have been established through years of investments.
No. We are proactively building high quality partnerships with an increasing number of auto Oems to accelerate our partnered program.
All right.
A few months ago, we integrated Baidu map into our intelligent driving group to create synergies between the Baidu maps also.
Baidu Baidu map mobile App and the map solutions for auto and transportation industries.
Here's our math I'm already being widely adopted we have obtained more insight in the transportation industry, allowing us to strengthen our solutions.
The mobility sector.
A polo golf, we continue to scale up our operations.
Uh huh.
We believe we can win the largest autonomous ride hailing service provider worldwide.
In the third quarter the rights provided by our Polo golf reached 474.
4000, increasing 11% year over year, and 65% quarter over quarter.
Okay.
A vast majority of the right workforce serving passengers during rush hour covering places like subway station office buildings and shopping malls.
Uh-huh operation continues to expand upon logo keep learning and improving from scenario that do not occur during the testing phase.
Leveraging large scale of operations, we're making a little go a professional driver well offering a safe and comfortable autonomous ride hailing service.
Today, we send our Pogo vehicle energy dense intersections is able to easily take a gap between pedestrian and bicycle and other moving objects.
[noise] safety driving school, well, providing a comfortable experience to their passengers.
Paul will go continue to improve autonomous Brian heating services under extreme weather.
Scalable operations have indeed reinforced our level four autonomous driving capabilities setting a strong foundation for further operation expansion.
We believe this virtuous cycle well make a pogo the most experienced driver to handle wherewith situations on their gold at large scale.
Yeah.
We're pacing the expansion of our portal go based on a comprehensive financial model.
In previous earnings calls, we talked about Ah Panagos achievement in the economy, reaching operating.
In fact, I'll go has achieved significant progress.
The tier one cities as well.
In Q3 on average each vehicle in Beijing, Shanghai, and Guangzhou completed more than 15 right per day.
According to our knowledge this number quite close to the average daily rides for traditional ride hailing services.
We believe that our strong and improving safety track record on public roads provide a strong endorsement for more cities to issue permits for 40 Govs liking.
We believe fully if I'm really start hitting well create more affordable urban transport and attract more consumers to the ride hailing market.
Baidu will continue to invest to capture this massive market opportunity.
Moving to the mobile ecosystem, our operating profit improved and year over year basis, and we continued to generate strong cash flow in the quarter.
Our mobile ecosystem continue to expand in September baidu apps, and they use increased by 5% year over year to 634 million.
In Q3 total mobile search queries increased by double digits year over year.
And Pete distribute it through Baidu app increased by 23% year over year.
We continue to introduce short videos in feed and search results.
In September shortly do distribution and time spend within baidu feed grown double digit year over year.
For Baidu search in September 23% of the clicks on search result pages, where short videos and we expect the prevalence of video in search results to continue progressing rapidly.
We're using AI to produce more short videos for our mobile ecosystem.
Well it is still in a very early stage, we believe AI will allow us to generate short videos much faster and more cost effectively than human generated content.
E Commerce users coming to Baidu app for product search, which without it in a continuous increase in product related third quarter.
Total <unk> facilitated facilitated.
Facilitated by.
Baidu search grow by about 52% year over year in Q3.
Yeah.
Today users come to Baidu app, not only to search for information and knowledge, but increasingly to look for services and merchandise.
We are able to make.
Purchases and book services without leaving Baidu App.
We have been deepening our understanding of user.
Meanwhile, more customers leveraging our ecosystem infrastructure to build their marketing campaign.
And even operate their businesses on our mobile ecosystem.
This has allowed us to accumulate more customer insights and better serve the customers.
The improving insights into our users and customers hanging in turn allowed us to improve user experience and AD conversion.
And in the future, we believe our mobile ecosystem will continue to generate strong profit and cash flow.
To close during this uncertain time, we are focused on making the long term investments that will position us to be stronger coming out of this challenging period, including Baidu AI cloud and intelligent driving.
Well the advertising industry has been impacted by COVID-19, some of our verticals could recover faster when there is an upturn in the economy.
Which will drive our AD revenue to resume growth.
Before I turn the call to Ron I want to stand behind those employees for their diligent work in a challenging environment.
And the time and effort they put into making our company's story of success in the long term.
With that let me turn the call over to long to go through the financial highlights.
Thank you Robyn.
Now, let me walk you through the details of our third quarter financial results.
Total revenue was RMB, such a true 5 billion, increasing 2% year over year revenue from Baidu core was RMB $25 2 billion, increasing 2% year over year.
Baidu call Homeland Marxian revenue was RMB 18, 7 billion decreasing 4% year over year, but improved 10% during the second quarter as macro housing troops gradually since June <unk>.
To call. It now online marketing revenue was RMB, six 5 billion up 25% year over year driven by Clos.
AI power businesses.
Oh, sorry.
Hey, I call increased by 24% year over year to RMB four 5 billion.
Revenue for IC was RMB, seven 5 billion decreasing 2% year over year.
First off on the revenue so what's the RMB 16 price route billion, increasing 1% year over year Baidu call cost of revenues was RMB 10, 7 billion, increasing 15% one five for year over year, which was in line with the gross yourselves off claw.
Our core businesses.
Operating expenses was RMB 11 billion decreasing 19% why not year over year, primarily due to a decrease in China's spending promotional marketing expenses and staff related expenses Baidu call selling general and administrative expenses were RMB four 2 billion.
Christians slips you, 1% through one year over year.
SG&A accounting for 17% one seven off Baidu core revenue in our culture and decreased from 25% innocent peer last year.
Baidu call research and development expenses was RMB, five 3 billion decreasing 4% year over year R&D accounting for 21% of Baidu called rapid news.
Quarter and decreased from 22% same period last year.
Operating income was RMB five 3 billion Baidu core operating income was RMB five 2 billion and Baidu core operating margin was 20% non-GAAP operating income was RMB seven 2 billion knock on Baidu core operating income was RMB, six 7 billion and non-GAAP Baidu call.
Operating margin was 26%.
<unk> presented a first year over year gross operating.
Operating profit and margin perspective, since Q2, 'twenty or 'twenty one.
Other loss net was RMB, four 8 billion decreasing 17, 8% year over year, which mainly including a fair value loss of RMB 1 billion and when you Paramount after long term investments of RMB, one 4 billion.
In the third quarter last year, we recognized a fair value loss of RMB 18, 9 billion a significant portion of our long term investments, including but not limited to investments I E.
Equity securities of public and private companies private equity funds and digital access is a statue quarterly fair value adjustments, which may contribute to net income volatility and stewardship Harris.
Income tax expenses was RMB 700, or 8 million compared to an income tax benefit of RMB. One 8 billion in Q3 'twenty 'twenty. One primary jokes are increase in deferred tax benefit recognized on fab, a little loss of long term investments and deduction of certain expenses.
That were previously considered not deductible, what's your opportunity shouldn't you want.
Net loss attributable to Baidu was RMB 146 million and diluted loss per a D. S was RMB 87 cents.
Net income at.
Oh triplet to go to Baidu core was RMB 25 million non-GAAP net income attributable to Baidu was RMB five 9 billion noncash.
non-GAAP diluted earnings Craig, Yes was RMB 16, eight seven non-GAAP.
Net income attributable to Baidu core was RMB, five 8 billion and non-GAAP net margin for Baidu core was 23% or so.
Adjusted EBITDA was RMB, eight 9 billion or adjusted EBITDA margin was 27%.
And.
Adjusted EBITDA for Baidu core was RMB, eight 2 billion and adjusted.
Adjusted EBITDA margin for Baidu core was such a straight percent.
As of September 30th Twenty-twenty true cash cash equivalents.
Our restricted cash and short term investments were RMB 184, Piney flats and.
Cash cash equivalents restricted cash and short term investments, excluding I see why it would be 179 5 billion sorry.
Free cash flow was RMB, six 6 billion and free cash flow is truly I see was RMB six 4 billion.
Baidu call approximately 36005 country and call Us us opposite he September such as 2022.
On a separate note I see generate quality operating properties on both GAAP and non-GAAP basis in this culture, Yeah station I see also generated positive free cash flow in this quarter.
With that operator, let's now open the call to questions.
Yeah.
We will now begin the question and answer session.
Do you wish to ask a question. Please press Star then one on your telephone keypad and wait for your name being out.
If you wish to cancel your request. Please press Star then two.
If you're on a speakerphone, please pick up your handset before pressing equipment.
The first question today comes from Alicia Yap with Citigroup. Please go ahead.
Thank you good evening management, Thanks for taking my questions I have two questions.
First can management comment how should we look at the advertising demand recovery in the near term and also in the next two quarters and then secondly can management comment on how you think about the competitive landscape in the China advertising market will evolve going forward.
What what baidu longtime market shaping thank you.
Hi, Alicia this is robin let.
He answer your questions.
Yes, our revenues have very sensitive to a colleague control measures.
But of course and revenues returned to positive year over year as well in August .
Amber it decreased again, we cut off for a new round of colleague resurgence.
Overall Q3 was much better than Q2, because they are worth.
Recovery from the second quarter in which.
You know what.
A lot of disruption caused by COVID-19.
When we entered the fourth quarter the situation improved in October .
But since early November it got.
A big cloudy because another round of colleague impacted some region.
I'm joined by Jean <unk>.
We are closely watching how the situation will develop.
I think the short term well probably.
Still be quite volatile.
But the economy.
<unk> should improve in the mid term and beyond.
China has been finding I can't do this colby for almost three years and the country has been gaining experience.
Well we.
Ah, we're certainly going to see some ongoing disruptions and uncertainty.
<unk>.
Overall situation should improve.
So it shouldn't move.
In a positive direction over the next few quarters.
As you know many of our App.
Verticals.
Or affected.
Hi, Colby then macro so one choline and macro situations improve.
Our AD revenues from different verticals.
Such as travel a franchising our local service desk should rebound.
Again, we will closely watch how COVID-19 situation developed.
And we will work very hard to bring our AD revenue back to a positive year over year growth as soon as possible.
In addition, AI cloud and intelligent driving our.
Our new business is also.
Negatively impacted by the Covid disruption.
So if COVID-19 impact to subside.
Non advertising businesses should also see improvement.
And regarding to your question on competition in the online advertising market.
First of all I think Baidu App is one of the very few super apps in China's mobile Internet industry.
Well recognized and well established.
Third as you know enjoy the best ROI among various types of performance ads.
Because users.
They expressed their intent.
Our six box.
And search ads connect user thing pensions with the most relevant product and service offerings.
This is why a lot of advertisers can see the baidu search as the most important and most efficient channel.
To reach their targeted audience.
And secondly, China's mobile Internet is maturing.
The growth is gradually slowing down and the competitive landscape is much less volatile than before.
With this backdrop Baidu app.
You managed to grow its user base nicely over the past.
Many employers.
On top of that with the unique positioning of search.
We believe we should be able to sustain our market share in the online advertising market over the long run.
And thirdly, I don't like how our peers.
Most of our advertisers Oh.
Right.
In the real economy.
Many of them run businesses in the service sector, such as local services business services.
And travel.
This business is to work hurt the most by the pandemic.
So when Covid impact subside Andrew.
And revenues will rebound quickly.
And Baidu.
Stand to gain share.
In the overall advertising industry.
Thanks Robyn.
The next question comes from Eddie Leung with Bank of America. Please go ahead.
Hey, good evening, guys pretty solid quarter. Despite all the macro headwinds are there.
Couple of questions on our cloud services. So we have seen a it seems like a slowdown in the industry. So could you talk a little bit about the reasons behind that slowdown and how you guys are thinking about growth rates are in the upcoming let's say your quotas on the medium term.
And then secondly could you also talk a little bit about the competitive landscape.
We have seen a media reporting our market share gains by our cloud companies I would say.
The Internet side, taking the policy of one or two years right. So any color on the competitive landscape would be useful.
And then finally I remember Robin you mentioned up all at the margin improvement off calls. So could you also talk about your thoughts on the road to profitability and the timeline would be helpful. Thank you.
Hello idea. Thanks philosophy were our questions. This is adult I'll try to answer your questions. So for the revenue gross part right.
It is slowing down mainly due to the COVID-19 impact.
So for example, as you know because of the travel restrictions and we could not even implement our projects on time.
And as the bidding for the new contracts was also affected.
Apart from that you know I also want to highlight that we are focus on healthier and more sustainable growth.
Cutting some low margin businesses.
So we believe this approach is crucial for the long term development.
I'd say looking beyond the current quarter as Robin just mentioned the twin for China's traditional industries and as a public sector to use AI and move their business.
Onto the cloud remains unchanged so.
So I think post the pandemic the company is to gain more confidence in their future gross so that they are more willing to spend more money on the digital and intelligent upgrades.
Baidu has already demonstrated that we are very capable of using AI to improve the efficiency in transportation.
Just so you can already see you know our AC smart transportation revenues.
Had been growing rapidly.
And did we continued to gain market share accordingly.
So in the Meanwhile, so we're reducing the operating loss for our smart transportation, because we continue to expand the scale.
And continuing to increase operating leverage.
So in our next steps. So we are excited about you know repeating our six sites in transportation in other traditional industries.
Manufacturing and utilities.
Especially in that just the past quarter the quarter. So our cloud revenues from the manufacturing and utilities industries most grow solid.
And it's largely because of our continuous efforts in improving the end to end capabilities and our understanding of the fundamental needs.
These industries.
So and to answer your questions.
With this.
Our sustainable competitive advantages to compete against other players.
In addition, you know the market is expanding and there are plenty of opportunities for us and our peer companies to grow over the long term.
So talking about the profitability.
Profitability, so baidu cloud reduce operating loss and it continued to improve operating loss margin this quarter.
To expand on that you know our personal cloud Cabot generating decent operating profit and margin.
And at our enterprise part grow faster than personal cloud and we're very happy to see the trend of a loss reduction.
Because when I first I just mentioned.
So our strategy to a standardized solutions and the user in the used cases for our key industries started to bear fruit. So we have worked very hard to replicate more solutions from one user case to another to group business scale and improve margins.
So he's already proven in smart transportation as we have mentioned and in the future. We look forward to extending this approach a large skew in Marquis industries.
So we had call. It is very important new business for Ya Baidu, and we will continue to grow the business and improve margins going forwards.
Thank you Eddie Thank you Eddie.
Thank you.
Yeah.
The next question comes from Alex Yao with Jpmorgan. Please go ahead.
Thank you mentioned for taking my question I have a couple of questions on Baidu core margins.
In the past several quarters you guys did a very good job in terms of cost control and the margin improvement.
Large scale Bu and headcount streamlining streamlining has been already done.
How much more room should we think about will serve their cost cutting in baidu core in the coming quarters and 2023.
And the related question is how should we think about the baidu core are pretty margin going forwards.
Lee will baidu slow down the cloud and autonomous driving investments if the macro situation further deteriorates. Thank you.
Thank Alex for questions, Let me try to figure out what question, Steve just curious and I think it's robbing a say why do we pick any off the prepared remarks, I think for Baidu call. We continue to optimize the cost expenses.
We continue to improve our operational efficiency, which is a real one off of our key shots and tasks.
Allison time, we kept investing in the new AI businesses for future growth.
This strategy actually it has not changed in the past people cautious and business strategy allowed us to weather through the challenging market environment and we believe that you have a pet.
Repair us for accelerated growth again once the macro downturn is over.
In Q3, let me recap some of the numbers.
Baidu cost non-GAAP operating profit margin expanding to 26% from 24%. The same period last year I think he has represented the first year over year growth in non-GAAP operating profit and margin perspective since Q2, two different you want.
We've made a lot of efforts to achieve such results.
Perfect can see that from the release, our SG&A has decreased once again in Q3.
Vis vis quarter from the same quarter last year, we have been very disciplined with the channel spending and promotional activities and just to act that was already less a consecutive courtyard that SG&A achieved a year over year decline and going forward. We will continue to control no my wrap up.
<unk> expenses are saying, that's what we're doing in approach if we do ensure a huge part of our business.
For mobile ecosystem, our operating property actually it's going up or year over year basis, even though we know that revenue was not particularly impacted by COVID-19.
We have also already mentioned earlier, which is just repeated by adult.
A lot of efforts for heresy gross off alcohol.
This quarter, the operating loss margin for error crop improved significantly both on a year over year basis and quarter over quarter basis.
If we separate to par.
And public Sanchez were allocating our resources to a high margin business and reduce low margin business.
Also we continue to standardize our end to end solutions, including the us pasta sauce for user cases and scale up so much.
Transportation and stuff that you can't walk off the examples you continue to grow fast and Allison tiny pupil our margins quite know chipotle in the personal cloud, saying, that's what we think of that process. We continue to generate a decent properties. These courts it.
Oh for the robot taxi busiest apolo coal, we also chose to grow up little coal a measured pace.
Water comprehensive financial models to optimize a broadcast of the cost and expenses English business, especially the labor cost and the vertical hardware costs.
I will have to be why we're careful to masher.
And estimate the cash flow for this business our strategy is to strengthen our leading position in U E robot taxi all over the world.
Sizable market shares.
Heading sector, especially in the key cities in China and in the future.
Ultimately try to generate more properties.
Key areas.
We're not expanding our operations without thinking about building, a sustainable and profitable being smuggled swap local.
So auto solutions.
That's the way it is.
So that's what we mentioned just now we already have for project. He cumulated itself upward of RMB 11, 4 billion well Robyn contributions, it's still very small at this stage and we expect it to run their king from the second half of next year or maybe early in 2024.
Cost with our solutions can become available in the market and once the menu for revenue was kissing missed business should start to generate profit.
I would like to also make it clear in the RMB 11, 4 billion estimate you're coding on the content side and nomination.
That starts with receipts from Oems also use a straight nomination lesser means a supplier is effective for southern projects and then the Oems will sign a contract with a surprise.
Our estimate is based on our assumptions of law timing after lunch or pricing.
That's total volumes I hope this gives you a better sandy I'll halt we have.
These calculations.
Looking forward, we will continue to be worried disappearing, whereas the costs and expenses.
The same time, we'll continue to invest in AI cloud intelligent driving our long term growth despite the challenging environment in the Shelton.
And in the future we believe our mobile ecosystem, we are continuing to January letting some crawfish and cash flow to support our investments to meet new happiness, well also continue with what worked hard to narrow our loss Claude. Thank you so much for question.
Yeah.
The next question comes from Gary Yu with Morgan Stanley . Please go ahead.
Okay.
Hi, Thank you for the opportunity and congrats on the expanded partnership with a growing backlog for Ats business.
I have a question on your auto solutions side I'm, just wondering when shall we expect a meaningful revenue to start to finish.
And how do you differentiate the polo was all total solution from your peers.
Could you help us understand the underlying market space for Baidu.
I do of Polo's, Oh auto solutions.
And a related question to that is have you noticed a significant change to add to chew up the Oems are towards the south developing for intelligent traffic.
Typing solutions. Thank you.
Oh, Hi, Garen this is robin.
We think huge opportunities in the auto solutions market.
In the first 10 months this year, even as sales increased by more than 100% in China, We know the largest EV market in the world.
Accounting for more than half of the global unit sales.
A clear trend for the auto industry is vehicle intelligence.
Baidu is benefiting from this trend.
No.
Our years of investments in autonomous driving had begun to bear fruit.
Baidu Apollo's other solutions are derived from.
Our core technologies.
A lot of AI models, we build for robo taxi can be used for PST.
Another point to note is that as the market leader, we have been investing in autonomous driving for about 10 years.
And Oh, thanks to this investments will not only.
We have completed tens of millions.
Testing mouth on public roads.
But also accumulated a very.
They are a valuable experience by running the largest a robo taxi fleet.
Operating ROE on a daily basis.
This has provided us great insight.
And we have used a guest insights to develop a auto solutions that.
Best to meet our customers' needs.
So for example, A&P, Switzerland zero.
We believe it is the most advanced intelligent driving solution Forest city it out on the market.
Because the ANP Squeak, one theater always derived from al four <unk>.
Having technology.
We were able to use a very limited amount.
R&D personnel to make this Atlanta solution available to the market within a short time.
Due to his first car global one will be the first one to U M. P three points there.
We believe that Oh, it's more and more automakers adopting our auto solutions, we won't become more experienced in making our solution compatible.
More popular car model.
On the other hand, when more and more cars with our although solutions on their goals.
We will be able to grow experience from everyday use it and well continue to improve our auto solution.
As I mentioned earlier, our total protected our accumulative sales for Apollo.
Apollo although solutions.
11.
4 billion AR, which is.
More than 50% from <unk>.
Yeah based on our current pipeline some of the major car models.
That are equipped with a M. T V P should be launched starting at the end.
The second half off next year, so meaningful revenue contributions for this business should begin.
In 2024.
And the profit will follow.
On the differentiation.
If you look at the cost side as we mentioned many times before developing.
Atlanta intelligent <unk>.
Solutions required massive investment in technology and talent.
Frankly speaking most companies cannot afford this kind of investment.
Automakers trust to our brand and technology.
So a lot of it up then have chosen to partner with Baidu on intelligence solutions.
For them, we are a trustworthy and reliable supplier.
Because we have made yourself investment in intelligent driving technology.
And we have a strong cash position.
And our advertising business continue.
Generate strong cash flow to support our.
Our investment.
And going forward.
While continuing to support is the collaboration.
With many automaker at large scale.
That's why more and more leading automaker make her recognize us.
Uh huh.
Brought in partnerships with Baidu.
For example in the quarter, we expanded our partnership with <unk>.
One of China's largest auto companies.
And they plan to.
You saw our S T solutions for yet another up their popular car model.
And the Asti solution, the youth into A&P, AVP and HD maps.
Going forward, we are looking forward to more partnerships with our OEM.
Both domestically and.
Internationally.
Thank you Gary.
The next question comes from Kenneth Fong with Credit Suisse. Please go ahead.
Hi, Good evening management, congrats for the solid quarter and thanks for taking my question.
I have a follow up question about a political on a fully autonomous driving what kind of progress will be seen in the near term.
Could management also talk about the key milestone to Apollo go we achieved in 2023 and even in the longer term and to achieve this milestone how should we think about the impact on your P&L as far as cash flow and when should we expect our political business to achieve breakeven. Thank you.
That's fine that's fine this is Jamie.
We are making wireless for the program as a package.
I'll answer that so we have put the topic.
We have been able optical is the largest autonomous of advocating with provider is worth it.
Because.
Number one.
Please go ahead.
North Dakota three.
Our political Hasnt hurt either one town hall meetings life of the party.
In Beijing, Shanghai and Guangzhou.
These <unk> are working well.
Also providing what are your family of threat and in some cases.
Hi.
And the number of rides for alliances as well as families are historians Firefox.
And then too.
Optical is already more than 10 cities in China.
Total cities.
Our population of more than 10 minutes.
That's what I answered Obi mentioned in his script.
Beginning operations.
In between <unk> and <unk>.
And the safety.
First of all the technical improvement costs.
Yeah, I mean, it's a box a health care operation.
To improve user experience.
In operation with golf, along all feedback from passengers.
Quite a bumper passengers want huh.
<unk> Corporation at the mall.
Okay.
Sure.
And the tool either on our roof Sandy Paul.
We have food and pharma and the importance of the quantity.
Our iPhone asps.
Passbook in malls that Felicia from passengers.
Today.
He dropped 18 off.
<unk>, alright, a possibly R&D computing.
After a quiet local people come to realize that it is a reliable and does take place.
Is it a lack of a professional driver.
Some people may wonder why cyclical can be Microsoft human Cry work, yes.
Yes, yes.
This operation is always a plan with the topic of regulation.
And yeah, that's our network that's had a it's kind of it's like three months ago.
<unk>.
A lot of political will provide the warmest paper glass.
Our strong track record of almost 50 has helped us in truck.
Both from all yogurt and also for our more granularly.
We have mentioned before that in Wuhan and Chongqing.
We will also provide a pretty gravitates around hitting so if it's okay.
So our obligation in both it is it's about on track.
Going forward well.
We are planning to continue to spend at the operation and has already offered there.
And then at the mall for your families.
In 2023 and beyond we will continue to scale up.
Patient.
In particular, what are your gravities eradicating operation Emo region.
And the review of the hardware and the weaker cost.
They will eventually be appropriate.
The shape of our Santa Clara and provide the cadence of it.
We will continue to lag.
The angle of attack.
For captured with helix.
The community.
Yeah.
Hi, Kenneth.
Mrs Curious regarding your question about the impact on our P&L and cash flow, we place the overriding pace actually manageable.
As Robert was saying that's great actually I've written today rescue a very comprehensive financial Balder pop local these small to actually hurt us to understand what should we do.
Wish you improve our jobs to generate profit English models in the future.
For example, today, we're working very hard to watch Trucost, a number one as well and to remove safety office dosing across as the labor costs, its way, where we issue radios and made a kind of a new ways.
Number two we're continuing to reduce the Hubbard causes.
Do you ever in the past quarters, we continue to improve our I O for autonomous driving technology and just now both junior dropping has kept saying examples how we do that how we leverage a large scale operation to improve our knowledge base.
Efforts helped us to trust and build check out costs. Today, we are providing a fully travel is ride hailing services in Wuhan and Chongqing, meaning no safety offices and their cost at all.
We're also making good progress as the safety offices today, I know a lot to not to see behind the steel runway and maybe even the Frances vis where harris to remove from our safety emphasis in more cities and reduce the labor costs in the future.
And on the other hand full of heartworm preventive.
Most often the newly added car.
You know coming.
Months will be occupied the model of up a little more <unk> way will be some investments in hardware and next year.
Oh once a sizeable amount of hockey sticks waste, which has just launched a few months ago, putting operation you know you're a 'twenty 'twenty four however, you'll need economy, where it is.
Because at least fix has much lower production causes.
Any prejudice generations after about Texas, but you're only economy in all patients and kissinger's is also improving because we continue to scale and improve the Oh of course.
On the cost efficiencies probably has some mentioning our rice continued to grow in the past few quarters and also each cannot provide 15 right every day you sound tier one cities.
Political today's becoming I recognize as a reliable and efficient way for daily Camille Omar.
Overall, I'll work with grew up local measure speed and to achieve the.
You'll need economy in key cities before what you spend to more cities I've seen just a summary of these impacts cash flow and the P&L is manageable and we have to let patients. Thank you.
Thank you very clear.
Yeah.
The next question comes from Lyndon Karl with Goldman Sachs. Please go ahead.
Thank you.
That's been I want to ask about our sales stuff are out of that.
Chips to China, because we have seen a recent T. A lot of press with Paul around U S chip restriction against China.
Wonder how youre seeing the restrictions impacting your ability to grow that business by.
AI cloud.
Autonomous driving and lofty wider hour IV.
Could you also remind us.
Our business that's most of it depending on the advanced logic chips, and if theres any way will.
We'll be able to manage this.
With the messaging capability. Thank you.
Thank you Linkedin.
All right. This is a hot topic reasons actually so the short answer to your question is that we think the impact is quite limited in the near future and I hear all of the reasons.
So first of all you know as of today, a large portion of our Ed.
Cloud business and even wider business does not rely too much on the highly advanced chips.
And secondly, you know for the part of our business is that need advanced chips, we have already stopped ines you hadn't actually to support our business in the near term.
Certainly there or some originated with a alternatively choose a restricted chips and we had the technology is to use this.
Noticed tubes to achieve or most of the same effectiveness and efficiency in our AD cloud and whether he had businesses.
Last but not list on.
On motive chips are not on the.
Prohibit list. So this means that in the near future in vehicle computing is not affected.
So when we look at it the mid to longer term.
We actually have our own.
Developed CIT so named Quinlan.
We already started to use quinlan chip to support some large scale computing tasks internally.
We also used Coleman to serve.
External customers already.
So because we have full stack EA capabilities from chips to E. S frameworks to foundation models, and then to a prediction software.
So we can achieve much higher efficiency.
We optimize yeah tasks from end to end.
Let me give you some other examples by using our cooling chips hydro pedal and large language models.
The efficiency cheap form text and image recognition Pax on our <unk> platform has been improved by 40% and of the total cost has been reduced by 20% to 30%.
There or more cases like this in a quality inspection in our smart manufacturing projects.
And image recognition in the smart city projects and so forth.
So as our business grows we believe our end to end capabilities will gain versus even stronger competitive advantages.
For the core chips. So we expect to see more auto of course, including core chips to be manufactured in China in the future. So as China's intelligent driving the market continues to develop rapidly.
So this means that supply chain in auto industry may become more and more independent and license on the imports.
So once again I want to emphasize that Baidu has built a very strong R&D team.
Keep introducing cutting edge technologies to the market.
And we have your users and customers to use these technologies to improve efficiency.
So that's why we believe we can leverage our strong capabilities and algorithms to support the top level computing, even though we face them.
<unk> in the semiconductor supply change.
So to sum up hip sales restriction should have a limited impact on our business operation in the near term.
Inside we think increase some good market opportunities for the Chinese chip companies.
Our accruing <unk> chips, and our business will eventually benefit from these opportunities.
Great. Thank you.
Our last question today comes from James Lee with <unk>. Please go ahead.
Great. Thanks for taking my questions I have two here.
First can you guys provide some more color on your progress on E Commerce search and short video opportunities can you guys talk about maybe from a consumer merchants.
And creators point of view, what kind of pinpoint that you're trying to resolve here and second can you talk about the traction that you have made in open mobile ecosystem and potential monetization opportunities here. Thanks.
Oh, Yeah. This is Robin I mentioned earlier that we have been building closed loop experience for.
For our users and advertisers you know our mobile ecosystem, especially.
Baidu App.
For E Commerce.
Because of the efforts we made in the past usage now come to Baidu.
Not only for information knowledge, but also for services.
And merchandise.
Since the beginning of this year merchandise related search queries on baidu have grown much faster than last year.
You may be wondering why it is because users increasingly you find out is that our platform. They can now find detailed product information product reviews.
And even by the product without leaving our App.
Now we have a huge number of FTE use available for search.
On our platform.
We have also deepened our partnership with leave.
Leading e-commerce platform.
So that users can easily byproduct we need.
On Baidu App.
Just like I said.
In my prepared remarks in Q3 at G. M E facilitated by Baidu search continued.
Continued to grow very fast.
I also mentioned earlier that retail has been and outperforming vertical for our online Aspen for quite a few quarters.
Even very recently.
Revenues from the retail.
Vertical during the double 11 e-commerce promotional season.
World by double digits from last year.
And this all pool that our effort.
Gradually bearing fruit.
As for short video, we're making short video increasingly available in our feed and search services.
Four feet.
Shortly new distribution and time spend continued to grow steadily.
Right now about 85% of the feed distributed by Baidu App.
Short videos.
And for search.
More than 20% of the clicks on the search result pages, we're short video.
This number increased.
More than 80% year on year.
During the month of September .
So we believe the popularity and the adoption of video in our search result, well ramp up.
Quickly.
Okay.
When we talk about monetization shortly to you, especially short video set provide fully immersive video experience.
It can be much better monetized than text and images.
For example in feed.
E C M E CPM for.
Truly immersive video ads are much higher than text and images.
This is one key reason for feed revenue to show positive growth year over year this quarter.
Even though the macro environment with unfavorable.
This progress and feel quite confident that short videos will also benefit us.
Search revenue later on.
Now we're also trying to use AI generated content to enrich our short video portfolio.
We still have the very early stage for this.
We believe with AI, we will generate a large number of short videos in a faster and more cost effective way.
So some of the e-commerce and short videos are two areas that.
Could drive incremental revenue growth for us and we will continue to work hard on that.
Meanwhile, we would like to stress that our profit growth remains a top priority for our mobile ecosystem.
As for interoperability, we believe it is a long term trend as we talked about it before being a third changing we benefited from more content, becoming searchable on the internet.
Looking to the longer term.
We believe the government's willingness to build an open mobile internet industry remains unchanged because it.
Benefit the users and the Smes.
And for Us.
With getting ourselves ready for that trend.
King.
This concludes our question and answer session and concludes the conference call.
You for attending today's presentation you may now disconnect.
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