Q1 2023 Baidu Inc. Earnings Call
Okay.
Hello, and thank you for standing by for Baidu first quarter 2023 earnings conference call.
At this time, all participants are in listen only mode.
After the management prepared remarks, there will be a question and answer session.
Today's conference is being recorded.
If you have any objections you may disconnect at this time.
I would now like to turn the meeting over to your host for today's conference one Lynn <unk> director of Investor Relations. Please go ahead.
Hello, everyone and welcome you provided third quarter 2023 earnings conference call by those are equally distributed earlier today and you can find a copy of our web site as well as our new glass.
On the call today, we have been running my co founder and CEO Ron <unk> our.
Our CFO , Joe Shan, our EVP in charge of Baidu, AI telco CPG and our SVP in charge of Baidu has kind of been driving after our prepared remarks.
If you're in a session. Please note that the discussion today will contain forward looking statements made under the safe Harbor provision of the U S. Private Securities Litigation Reform Act of 1990 by.
Forward looking statements are subject to risks and uncertainties that may cause actual results to differ materially from our current expectations for detailed discussions of the rig.
And uncertainties please refer.
Prior to our latest annual report and other documents filed with the ICC and Hong Kong stock Exchange Baidu does not undertake any obligation to update any forward looking statements.
As required under applicable law, our earnings press release and this call.
Okay.
There are certain unaudited non-GAAP financial measures. Our press release contains a reconciliation of the unaudited non-GAAP measures to the analyst.
I'd be comfortable.
And it is available on our IR website at IR I thought I did that.
As a reminder.
In addition, a webcast of this conference call will be available on bi.
I will now turn the call over to our CEO Robin.
Hello, everyone.
'twenty 'twenty suite, it's off to a good start with RP is performing well across the board and driving strong growth.
In Q1 added horsepower of new growth re accelerated year on year and supported an improvement in our operating margin.
Our online marketing business has seen positive impact from China's overall economic improvement.
After the Chinese new year, there was a quick recovery, which was especially beneficial for many of our advertisers in offline sectors.
Such as travel healthcare business services and local services.
More alert we've been working hard to enhance user experience for Baidu App and this has led to good use in Mexico and increased online marketing revenue.
For the first quarter compared to the previous year.
Our AI cloud achieved profitability on a non-GAAP operating level this quarter.
Starting in Q2 last year, we have focused on building sustainable growth for our cloud business by leasing out low quality project and businesses.
At the same time, we have been building standardized solutions for key use cases, and that's keeping them from one project to another.
This approach has led to an increase in AI.
Op margin over the past few quarters, and we have seen profitability.
The non-GAAP operating level this quarter.
Today, all eyes are keenly focused on the transformative impact.
Generally it is.
For today's call I will first provide an update on this topic and then walk you through our operational highlights.
Oh Intel.
Intelligent driving and mobile ecosystem.
Generated it represents a tremendous opportunity for us.
It can be compared to the introduction of <unk>.
Internet and smartphone.
To capture this opportunity, we leveraged our technology capabilities and our extensive experience in search knowledge glass and dialogue.
We were able to quickly deploy or nee bought in mid March which became the first GBP model owned and operated by a public company.
This launch demonstrated are significantly Batman and achievement in AI over the past 10 years.
And it will also highlight our position as the operator of China's largest search engine.
With our search engine, we have gathered a vast amount of data.
And knowledge for natural language understanding.
<unk> has been critical in training our model.
Baidu has established a robust range Oh, Gee I capabilities powered by four layer AI architecture.
Which encompass cloud.
Cloud infrastructure, the pedal pedal deep learning framework.
<unk> language learning and AI applications.
We have this distinctive advantage, that's helped us optimize and higher process and reduce costs for all those screening and insight.
One of our significant advantages is owning pedal pedal.
The leidy deep learning framework in China.
We have the best pedal pedal in Hawaii, that's aligned with Ernie bolt and this creates a strong synergy between the systems.
Let me give you an example, cleaning and run large language models require a lot of data, which can be complex and overwhelming.
And Amanda significant computing resources too.
Tackle this challenge we use our proprietary full stack architecture.
We are continuously looking for new techniques to meet our four layers work seamlessly, which helps us achieve better performance and quicker throughput.
Specifically, we have improved it compatibility between kind of panel the large language model and the cloud infrastructure.
As a result since launching <unk> in March we normalized it.
Our normalized it queries per second.
<unk> increased.
Almost 10 times, indicating significant efficiency gains.
Yeah.
Baidu is rapidly integrating already bought into all of our business for testing.
The goal is to leverage its capabilities to E N reviewed and create both our enterprise and consumer facing products and services nearby revolutionizing arpin.
We're also working on building an ecosystem around food.
When he bought to promote the adoption Oh generated AI in a wider range of use cases.
This strategy should enable us to gain market share across all sectors and achieve sustainable long term growth.
As more people use Ernie bought more panos integrate burney Barker in seamless ways, we will be able to gather large scale human feedback and its way to the model rapidly and tailor to real life market heat.
On the enterprise facing insight generally think AI is.
[laughter].
Expanding the total addressable market off the top in the industry.
This is because the cloud service provider can used generative AI to add or enhance capabilities to their current offering.
New solutions and applications to eyeglass uncle feel that the market demand and drive productivity and efficiency.
As a result since we introduced early bond, we have absorb more and more enterprises from where he was industries started the our motto training or a cloud.
Our powerful foundation models, and our unique full stack AI capabilities differentiate us from our competitors.
Which gives us an edge in the market in.
In March sales fleet increased by more than 400% year over year, which is a significant achievement for us.
We believe that our AI cloud well continue to gain market share overtime.
I'll provide some examples already bought it helps our customers to gain efficiency.
In the financial services industry, we have partnered with a prominent domestic a story of the company to help them intensity.
Digital experiences for employees and clients.
To achieve this we will utilize our AI capabilities, including pedal pedal and already.
Their private cloud. Additionally, we will create customized tools and technologies to assist them in Tweeny and we're finding models aren't you bought it.
The other unique data.
And we will continuously improve the system over time.
This model.
Well power, whereas application, including healthy financial adviser analyze large amount in house research report and public information.
We believe that this project has the potential to establish a new industry standard for innovation and efficiency in China's financial services sector.
In the software industry, we are collaborating with some productivity software to buy fruit to test the integration or any thought into their application.
We used the goal, although meeting certain workloads and expanding the capabilities of their end users.
Additionally, we are partnering with some ERP companies, who are exploring the use or the use of our new bot to assist their programmers.
He can cope.
[noise], Inc.
Kitchen industry, we opened early bought to a leading online education company by model as a service.
Helping them fine tune their our own model Baidu AI call. One of the features that are working on together.
Enhanced sophisticated AI tutor, enabling them to better serve their students.
We've observed the industry experiencing a surge in demand after the pandemic are interested in using any bob to improve their business operations more efficiently.
Online travel companies are a good example of this trade at some of the biggest players testing the use off already bought two assistant customer service team in managing customer queries.
Suggesting trends and.
And directing customers to relevant information.
The feedback so far has been positive and customers are also beginning to switch their IP expenditures to our cloud.
Consumer facing businesses, we are utilizing or any box to enhance our product for their users. We're currently beta testing an upgraded version of Baidu search, which is powered by our new boss.
This version provides natural conversational interaction or more seamless search experience.
We also testing the integration of Ernie bought with Baidu, one cool our online document sharing platform to enable already bought to work alongside users and assist.
With 13, summarizing and generating content using natural language.
Additionally, we are cooperating already bought into other consumer facing products, Okay, Baidu map and keyboard Baidu post and shall do.
Furthermore, we are testing a stead at long application for Ernie box.
So far we have been encouraged by the positive user feedback as a current testing stage and look forward to bringing this experience to more users in the coming months.
In the new era, AI chat bot won't become a traffic gateway for people to seek information and content. Therefore, we should continue to gain user traffic and mind share, which well drive monetization over time.
We're also working to build an ecosystem around or any bonds with our partners to fuel innovation and drive growth.
On the regulatory front as the leader in AI and an advocate for AI ethics Naidu continues to promote the responsible use of AI.
To comply with regulatory requirements, and new technology product or service must undergo government review and approval before large scale deployment.
Applied for review and approval or any boss and well roll it out at a large scale to our customers and users once we get the green light.
Baidu has been operating search in China for more than 20 years and has extensive experience with Chinese culture, and regulatory involvement, which we believe will help us navigate the regulatory landscape.
In early April .
I've received administration of China, released a new draft regulation for comments on generating AI, which explicitly endorses the development stuff device designed Oh, qwizdom and deep learning frameworks.
We believe that regularly as regulators active engagement being generated in.
In the early stage, well greased the bar to entry and we are well positioned for that.
Overall, we are thrilled about the prospects that lie ahead is already bought and we will continue to invest in it to unlock the tremendous potential that we envision.
Now, let's have a look.
On the first quarter operational highlights.
In Q1 revenues from AI cloud increased 8% year on year, which is an improvement from the 4% year over year growth in the fourth quarter last year.
We're pleased to report that AI and cloud.
<unk> achieved profitability on the non-GAAP operating.
State level during the quarter.
The margin improvement undergoes two points of progress.
One is our ability to optimize operations and drive sustainable and healthy revenue rose.
Two is our efforts to standardize our AI solutions and application and efficiently replicate them across different customers and sectors.
In Q2 of last year, we have faced out low margin businesses and project alright, guys, well, leading to a healthier bins are the palio and cost structure.
At the same time, we continue to standardized solutions for key use cases for replication.
In the water industry for example, last year, we replicated AI solution, we developed before predicting water usage and controlling while theyre pressure from Chenzhou partner company to Guangzhou water company.
In Q1, we deployed the majority of our earliest standardized the solution to the lien how clunky water company in Gansu Province.
This example, it demonstrated the scalability and margin expansion of our standardized approach in creating AI solution for traditional industries.
As I mentioned already our generators AI, it's creating a host of opportunities.
Opportunities for the cloud industry and expanding the cloud market significantly. Therefore, we will continue to invest and actively explore ways to grow our cloud services.
Moving into intelligent driving.
We continue to make solid progress in Q1, the number of rides provided to the public Oh Pingo <unk> increased over three fold compared to the same period last year and reaching nearly 660000.
Thanks to the remarkable growth in right and our strong track record of safe operations. We have received more permits from government to offer fully driverless ride hailing services in China.
On March 17, Apollo has always allowed to provide food anytime really strikes hitting survey aethon reach enough thinking as.
Today, we are providing the services in three cities.
Jim one and.
And Chongqing.
We are prioritizing seat expansion and passenger adoption in regions, where we can provide so I'm release commercial operation, meaning it's fully poverty and we can charge.
Our efforts are.
<unk> resolved Inc.
In one way or ways first it received the permits to provide such services on public at old last August we now have more than 135 whoever leased vehicles.
More than one third of the paid right Apollo goal provided we're in fully driverless vehicles.
We are confident that since a number of rights provided by 45 or at least close well continued to increase leading to cost optimization and creating a profitable business model.
We firmly believe the demand for autonomous driving services will continue to grow at a rapid pace and we are further dedicate our technology and operational capabilities to better provide safe and reliable services to the public.
Moving to mobile ecosystem.
I'm pleased to report that online marketing revenue returned to positive year over year growth in Q1, resulting in an increase in operating margin.
One contributing factor to this growth what's the overall improvement in Chinas economic recovery and commercial environment as a result of China's pre opening.
As I mentioned earlier, meaning offline related work coast travel healthcare business services and local services has substantially increased their AD spending on our platform.
Some of this work those have already rebounded to above our pre pandemic levels, indicating solid signs of recovery.
Our own initiative aims aimed at improving the product experience such as incorporating short videos and lifting information within the Baidu app.
Also played a significant role in the revenue increase.
Additionally, revenues from retail and E Commerce continued to grow mainly driven by merchant.
Spending on our platform.
The quarterly G. M D facilitated by Baidu search grow by 55% year over year in Q1, demonstrating our continued traction in the e-commerce sector.
Our users and traffic continue to grow in the quarter with Baidu App's M. A U increased by 4% year over year in March.
And feed just real data through Baidu, App and mobile search queries maintaining.
Our steady growth.
This reflects the high value users placed on Baidu search as their primary source of information.
During the quarter, we continued to focus on enhancing user experience and customer satisfaction.
On the user side Baidu app as a waterfall.
Flow feature to explore page, which is particularly attractive to young female.
Enabling an in finite rossi experienced and catering to the diverse needs.
We expanded our immersive video feature to more and more use cases on baidu app, including incorporating it into search results.
Additionally, we continuously improve.
Our one shop search resolved through AI to provide a better search experience.
This effort has helped to increase user engagement and expand our user base.
On the advertiser side.
Since launching our AI capabilities late last year, we've been working with advertisers to create more effective that.
By allowing advertisers to specify their requirements our platform generates custom.
Customized options for them to choose problem for instance, a local tallo agency tend to our AI juicy capabilities to quit it at.
Our AI generated an outperformed those created by the advertiser.
Levering, an average of about 20% higher sales lead.
In Q1 advertisers adopting E N G C increased your AD spending year over year and quarter over quarter on our platform.
Hammond straightening the effectiveness of our technology is driving business goes out.
Already this year, we began using our AI capabilities to help advertisers respond to customer inquiries on our platform.
By harnessing the power of AI, our advertisers can provide professional and timely answers to the other customer inquiries, which in turn drives an increase in sell fleet.
For instance, our B to B advertiser witnessed a monthly increase of over 100% himself leap in March after using our AI technology.
Technology.
We are expanding this service to increasing number of advertisers, helping them better serve their customers and drive improved business without.
This effort resulted in improved ROI for advertisers on our platform.
Looking ahead, we remain committed to assisting our advertisers, reaching and converting their target audience by leveraging our cutting edge generated AI technology.
With that let me turn the call we're too long to go through the financial results.
Thank you Robyn now let me walk you through the details of our first quarter financial results.
Total revenue was RMB $61 1 billion, increasing 10% year over year revenue from Baidu core was RMB, two just stupid and increasing 8% year over year Baidu core online marketing revenue was RMB 16, 6 billion, increasing 6% year over year.
Baidu cost not only marketing revenue was RMB six 4 billion.
11% year over year in Chihuahua, AI cloud increased by 8% year over year to RMB four 2 billion revenue for IC was RMB 800 throughput and increasing 15% one five year over year cost of revenue or what's the RMB 15, 2 billion the Christmas 3% year over year, if I recall.
Cost of revenue was RMB, nine 4 billion decreasing 4% year over year.
Operating expenses were RMB 11 billion, increasing 7% year over year, primarily due to an increase in China's spending and promotional model.
Marketing expenses Baidu core operating expenses were RMB, nine 5 billion, increasing 5% year over year Baidu core SG&A expenses were RMB, four 5 billion, increasing 16% one six year over year SG&A accounting for 10 keep yourself Baidu core rough and they were even a quarter compared to <unk>.
18% the same period last year Baidu call R&D expenses were RMB five but then the question 3% year over year R&D accounting for 22% of Baidu core revenues in the quarter and decreased from 24% in the same period last year operating income was RMB 5 billion.
Core operating income was RMB, four 1 billion and Baidu core operating margin was 18% one eight and non-GAAP operating income was RMB six 4 billion.
non-GAAP operating income was RMB, five 4 billion and longer Baidu core operating margin was 23%.
Total other income net was RMB, two 6 billion, which mainly including a fair battle King all under one 5 billion for loans and investments in the first quarter last year, we recognized a fair value loss of ambitious route but a significant portion of our loans in your best months in cool, but not limited to investments.
Just curious is all public and private companies and private equity funds.
This is subject to quarterly fair value adjustments, which may contribute to net income volatility in search of Paris in context expenses was RMB, one 2 billion, increasing 205% year over year, primarily due to an increase in profit before tax.
Net income attributable to Baidu was RMB, five 8 billion and diluted earnings per ads, Yes, RMB 15 part of 92.
Net income attributable to Baidu core was RMB five times faster than non-GAAP net income attributable to Baidu was despite 27 billion.
Good dilute your earnings Crazy, Yes was RMB 16.1, and non-GAAP net income attributable to Baidu core was RMB five pies route.
And non-GAAP net margin for Baidu core was 23%.
At March 31st 223, cash cashew credits restricted cash and short term investments well be 194 million in cash cash equivalents restricted cash and short term investments.
Could you I see well I M B $108 8 billion.
Free cash flow was RMB, four 5 billion and free cash flow, excluding IC was RMB three five for that.
Baidu call approximately 36000 volume ourself masked because your first 2023.
Separately note in the quarter I see generally a ball RMB 1 billion non non-GAAP operating cost hang up all RMB 1 billion in free cash flow.
Operator, let's now open the call to questions.
Yeah.
Thank you.
Ladies and gentlemen, even now begin the question and answer session. If you wish to ask a question. Please press star and one on your telephone keypad and wait for your name to be announced.
If you wish to cancel your request please press star and two.
Participants are requested to restrict one question and each time.
Yeah.
Your first question comes from Alex Yao with JP Morgan. Please go ahead.
It's been one.
Good evening management team Ah Congrats on the strong quarter and thank you for taking my question.
Have a few on the advertising side of the business what is the amount months trying to fall as recovery since.
March and how big either vertical exposures are to offline rudenstein verticals are holidays, the advertiser demand changing on your platform.
And then Boston, how should we think about the full year.
Our gross rate. So what is the mid to longer term holds potential for that business beyond the COVID-19 normalization. Thank you.
Hi, Alex this is robin.
Thank you for your question.
We are happy to see significant progress in our online marketing business.
For Q1 revenue made a remarkable comeback and a return to high single digit growth.
Recall that last year online marketing revenue.
<unk> declined year over year for all four quarters I think it was a full point above 4% decline in Q1, 10%.
In Q2.
Folkestone in Qs three and four 6% in Q4 now we are in a positive territory and the momentum.
Got furthest to incentive in the current partly in Q2.
The Q1 growth was primarily driven by a number of verticals that you'd be offline sector.
I just didnt mentioned during my prepared remarks.
Offline sector contributes to a sizable amount of our online marketing revenue.
Particularly our largest revenue contributor.
Healthcare has been improving and it's back to the pre pandemic level.
So travel is also improving apparently and we saw.
The labor day holiday, what really really hot.
The growth in our online marketing revenue.
I have also had a positive impact on the margins are.
Mobile ecosystem.
Overall margin for Baidu core got better.
This success is due.
He was our focus on user and customer experience on our platform.
And Furthermore, we have observed a strong growth in user engagement and traffic.
Despite this the reopening of China and people are spending more time offline.
A M a U or a baidu.
Baidu App.
Rose 4%.
Year on year in March and our.
Our feed content to just do this through Baidu app or so have demonstrated.
Robust growth.
And looking ahead, we anticipate advertisers well continue to allocate more ad dollars.
To performance.
Two performance based platforms.
How important.
And we believe Baidu search, it's well positioned.
To benefit from this trend.
In addition, we see generating AI as a significant opportunity that complements our search capabilities.
And fly new avenues for users to access and create content.
Absolutely yeah.
Ernie bought into our apps, particularly the search.
We we expect user traffic and engagement will go up.
Thereby further supporting the growth of our online marketing revenue.
Only box can also can she.
And also Inc.
Hence our commercial products.
Presenting an exciting opportunity for us to strengthen our offerings.
It's early Bob empowered commercial product.
We can capture a larger market share and deliver.
Deliver even greater value to our advertisers.
This additional dimension gives us further confidence in our online marketing business and their ability to drive sustained growth.
In revenue.
So based on this divestments and our strong fundamentals.
We expect our online marketing revenue to outperform the growth of China's GDP.
Okay.
Thank you.
Yeah.
Thank you.
Next question comes from Alicia Yap with Citigroup. Please go ahead.
Hi, Thank you good evening Robinson as a management team thanks for taking my questions.
My question is really do.
My two cents.
Oh Wow.
Major magazines driver D shares after you know large scale off the cost cutting effort last year, how should we think about a core operating margin trends for the rest of them.
Especially given there will be a few moving factors adopt a well impact my genes such as for example, the potential investment related to the larger language model the autonomous and August . Thank you.
Hello, Vishal, let me answer your questions.
I think.
We have implemented a number of things shake it slashed cheap tools, our operational efficiency, which you can see that in the past four or five quarters and all are poised all often have led to a notable improvement over our modules are these measures are not only meet the mark.
Talking numbers those stats are but also has transformed our organization, making it leaner and more H O L. I wish with asking you a drive for a sustainable long term growth.
Purely number of scrap as a result, they can see that our non-GAAP operating margin expanded from 17% last year to 23% this year and the free cash flow also grew by over 200% from a year ago. Those 40. All of this growth was also accompanied by a salary she.
What I'm.
More specifically our strong as just mentioned and number one album mobile ecosystem Paulson module, some truth, but she's also together with the revenue, but also on the marketing businesses number two we can see that for Baidu AI call.
By focusing on cotton low margin projects and businesses as well as our developing a more standardized air solutions for key goes the cases.
Baidu AI claw has to reach the profitability on the operating level.
So as you can just come milestone plus.
I'm looking for a while and you continue to enhancing the margins across all of our major operations well Edison Hi, I would also will continue to invest in the promising new areas in particularly the uninvolved intelligent driver.
Obviously struggled in the last months Ah I should out quite align with our long term growth objectives, which also reflect two arrows, where we have identified ischemia come potential opportunities by focusing on these areas. We aim to capture the lots and lots of shares and we tried to drive for us.
Sustainable growth, all while delivering more values 12 of shareholders.
As for the near term I think the incremental investment in the new opportunities. There's also a manager most of them are chow.
Overall, our focus on disciplined execution and operational efficiency and Alison ties with.
We're trying to see the long term growth opportunities all of these efforts have resulted in the improvement of the overall baidu core margins in Chihuahua, and this will continue in the future.
Which of course was approved we will prudently managing our P&L leverage our coffins improvements and further our truckload sustainable gross tango so much Elisa.
Yeah.
Thank you.
Okay.
Thank you our next.
Question comes from Gary Yu with Morgan Stanley . Please go ahead.
Hi, Thank you and good evening I have a question related to cloud and so on your AI cloud revenue growth, what's the expectation for growth into Q and Russell 2023.
Could you help us quantify any incremental cloud revenue in coming quarters coming from early adoption.
And a related question on cloud as of March at.
With your.
A improvement in our revenue growth and margin how should we look at the normalized.
Revenue growth and margin for cloud.
Thank you.
Okay. Yeah. This is Don Thanks for your question on the cloud.
So since the second quarter of last year. So we have made a significant efforts in those three ways.
You know trying to consistently improve our margins for the cloud.
Firstly, we are resolute in our phasing out of the low quality pardon accident businesses and secondly, so we are committed to building standardized solutions for our key use cases, and then efficiently replica them.
Across different customers.
Secondly, we are continuously investing in the technical capabilities of our standard cloud offerings.
To reinforce our competitiveness.
So as a result, if the efforts.
Baidu cloud achieved a profitability on the non-GAAP operating level this quarter.
In addition to that you know after China's reopened now we finally can meet our cans in person to execute projects and present our proposals.
And we believe it you know AI cloud revenue gross you know since accelerated from quarter of last year and he will continue in the coming quarters.
Moreover, we believe when you know Ernie box could provide a messy opportunity for us to gain shares in the cloud industry.
Since its launch in the middle of March. So we have received and are hungry thousands that VAT testing requests for the early part from our enterprise customers across a range of sectors, such as finance software you know education online travel in a song.
This overwhelming interest you indicated a promising start for the Ernie boss.
To do.
So our customers are so eager to explore and utilize any bumps for their businesses.
And in a week or you know or confidence that it will improve their productivity and then enhance their competitive edge.
Actually no.
You just mentioned, there's several customers has opted to develop their own large.
Models on our cloud platform.
To leverage the advantages if they fall layered architecture.
You just mentioned in the prepared remarks.
So I just wanted to look ahead, our focus will still remain on achieving healthy and sustainable revenue growths for the existing club business.
You know well we or.
Striving to improve the margins and in the Meanwhile, So we will capitalize on the long term huge market opportunity if large language models.
And for sure. So we are committed to the investment and the value creation of our already bought.
Overall, we believe we will continue outgrowing our peers you know.
<unk> com revenue in the long run.
This is Gary.
Thank you.
Thank you.
Our next question comes from Lincoln column with Goldman Sachs.
Please go ahead.
And thank you for taking my question. So my question is related to earn he bought.
So basically how much my further elaborate a bit more on the gross in a monetization opportunity for any bolt and a large push model. So how should we think about or any bouts will reshape already existing our business and especially help us shocking share each almost after business lying in the markets. Thank you.
Yeah.
Yeah, or any box has been making quick progress since its launch in March.
For instance, we have already upgraded already bought four times and we have managed to reduce the influence cost by nearly 90% D C suite.
Well some of our competitors are still focusing on milder training. We've moved ahead with a significant reduction of our insurance cost.
This improvement a result of our self developed AI architecture is 40 years, which set us apart and enables us to quickly reduce costs and enhance efficiency from Aldo training and inference.
This strong foundation well facility.
Widespread adoption of earn evolved.
When you learn about to upgrade almost all of our products and services.
Enhancing and rebuilding our existing offerings.
This enables us to strengthen our position and gain market share.
In our target market.
Including cloud services online marketing.
And smart devices.
In AI cloud Ernie bodies being tested I'm more and more enterprises that Don just mentioned and is proving to be beneficial to our customers in all kinds of sectors, helping them solve problems and improve their productivity and efficiency.
It truly demonstrates the power of Genuity AI and large language models.
Okay.
We have witnessed increasing adoption of early bought it's.
Hundreds of thousands of enterprise systems and entities queuing for testing.
This is an encouraging recognition awesome baidu AI capability.
Particularly if you are a powerful foundation model.
To assist our customers to better you only bought we have developed the tools and technologies.
That support training and refining the model using our customers.
Unique data with.
It also leads to continuous system improvement overtime.
And customers are becoming more selective than before when choosing our cloud provider they take into consideration the capabilities of general idea of AI and large language model.
We see a growing number of new customers waiting to migrate to our AI cloud.
So we expect or any box too.
To Inc.
Uh huh.
To enhance our competitiveness.
And.
Our pricing power off or a cloud.
In March we saw more than.
400% year over year growth.
The sales team and the way.
Anticipate more opportunities.
In the future.
Additionally, while the cloud industry presents significant opportunities for only bought in.
The options are there are great opportunities in online marketing.
Market too.
As I mentioned earlier we.
We utilize them dirty bomb to upgrade our popular consumer facing products, including Baidu App.
Baidu search and other applications within Baidu family.
The initial user feedback.
We have received.
It's very promising.
Hum widespread implementation, we should quickly gain user traffic and engagement and.
Therefore, reshape the competitive landscape in Chinas Internet and mobile sectors.
So in summary, Ernie boss progress has been very encouraging and we're excited about the future.
We are pushing the boundaries of AI and are exploring new avenues.
Brooks.
Thank you.
Yeah.
Thank you.
Yeah.
Our next question comes from Miranda Wong with Bank of America Securities. Please go ahead.
Thank you management for taking my question. Congratulations on the results. My question is about competition with many other internet peers lunching or about to launch there last language model and how to think about Baidu is competitive advantage.
And how does management think about the competitive landscape in China in the near term and the long term, especially for the enterprise facing business. Thank you.
Yeah, that's a good question.
And.
A L. L. N <unk> are still in the early stages of divestment and we are very happy to see the entry of more players, saying to the skewed.
As it will help the industry to develop rapidly.
Moreover, we are actively constructing an ecosystem around or any thought to attract new participants and drive innovation in the emerging direction.
In our view generative AI and large language small though.
<unk>, a very high barrier to entry and very few companies possess the necessary capabilities to establish.
Our significant presence in this market.
The requirements include.
Substantial upfront investments.
Robust AI capabilities and expertise.
And vast amounts of data for motto 'twenty.
Also extensive experience in delivering appropriate content to Chinese internet and mobile users is crucial.
Given such high requirements, we anticipate.
Highly concentrated market.
Probably two to three major players winning in the end.
As mentioned earlier as the first mover in China we.
Leverage or any boss to upgrade and <unk>.
Revitalize our entire product and service portfolio, because we have a large product portfolio and large user base.
We are able to get lots of user feedback about Bernie bought.
Which will help us.
First of all enhance our leading position in L. L M.
This approach allows us to.
Convert cutting edge technology into practical features products and solutions.
That address challenges and support sustainable growth.
Baidu has a distinctive AI architecture, consisting.
Consisting of four layers that we have deposit ourself.
He captured keeps us.
Competitive advantage in terms of AI capability.
And played.
Crucial role in the successful early launch off already bought.
But is this architecture, we are able to quickly decrease costs and improve efficiency in both training and inference.
For example, we have optimized as a performance all pedal pedal for inferencing.
And is this the optimization in Naples.
Too.
Yeah.
More effectively work between that.
Framework layer and the model there.
Which leading to a substantial efficiency improvement and cost savings.
Developing and training L. L M require a significant resources, including robust cloud architect a cloud infrastructure.
Infrastructure.
To this end, we have our own cloud business and have secured.
Substantial amount of fall.
Computing power, including.
The most advanced Gpus to sustain that.
The ongoing training and iteration already bought.
Another critical point is that our experience in.
<unk> operating China's largest just search engine for over two decades.
Uh Huh allowed us to build an extensive database in Chinese language.
No.
Including a very valuable data facts and our knowledge.
And enhancing our leadership position.
P in China.
We have extensive experience in reviewing the vast amount enough content on search and all of them.
I think our mobile ecosystem.
And therefore to beeping.
To offer our customers any combination of all different layers off our AI stack.
If the customer only needs infrastructure, we can provide that.
If the customer needs, both infrastructure and framework layer, we can provide that bad.
If the customer needs the framework layer and monolayer, we'd happy to offer those too.
And if the customer want end to end solution, we have that ready.
So we are uniquely positioned and very flexible in serving our cloud customers.
Based on this our competitive advantages.
I'm confident that we won't be a winner in this market.
Thank you.
Thank you very much.
Yeah.
Thank you.
Our next question comes from Kenneth Fong with Credit Suisse. Please go ahead.
Hi, Good evening management and thank you for taking my question. He says he looked at that Cyberspace administration of China recently released a draft regulation on the agenda.
So what sort of additional investment I needed to be to requirement. Thank you.
Oh.
Okay. During our testing of Ernie box, we have engaged in close discussions with our regulators.
Through effective communication, we have found that the principles of content reveal or generally give AI are quite similar to those applied to search.
Finally, we have been operating China largest a search engine for over 20 years, and we have extensive experience in providing appropriate online content.
We also put a lot of effort into both technology and compliance department to ensure our products and services.
Applicable regulatory requirement.
Or important and sensitive topics.
We have to make sure AI well not hallucinate.
Isn't that L. L M, it's more or less a probabilistic model. This task is not trivial at all.
The requirements are not final yet so we have to continue to update our strategy as it evolves.
Furthermore, we maintain an ongoing dialog with the relevant authorities and keep them informed.
About the latest technology trends.
We actively share our insight.
Supporting the responsible and beneficial growth of technology.
Yeah.
Particularly for generating yeah.
It took them a there's this pratt.
So active effort position us well to meet the requirements and offer industry, leading generating AI solution in China.
Conversely companies, which do not have extensive experience in providing appropriate online content or lacking a track record of working closely with speculators well.
Well face significant challenges in offering scalable generative AI solutions in China.
So here I would like to emphasize that Baidu has a hum.
That's been a leader in AI for social good.
For a long time.
We are one of the early adopters for responsive used in China.
We believe our new initiative.
Already bought it.
Best thing its kind in China, and it has the potential to increase productivity and efficiency across various industries.
Which can contribute to China's economic growth and social investment.
We expect to earn he bought it to power agriculture enterprises to promote innovation and to optimize energy use resource allocation and a waste reduction and to improve.
Improved disease diagnosis and healthcare industry.
Therefore, enhancing people's well being and quality offline.
Also we always attach great importance to AI ethics back.
Back in 2018, I came up with the four principles of AI ethics.
That's like a one week AI should be safe and controllable ER to ER, yeah, I should promote equal access to technologies for humanity a.
Sweet AI AR should empower humanity to learn and grow instead of replacing them.
And for E I should.
Bring more freedom and the possibilities to humanity.
I want to make sure that the busy baidu everyone understand this principles when it comes to you AI technology and products.
So as to.
Enable is a cool assistant.
Yeah and the mankind.
In addition, we also.
Prioritize stated our privacy and data security in pencil operation and business strategy.
We have a dedicated a committee to oversee data management and we are currently establishing another committee for AI ethics and all of this effort are aimed.
Aimed at.
Promoting P I.
For social good.
Thank you.
Yeah.
Thank you.
Next question is from <unk> Shah with UBS. Please go ahead.
Thank you management for taking my questions and congrats on the good quarter. My question is about Apollo Gaal, So could management provide some updates on your robo taxi business in terms of your strategy and business plan for the year, especially for the fully driverless ride hailing operation is there any time.
<unk> you can share regarding the scale up or the breakeven of the business and what are some catalysts or milestone event that we could expect for Apollo gold. This year. Thank you.
That's the issue is this just a change.
Our optical remains largely installed almost ready to get into with providers Ginsberg.
And that's what I have said you'll be mentioned in the first quarter. We all hold almost the same time. This is heath salt into Gladstone public on.
This number of campuses.
Yeah.
We aim to open.
Autonomous a job in technology type, providing more drives towards the topic.
In addition, we will always keep in mind, the Gulf or shall we breakeven.
Kenyan skill on the building, that's dependable Pcs modal or Tam.
When we make our obligations.
Cool Richard this all protect U S import tended to reduce its obligation no cost.
The improved operational efficiency.
On cost, while focusing on lowering labor and the hardware costs.
Those are the major cost forward open Pepsi operation.
So we.
We are working hard to find ways to cut down on those expenses.
Cool. He also labor cost we've continued to grow with the right equipment or what do you call out what is the operation.
As Adobe mentioned in his are a part of it mark.
Well to me, who really well in getting closer all cool.
And adding more wheels.
Wow, we can provide plenty of grabbing thrive.
In the eastern region, or Beijing gossip certain mass after accounting for you gravitate to the person for me.
We've got the Green light to offer what are your gravity is heading so I'd say so towards public filings the opening goes a little match.
This program is because all saudis are accountable for Whiting mining safe and reliable rise topic in the past.
So with that.
K to trust the Kinder Tosca from both users and the <unk>.
And then two plus years.
And then you will have with pocket offer offering what do you call basically ride hailing services last August .
We are still too high.
Shall basically meals on the expansion population.
That's Adobe mentioned earlier most of them one said authorized to provide it by a couple of go you can offer a more what he's gravities wheels we.
We're seeing consistent number with chip going out into the future.
Her all have 15 other real active beauty for the future what do you do all of this operation.
Well hardware cost, we've been able to offset a good diesel occupancies on the off of new models or what types of yields in the future.
<unk> continued to decrease.
Our operational efficiency.
The seamless study.
<unk> increased in so I wouldn't just daily right nationwide.
The future we will continue to automate our obligation those scratchy to long term success in North Texas.
Thank you.
Right.
Okay.
Thank you.
Ladies and gentlemen that concludes our conference for today. Thank.
Thank you for participating you may all disconnect your lines.
Okay.
Okay.
[music].
Okay.
[music].
Okay.
Okay.
Okay.
Okay.
Okay.
Okay.
[music].
Okay.
[music].
Okay.
Okay.
[music].
Yes.
[music].
Okay.
[music].
Okay.
Yeah.
Okay.
Yeah.
[music].
Okay.
Okay.
[music].
Okay.
Yeah.
[music].
Yeah.
[music].
Okay.
[music].
Okay.
[music].
Yeah.
Yes.
[music].
Okay.
Okay.
Okay.
Yeah.
[music].