Earnings Call: Q1 2021

May 18, 2021

Earnings release

Hello, and thank you for standing by for Baidu's First Quarter 2021 Earnings Conference Call. 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 from Junling, Baidu's Director of Investor Relations. Hello, everyone, and welcome to Baidu's Q1 2021 earnings Baidu's earnings release was distributed earlier today and you can find a copy on our website as well as on newswire services. On the call today, we have Robin Li, our Co Founder and CEO Hemen Yu, our CFO and Dou Shen, our EVP in charge of search and feed. After our prepared remarks, we will hold a Q and A session. Please note that the discussion today will contain forward looking statements made under the Safe Harbor provisions of the U. S. Private Securities Litigation Reform Act of 1995. Forward looking statements are subject to risks and uncertainties that may cause actual results to differ materially from our current expectations. For detailed discussions of these risks and uncertainties, Please refer to our latest annual report and other documents filed with the SEC and Hong Kong Exchange. Baidu does not undertake any obligation to update Any forward looking statements, except as required under applicable law, our earnings press release and this call includes discussion Of certain unaudited non GAAP financial measures, our press release contains a reconciliation of the unaudited non GAAP measures to the unaudited most directly comparable GAAP measures and is available on our IR website at ir.baidu.com. As a reminder, This conference is being recorded. In addition, a webcast of this conference call will also be available on Baidu's IR website. I will now turn the call over to our CEO, Robin. Hello, everyone. We delivered strong results in the Q1 Our business was strong across the board, particularly in our new AI business, including cloud, Smart transportation and intelligent driving. Non advertising revenues within Baidu Core grew 70% year over year to RMB4.2 billion, accounting for 21% of Baidu Core. China held the 2 session annual congressional gathering in early March and technology innovation was repeatedly mentioned. It was emphasized that never in the history of China has innovation been more important to the development of China. China's pursuit of innovation through technology to boost long term growth and productivity will further expand the use of AI. We have witnessed AI platforms For AI powered infrastructure enabling applications disrupting markets. For example, we entered the smart Device market 3 years ago, despite 2 dominant market leaders with strong manufacturing and distribution capabilities, We leveraged Baidu's leading AI technology, including natural language processing and speech recognition To make DuerOS smart assistant understand humans better, this in turn has resulted in making Xiaodu Smart Display number 1 in shipment globally. We further changed AI powered platforms Are changing the technology landscape. New vehicles sold are being equipped with sensors and AI capabilities, both internally and externally to provide intelligent driving and in vehicle infotainment. Apollo serves as the AI platform that powers the 2 critical functions of intelligent vehicles. Apollo Online Stridean is making new breakthroughs and over 1,500,000 vehicles have been sold in China pre installed with DuerOS for auto. Installation of DuerOS for auto According to IHS, over 50% of the vehicles sold in China this year are expected to be connected And the percentage is expected to rise. We are excited to be deploying V2X vehicle to road infrastructure across China, which enables connected vehicles to be more intelligent. Just as the continuous upgrade of telecom networks Since 2 gs has enabled mobile phones to become better and smarter, we believe Apollo Smart Transportation infrastructure Can be continuously upgraded to make connected vehicles more convenient, safer, greener and in general, more intelligent over time. As we view Apollo V2X infrastructure in cities across China, we are getting Request to expand our smart transportation offering through greater use of AI into mass and solutions to Digitized public parking and highways. The expansion of Apollo Smart Transportation beyond B2F Into different facets of transportation in metropolitan and highways leading into them will create A powerful network effect when the solutions are integrated and synchronized, a transportation network powered by Our divestment of PaaS for different industries and empowering our ad customers with marketing cloud Further examples of how AI platforms are changing industry dynamics from digital transformation to mobile Internet. On the latter, we have a big opportunity to expand online marketing from selling traffic to empowering merchants with AI powered marketing cloud and improve search to transaction conversion. Our strong Internet foundation coupled with growing user engagement provide us with another driver for non advertising growth. Turning to Q1 operational highlights. Our AI cloud continues to see strong adoption due to our holistic approach, Including a large developer community, self designed chips, best in class machine learning services and large AI patent portfolio. With increasing AI adoption in China, Baidu Pedopetto has become A top one deep learning framework globally in terms of poor request alongside with Facebook PyTorch And Google TensorFlow according to GitHub. We have spent years in developing AI chips To optimize workload and improve cloud cost structure, with external demand for GPU chips And Baidu Kunlun completed its 1st round of funding at a post money valuation of US2 $1,000,000,000 in April this year. Baidu EasyDL, a simple to use machine learning service for non developers was rated number 1 in terms of usage in China Per IDC, topping the list for the 2nd time. Customers are telling us that they are choosing Baidu Due to us having the largest AI patent portfolio in China, Baidu's decade long experience with AI technology and our large patent Last quarter, we illustrated AI solutions that were scalable and replicable across different industries, Such as our automated AI call center, we are also seeing customers who implement Baidu AI path Return for repeat purchases. For example, we helped a major retail bank in China implement Baidu AI path, which has led to 5 follow on purchases, including application to automate customer service and customer loan approval and the recent purchase of a private cloud service. In the media sector, we partnered with online arm of China's largest TV network CCTV to implement Baidu AI Paths. Its capabilities to automate video clip creation and tagging from live broadcasting and use smart assistant To quickly locate desire video content, during the two sessions, we enabled ccte.com We interview conversational meeting participants with AI reporters powered by Baidu Brain and the time we share this Smart transportation is becoming a way to digitize the transportation industry in China To improve traffic condition and road safety and reduce carbon emission, our V2X vehicle to road infrastructure has helped reduce traffic congestion time by 20% to 30%. Chongqing, which implemented Apollo V2X last year and opened the door for Apollo into Western China, We engaged with us this year to make their smart transportation infrastructure 5 gs enabled, laying the foundation for a future rollout of Robotaxi ride hailing. Chengdu, the capital of Sichuan and a leader in science and technology development, Recently partnered with Apollo to implement V2X2. Turning to intelligent driving. Since its founding 8 years ago, Apollo has accumulated over 6,000,000 miles of level 4 autonomous driving testing miles on the road and over 600,000,000 miles of simulated testing. Apollo continues to be the leader In autonomous driving in China, with our early investment, open platform strategy and comprehensive technology infrastructure. This Apollo autonomous driving can operate while Apollo autonomous driving can operate independently on vehicle sensors. It is uniquely empowered by Baidu's HD Maps, our AI Cloud and Apollo Smart Transportation. The comprehensive data set and integration with Fiti's smart transportation network, We believe will enable Apollo to offer better driving behavior and reduce incident rate. Following the opening up of highway testing for autonomous driving in January, Apollo received the permit to operate at night and under special weather conditions on public roads in Beijing. Apollo also received permits to China's first fully autonomous ride hailing service with no one in the driver's seat is now open to the public At the Shougang Park, a Beijing 2022 Winter Olympics site, rides are priced at RMB13 each. In March, Apollo Go began to charge the Robo tech rewrite billing in Hangzhou Jidu Auto, an intelligent EV company established in partnership with Jili, has appointed Xia Yiping as CEO. Yiping previously served as CTO at Malbec and worked various positions at Fiat Chrysler and Ford. We welcome Yiping to the Baidu family and look forward to his contribution to innovate the smart EV sector. On Apollo Self Driving, GAC Group joins Apollo's network of over 10 leading local and multinational automakers to install ASD services in its new vehicles. According to China Insights Consultancy, Our market research and consulting firm, the TAM for Apollo Intelligent Driving, which includes robot taxi ride hailing, EVs and self driving services for automakers well reached US467 billion dollars Almost 9 times the size of our advertising TAM of RMB53 1,000,000,000 in 2025. Apollo platform powers Qidu and other automakers as well as Apollo Go Robotaxi. It is in a unique position to be well founded and widely adopted. Such coveted position has earned Baidu, the only Chinese company selected for the leader category in autonomous driving by Turning to mobile ecosystem. In March, Baidu App MAUs reached 558,000,000. Creators on Baijiahao more than doubled and the number of smart mini programs grew 74% from a year ago. Our AI building blocks coupled with our marketing cloud continue to attract more third party content and service providers Onto our platform, which improves user experience. Merchants are adopting our direct to consumer model To get closer to their customers, traditional e commerce tends to accentuate its platform over the strengthening of individual brands and merchants. Baidu, on the other hand, empowers merchants to build their own online presence and grow their brands by leveraging our social and live streaming capabilities, e commerce features and AI tools from our Marketing Cloud. Our AI building blocks, Coupled with Marketing Cloud, help merchants acquire customers, better understand them, engage with them and perform lifetime customer management. Such search to transaction closed loop experience improves user stickiness, Resulting in daily logged users on Baidu App reaching over 75%, that's up 16 points from a year ago. On social and interest based communities, Our search users sometimes have questions on their search results. With professional content providers like attorneys and designers Opening enterprise accounts on Baijiahao, they are able to respond to search queries and interact directly with users. 8% of our top one search results now enable users to ask questions and interact with Original content provider, Baidu Health has attracted approximately 300,000 doctors and medical experts to provide in-depth, authoritative content and online consultation to consumers. As our users adapt to more services on Baidu, we see a great opportunity to offer non ad services of our own to meet the needs of our large user base. When you couple this with the robust growth of our AI business, Non advertising revenue could possibly exceed advertising revenue with Baidu Core within Baidu Core in the next 3 years. With that, let me turn the call over to Herman to go through our financial highlights. Thank you, Robin. Hello, everyone. Welcome to Baidu's Q1 2021 call. All monetary amounts used in my discussion are in renminbi unless otherwise stated. In March, we listed on the Hong Kong Stock Under the ticker number 9,888, Beijing US3.1 billion dollars 2 weeks later, we were added to the Hong Kong Tech Han Sen Tech Index, the Composite Index and the China Enterprise Index. Lifting closer to our user base with strong brand and unique profile as a leading AI company with strong Internet foundation generates incremental interest For Baidu, it increases our stock liquidity. Our retail tranche during the Hong Kong listing was 111 times oversubscribed. Our daily trading liquidity on the two exchanges in aggregate averaged 8,400,000 shares last week. ADS adjusted And approximately US1.6 billion dollars in amount compared to say 2,800,000 Average daily traded shares last September were approximately US350 $1,000,000 in amount. That is an increase of 4.5 times in dated trading amount on Baidu over the past 7 months. Sustainability is an important focus for Baidu. We have worked diligently on ESG and were upgraded twice by MSCI last year. Green Tea's, a global environmental organization published a report on China's Cloud and Data Center ranked Baidu Top 3 in cloud services and number 1 in the utilization of renewable energy. Based on their April report entitled Clean Cloud Tracking Renewable Energy Use in China's Tech Industry. Turning to financial highlights. For the Q1 of 2021, Baidu revenue reached RMB28.1 billion were US4.3 billion dollars up 25 percent year over year driven by the growth of Baidu Core whose revenue reached US20.5 billion Renminbi was US3.1 billion dollars up 34% year over year. Non advertising grew 70% year over year accounting for 21% of Baidu Core's revenue. Let me give you more color on each area. AI cloud was $2,800,000,000 up 55% year over year and we expect our AI cloud growth rate to accelerate in the future. Our cloud growth benefited from customers from the Internet Media, Financial Services and other high-tech sectors as well as from the strong adoption of Apollo Smart Transportation by cities seeking to modernize Digitalized transportation and network vehicles. Intelligent driving and OGI revenue also grew rapidly. Apollo Self Driving or ASD though a small base grew over 5 times from last year. ASD revenue is booked upon vehicle shipment and revenue is recognized radically over the contract period if the service is provided over the air, In other words, upgraded regularly. Revenue for Xiaodu smart devices and services saw robust double digit growth in the Q1. Online marketing revenue was up 27% year over year driven by Baidu App growing over 30% year over year. Most of our top ad vehicles performed well. CPM was up double digits. Manage Page reached 35% of Baidu Core online marketing revenue and 4th 5th of our advertisers have adopted Baidu Marketing Cloud, which is a one stop shop to purchase online marketing, build audience and leverage Baidu AI to enable user lifetime management. The strong adoption of our managed page and marketing cloud shows our customers' preference to move from managing their own website to operating their host on Baidu to better leverage Baidu's advanced technology and tools to improve closed loop transactions. IIT revenue reached RMB8 1,000,000,000 up 4% year over year and its net losses narrowed to RMB1.3 billion, up down from RMB2.9 billion last year. IQIYI subscribers reached 105,300,000 serving as a strong foundation to support their over 50 in house studios and produced entertainment blockbuster originals. Cost of revenues was RMB15 1,000,000,000 up 2% year over year, primarily due to an increase in tax and cost of goods sold, Offset by a decrease in content costs and amortization impairment of intangible assets, Baidu Core's cost of revenues increased 15% year over year as tech revenues increased, while iQIYI's cost of revenue decreased 10% year over year. Operating expenses were $10,300,000,000 up 25% year over year, primarily due to an increase in channel spending and promotional expenses, as well as R and D related personnel expenses. SG and A for Baidu Core was up 58%, partially reflecting the ramp up of our sales force, especially to support the pipeline of our new AI business as we look out the next 6 to 12 months. In addition, we accrued for bad debt allowance on new AI business, which holds accounts receivable unlike our online marketing, which generates revenue mostly on a prepaid basis. Non GAAP operating income for Baidu and Baidu Core were $4,400,000,000 $5,100,000,000 or $773,000,000 respectively. Non GAAP operating margin for Baidu Core was 25%. Adjusted EBITDA for Baidu and for Baidu Core were $5,900,000,000 $6,500,000,000 or $990,000,000 respectively. Adjusted EBITDA margin for Baidu Core was 32% compared to 30% last year. Cash and short term investments for Baidu And Baidu Core as of March 31, 2021 were RMB172.9 billion and RMB159.6 billion or US24.4 billion dollars respectively. Free cash flow for Baidu and excluding IT were US2.6 billion dollars and US4 billion or US615 $1,000,000 respectively. Baidu Core had approximately 34,000 full time employees as of March 31, 2021, up 18% from last year. Turning to Q2 guidance. For the Q2 of 2021, Baidu expects revenue to be between US29.7 billion dollars or US4.5 billion dollars and US32.5 billion dollars were US5 $1,000,000,000 representing growth rate between 14% 25% year over year, which assumes that Baidu Core will grow between 20% 33% year over year. This guidance does not give any potential contribution from the acquisition of YY Live. The above forecast reflects our current and preliminary view, which is subject to substantial uncertainty. Before I turn the call back to the operator, let me summarize our Q1 results. We continue to see strong momentum in our business, powered by our leading AI. Non advertising revenue grew 70% from last year, Accounting for over 1 5th of Baidu Core revenue, China's goal to drive innovation through technology will serve as a tailwind for our new AI business. Embarking on the digitalization of transportation and connected vehicles is like investing in a new telecom network to drive economic growth and productivity, Except this time it is on a transportation network and the connected computers are smart vehicles rather than smartphones. Transportation is 16% of Chinese economy. Thus, AI platforms that power smart transportation, autonomous driving and vehicle infotainment Working in tandem can bring incredible operating efficiencies and convenience as well as improve traffic safety, Reduced carbon emission for the transportation sector. Apollo autonomous driving continues to be the leader in China With fully autonomous ride hailing open to the public in Beijing, Apollo Go ride hailing is now available to the public In three cities, we are quite encouraged that Paula Gold ride hailing is gradually permitted to charge a fee, for example, in Changzhou, as well as in Beijing. Over 10 domestic and multinational automakers have signed up with Apollo to install ASD in the new vehicles, A recognition by the auto industry that partnering with Apollo is the preferred choice versus committing to heavy investments And the time striving for the next decade or maybe 2. Apollo's open platform and diversified monetization to support time striving Through ASD, Jeju Auto and Apollo Go ride hailing, put Apollo in a unique position to be well funded and well widely adopted. IDC ranks Baidu number 1 in the time solution for public cloud. By focusing on AI PaaS, our AI cloud is differentiated in the market. We are seeing the implementation of our AI pass, drawing repeat purchases and over the long run, we expect our AI Our business to have higher margins as we build on our PaaS and SaaS business compared to pure ad players. Advertising revenue growth was solid up 27% year over year. Merchants are adopting our direct to customer model to get closer to their customers And Baidu's open platform model to accentuate the merchants by allowing them to build the brands on Baidu, Access their own user data and leverage Baidu's AI powered cloud services is a huge opportunity for our mobile ecosystem. ESG is an area that we focus on in addition to leading the industry in cloud and data center construction. We hope to contribute to sustainability in a big way as we help cities across China deploy smart transportation to significantly improve the flow of Internal combustion engines and promote the crossover to EVs. Baidu is also developing smart EVs, Empowering automakers with intelligent driving services and providing robotaxi ride hailing and robobuses, which are all powered by EVs. Baidu returned US300 $1,000,000 to shareholders under the 2020 share repurchase program this year, bringing the cumulative repurchase From last year to US2.2 billion dollars We are confident about our future on the strong profitability of our search and feed business How we are using the AI technology developed from this business to fuel growth in the new AI business, which along with our other non ad business has a TAM 10 times the size of our online marketing business and 3 times the CAGR growth to 2025 even when you exclude robotaxi ride hailing according to CIC. Operator, with that, let's now open the call for questions. Thank you. Ladies and gentlemen, we will now begin the question and answer session. First question comes from the line of Alicia Yap from Citigroup. Please go ahead. Hi, thank you. Good evening, management, Robin and Herman. Thanks for taking my questions. Congrats on the solid results and guidance. My question is related to cloud your AI cloud business. So wondering if management could Share some of the operating metrics, for example, the total numbers of the cloud customers and also the industry vertical that you are major in? And then also, for example, like how much or how big it is coming from The government or the big enterprise versus the smaller SME merchants in terms of using your cloud business And also the current loss ratio that if you can share and how you envision your cloud business to grow into in the coming quarter and years. Thank you. Hello? Hi, Alicia. Hello? So, yes, you guys hear me okay? Yes. Yes. So, The way we look at our cloud business, as you know, in our AI cloud, there are several segments to our business. Number 1 is our familiar infrastructure cloud where we have asked, where we have passed and where we have SaaS, right. In that segment, we have our key accounts and then we have our SMEs, which are much smaller cloud providers. So you have your typical key accounts and then when you have SMEs, we have many, many customers there. In addition, we also have our customers for our smart transportation in that space. So that would be the Key cities, the top tier cities that we are in China. We don't have this exact number Prepare for you for today, but you can think of our segment is mostly smart cities and mostly key accounts in our AI cloud. Our top sectors are things like Internet, Media, Financial Services in transportation. And when you look at how we're growing, I think last quarter we said we're growing at 67% year over year. This quarter, we're growing a Lipitor at 55%. Part of the reason is because if you recall last year COVID-nineteen started toward the end of January. So we did we had a pretty good base in Q1 because Typically, if you think about it, COVID-nineteen affected us a lot. But when you think about the beginning Of the quarter, we had a higher base. So the way I would look at it is, we think that we can to grow at the way we did last quarter, higher than what we have at 55% this quarter. We think that We see in our pipeline that we should be able to grow at a higher rate. Okay. Thank you, Herman. Thank you for the questions. Next question comes from the line of Piyush Mubayi of Goldman Sachs. Please go ahead. Hi, Robbie and Herman, thank you for taking my questions. When I look at the core, the core seems to have bounced back very nicely in Both the Q1 as well as based on the guidance you're providing for the Q2 and the marketing revenue was up 27%, I suspect in the Q2 based on the high end range of 33%, it would be a similar number. Could you just take us through some of the verticals where you're seeing spending come back very nicely And try to so that we can try and see whether this is sustainable through the rest of the year with clear emergence of a trend coming back very nicely. That's the first question. And if I might slip in a second question. You talked about the TAM for ride hailing. I wonder if you could just take us through what your strategy is and how deep you want to go. Thank you. I'll ask Zhou to answer your first question and I'll take on the second Okay. For the first one, actually, we see pretty good performance for most of the Actually, talking about the performance of the ad revenue, I think it's not only because of the low base of Last year's Q1. I want to actually give the credit to the 3 building blocks we have been working on in the past few years. As Robin mentioned in the prepared remarks, Baijiahao and small milligram and also the managed pages, they all grew quickly. And This building blocks actually, they provide a high quality content and also the services to the users. So that users, they can not only get the information as before, but they can also You get the service in the closed loop experience. And with that, the user, they can complete their tasks, Like book a flight or buy a book in 1 stop style, you said dropping away. So all these Building blocks, actually, they contribute to the monetization capability we have built, especially for Baidu AVP. We can see it actually grows even faster than the average 27%. It's more than 30%. So with that, actually, we are seeing pretty good performance for all the verticals on the way down the road. Yes. So for the TAM Apollo, it's huge. It's very large. And Right now, it's growing very fast. If you recall, we're starting to invest in autonomous driving roughly 8 years ago. Over the years, Apollo has morphed into a very comprehensive platform that supports all kinds of Business models and directions that include robotaxi, ride giving, that includes Software service provider for the OEMs and also that includes building our own Smart EV. I think all of this effort will feedback, Data and other kinds of market signals to the Apollo platform Making Apollo a stronger and better platform for Both autonomous driving and smart transportation, we're very excited that each of the directions, including The smart transportation project we're building for many, many cities because it all Can be integrated together and provide a much more efficient transportation system For the cities, for the society and provide better experience for the drivers and consumers. And it all come together and we are very happy we invested early and Next question comes from Alex Yao of JPMorgan. Please go ahead. Hi, good evening, management. Thank you for taking my question. I have a couple of follow-up questions on the cloud. Robin, you mentioned Deployment of the V2X infrastructure will play will generate network effect To your broader Apollo strategy, can you elaborate that network effect a little bit more? And also what strategic benefits The broader Apollo ecosystem benefit from the buildup of your V2X infrastructure in China. Then the near term financial question is, Hueneme, I think you mentioned despite of the Strong in addition to the strong growth momentum in Q1, you expect the cloud revenue to further accelerate into the coming quarters. Can you talk about the fundamental driver to the strong revenue growth momentum, Particularly in the smart city market, what is your competitive edge? Who do you see as the biggest competitor? Sure. And what are the unique value proposition you bring to this market segment? Thank you. Yes. For the V2X projects, it's quite clear that The sensors built on the road can communicate with vehicles. Therefore, Vehicles, be it with autonomous driving capabilities or not, they are connected. So they can get signals from the infrastructure and therefore Become more informed when deciding on the driving behavior. If there's a driver on the car, We can alert on any risks that's not directly visible by a human eye because there are sensors Surrounding the environment that can alert the drivers and also better Tracking driver behavior in some cases, for example, in the city of Guangzhou, there are some commercial trucks, Your license plates could be covered by mud, so the drivers were not afraid of violating The traffic loss, but now with the V2X infrastructure and on vehicle devices Sometimes installed on those trucks, the city regulators can much better Track those violations, therefore, making the road safer and more efficient. Of course, with vehicles with advanced driving capabilities, they can Be assured that the infrastructure can send signals to those kind of vehicles and help the vehicles to Better assess the environment, therefore improve the accuracy of the planning and controlling Process for autonomous driving. The more V2X projects we deploy, the more Cars can benefit from this kind of infrastructure. Therefore, the advanced driving capabilities can Improve faster and also become safer for the passengers on the car and Also, it can reduce the cost of single car because sometimes you don't have to rely on very On board devices such as high end lidars in order to really Yes. And to add to what Robin just I think a couple of things. You asked us for smart transportation, what are the growth drivers? One thing is recognize how AI works, right? That the more data you have synchronized, it becomes more powerful. So What V2X does, for example, in Guangzhou is 102 intersections where we are offering An AI solution that allows the traffic lights to be synchronized throughout the whole part of the city. Okay. So when you think about that and the chance of getting that Phase 2, so that the first phase of the project is recognized with the second phase, That would give you that kind of network effect. So that's why for example, when you see in the city of BaoDing, when we first had our first phase, we'll call back for a second phase Because you want that second set of lights to that to be synchronized and then we even see, for example, now a third part of the phase as we continue to expand the track by. So that's one way to expand our business is to continue to Take in one area of the city and be able to synchronize all of the traffic light, synchronize the traffic flow. Okay. And you asked us our competitor, We see competitors in the area, but we don't see them focusing on a whole part of the city. They're more looking at One light at a time where we're using Baidu Brain to power the whole thing. And our opportunity is in addition as Robin mentioned in the prepared remarks, Once you go in there with V2X, you have the opportunity to go in there with MAS, right? MAS is our open platform in which Controls robotaxi and robot buses like in Guangzhou, not only does it power the robotaxis that Apollo have, You also have a robot buses in there. You also have another brand of a robotaxi that are mass is fine. So you can think of it as the operating system For that part of the city and whenever there are other robotaxi transportation and so forth, the government uses our mass to kind of Power those robotaxi or robo buses so that you could prioritize the rides and so forth. And then there's other product expansions like for example going to highway, Going to parkings and so forth. So the more of these projects are synchronized, obviously through AI and so forth, you're going to make the traffic moves smoother. So you're seeing 2 trends. 1 is as we're going into cities, we're getting multiple phases, we're expanding the products And you're also seeing us entering new and new more and more cities because a lot of cities in China now, they're leveraging on Technology to improve the infrastructure rather than closing down roads and taking on more land in order to widen the roads To basically reach the same goal. Thank you for the questions. Next question comes from the line of Jerry Liu of UBS. Please go ahead. Hey, thank you. Thank you, management. Maropin, if May I go back to your earlier statement about how non ad revenues could surpass ad revenues in the Baidu core in 3 years. So I mean that makes me feel that you guys I see more I have a bit more visibility and confidence of this mix shift. So I just want to ask, what are some of the drivers You're seeing here now obviously, Cloud, Apollo, maybe Walleye Live, all can contribute to that. But I'm just wondering what are maybe the bigger drivers in this mix shift? Thank you. Hi, Jerry. This is Robin. I don't know if you noticed that we see what kind of company by the way, we see that we are Leading AI company with strong Internet foundation, that means that we can not only Benefit from the investments we did over the past like 10 years to Getting to more new businesses like intelligent driving smart cloud, we also can Leverage our AI capability to better monetize our strong user base We accumulated over the past like 20 years. If you compare the Baidu mobile ecosystem with other Leading mobile ecosystems in China, you noticed that we are probably one of the very few that has Online marketing revenue as the majority of total revenue. This is not a very Reasonable situation, our 100 of millions of users Can enjoy other kind of services on Baidu, not just clicking on that. They can pay for premium content. They can do e commerce transactions. They can play games. They can watch Live streaming and tip, they are influencers. There are a lot of things we can do. And As we deploy more closed loop user experience within the Baidu app and as we leverage Our AI algorithms to better recommend services and better Understand users' needs, we can monetize the strong user base Through multiple ways, that's how we look at this landscape. Yes. And just let me add to that to Robin. You asked us what are the I think Robin was very clear. When you look at mobile ecosystem, our non advertising here because we can leverage our huge User base, right? We're reaching over 1,000,000,000 mobile devices per month, right? So In addition to that, we talked about our cloud. You look at our cloud, it's pretty significant in size right now and it's still going very robust. And I think as we mentioned before, there's 2 main areas that's driving the growth. 1 is our infrastructure cloud. You have us differentiating with AI solutions like on the prepared remarks. Whenever we go into Big customers with AI pass, we're seeing them having cross selling and having upselling. So not only does it sell more PaaS and applications, you're also seeing them, for example, crossing into apps like the example we gave, one bank Started buying private cloud as a result of building that relationship with us. So we're going to see that digitalization of enterprises Drive ourselves, I think particularly in AI Paths, particularly in application and it's also going to allow us to go into The ask of that business. Smart transportation we talked about, we think that that's a huge opportunity. When you look at, for example, just last year in the number of projects that China has with transportation and so forth, So there's huge opportunity for us in that area. And then when you look at OGI, we look at a few areas. You look at, for example, our Duos with smart display, smart devices and so forth. You're looking at, for example, Apollo, self driving. We're signing up a lot of OEMs as they're starting to shift their cars in the next few years. You're going to see more and more come on. For example, in this year, Just for example, ASD, we're seeing in the pipeline. By the end of the year, we should have maybe 4 automakers install our ASD, Right. And then on top of that, we're already testing a robotaxi ride hailing, for example, 1 Life in Beijing. And so we should see that pretty exciting in the next couple of years. So here are just some of the areas that we think that there's And because the TAM is 10 times and the CAGR is 3 times of advertising and you look at the pace that we have gone through, right, if you recall, Just two quarters back, our non advertising was growing 14%. Last quarter, we said it was a little bit higher at 52 And this quarter we're seeing 70%. So you're seeing us really starting with our Firing power to put our non advertising as the AI businesses that we have incubated over the last decade start to mature and start to monetize. Thank you. Next question comes from the line of Miranda Zhuang from Bank of America. Please go ahead. Thank you and good evening management. Thank you for taking my question. Congratulations on the very strong results and outlook. So my question is about your eBay business. Can management provide any color on the scale of the financial investments that we are planning For the eBay business this year and also as well as if there is any update to the product time line. I would remember that in last earnings call, management mentioned about planning to launch the EV car in 3 years' time. We would like to check if there is any update to this plan given that the EV market has recently becoming more and more crowded with more newcomers and more capital inflow. So just want to check our timeline and also want to get a sense What will our eBay business roadmap look like? What kind of key business milestones can we expect this year and next year? Thank you. Yes. As you know, the EV business It's a relatively independently operated company controlled by us. The goal is to Make our latest and coolest technology available on the market as soon as possible. We mentioned that we intend to launch that within 3 years. And of course, the team is trying very hard to make it available earlier as soon as possible. And Our CECs remained unchanged because Apollo is a very comprehensive platform for all kinds of autonomous And we've been investing in this for many, many years, but we see a lot of Opportunities to offer unique user experience and technology Through a seamless integration of software and hardware as well as fully take advantage of infrastructure that's available to the consumers. Carmen, do you have any financial color to add on that? I think that the CEO just signed on. I think we're still working through our business plans. But it's to look at that whole EV market, you can actually there's quite a few analysts that have given Projection on the size and so forth. I think where we are is we're lucky in the sense that the hardest part if you think about On EVs and so forth, the time driving, that ability to being able to build intelligent driving And also being able to power infotainment within the car so that you're having more intelligence both within the car as a person drives And also outside of the car. So I think that would give us that ability to actually be able to design the car and to have So we don't have any particular numbers to give out now, but you do have projections on where the EV Volume is going to be in 3 years and you do have other automakers that I have shown in the last few years. So we're going to be looking at that kind of model and we're going to be looking at the market that fits us, our profile, as Robin mentioned, so that in this model, maybe another way to look at this. If you look at Where a lot of the EV cars are going, a lot of them are going direct to customers, right? If you look at the model With intelligent, just like our speakers and so forth, in the past, the speakers, people sell hardware, right? When you think about EVs nowadays, You look at, for example, some of the cars when they saw the cars are also trying to swap batteries so that they can get users to actually have more frequent contact so that they can also make more money after the post sales of hardware, so they could sell more services, Right. So when you think about our business, number 1, we're already selling a lot of services like intelligent driving. We're already getting a lot of our infotainment Install in OEMs and so forth. So this whole business model of having more contact with the users, with the consumers To build a brand and also be able to drive more services after the initial self hardware is something that we're very familiar with. So I think we'll be more prepared as we go into that model of EV and adapting to the direct to customers rather than the traditional way of just Trying to make the dollars by selling just hardware. Thank you. Next question comes from Gary Yu of Morgan Stanley. Please go ahead. Hi. Thank you, Robin, Herman and John. I have one follow-up question regarding your 3 year kind of revenue mix Given to date, the biggest part of your non marketing revenue is coming from AI cloud. So how should we look at contribution from various businesses in 3 years' time when non marketing surpass your marketing revenue? Should we still expect kind of AI cloud to The dominant driver of that or we expect some of these autonomous driving revenue and also car hailing revenue will start to become more material? And a related question to that is, how should we look at margin given the revenue mix shift? So How should we look at the mobile ecosystem margin trend going forward? And by what time should we expect the non marketing to become profitable? Thank you. Yes. On the revenue mix, if you look at our AI cloud, we've been disclosing the Revenue number and growth rate for a number of quarters, and you can probably do a projection based on The past performance and there are many other ways that we can monetize our Strong user base and AI technology through either intelligent driving or other Things mentioned by myself and Herman, I think that all When that all adds up, it should represent more than half of our total revenue. But The foundation is the same. We've been accumulate the user base for the past 20 years and we've been Invest in AI technology for more than 10 years and this all come together and Opens up a lot of new opportunities for us to grow our revenue. I'll let Yes. On the margins, let me answer several ways. I think number 1, obviously mobile ecosystem search and feed that is A mature business growing not as fast. When you have a business that we are in where our Search is the largest in China, where we have tremendous amount of traffic. Obviously, you're going to have a very good margin. But at the same time, with our mobile ecosystem, we were able to afford a lot of investments in these AIs and we're leveraging these AIs into new businesses. So it helps us allocate some of that cost structure into other businesses. But as we're ramping up 2 type of businesses. 1 is 2B business, right? When you think about AI cloud going into enterprises And we're also ramping up our 2 gs business going into cities working with municipalities and so forth, right? So you're going to see us getting impacted by the margins Several ways. Number 1 is, number you're going to have a cost of sales, right? Whether we're selling more AI solution projects, You have cost of sales, whether we're selling more projects with smart transportation, whether we're selling more displays, you're going to have cost of sales. Furthermore, when you're seeing a strong steep ramp up of our AI Cloud business, Smart transportation and so forth, we have to hire ahead of the curve. We have to be looking at for the next 6 to 12 months Where our sales going to be and hire those sales people in early so that we can train them for 2 quarters and so forth And then they could start going out there, get orders. So I think for the margins, as you're seeing, for example, you're seeing us Very robust Q2 revenue guidance, then you should assume number 1 is a lot of that growth is coming from new AI business. You're going to see gross margin compared to last year, you're going to see gross margin This year more incrementally from our AI business, so you got to consider that. And secondly, you got to consider the fact that we're going to increase our sales and marketing to The current growth and also the next few quarters, you're going to should expect, for example, us to accrue for bad debt Because these new business to B and 2 gs, they all have AR allowances unlike our advertising. So These are the things you should consider. So let me just summarize. I think when you look at non advertising that the opportunity is in our Your typical cloud business is in smart transportation and then within OGI, the key drivers are going to be related to intelligent driving such as our ASD and we think that our EV, our robotaxi and then lastly, our smart devices. So here are the 3 few areas. And then in terms of Margins cost of sales, you're going to see it at the end of the year. You're already seeing that, for example, in Q1. And then we have to prepare for sales and marketing And also G and A, okay? Thank you for the questions. Next question comes from James Lee of Mizuho. Please go ahead. Great. Thanks for taking my questions. 2 here. First on the cloud business and clearly you guys having a lot of success in AI point solution through Customized projects. And maybe can you talk about how you plan to make the business more scalable? How close are you in building a And the size solution, so you can expand across various industries using third party developers and system integrators. And also do you have a backlog number so we can get a better understanding of the underlying trends? And second is for Q2, Herman, can you talk First of all, I think a lot of projects we are taking on for AI Cloud is The solution can really be standardized on a Virtual industry basis, we've been talking about smart transportation. A smart transportation project in one City can be easily copied to another city. And although it is loss making Right now, but the gross margin is very good at this time already. And going forward, as we do more and more kind of projects, I think margin will improve and the investment in R and D Well, gradually pay off. I mean, the solutions are pretty standard from city to city. And more broadly, I think other industries be it in the financial industry or in The energy industry, we've been building a standardized layer, Namely on the PaaS platform and service layer, we have a lot of AI capabilities, speech recognition capability, text to speech capability, OCR capability, natural language processing capability. Yes, lots of things that can be standardized and we do work with system integrators to deliver Turnkey solutions to many of our customers and we will continue to do so. And going forward, I think The standard part of our AI cloud solution will become a bigger and bigger part of the total cloud revenue. Thank you. Next question comes from the line of Han Joon Kim of Macquarie. Please go ahead. Great. Thank you, management. As we looked at some of the cloud revenues for your perhaps larger peers in the market, We've noticed a few other key accounts depart recently, partially sometimes for extenuating circumstances, but others maybe just those So as we think about our stickiness of our own like cloud revenues and perhaps Pending season on key accounts. Can you give us any kind of indication of how we think about the stickiness of that? And yes, just in general, Yes. I think at an early stage, we may be very sensitive to 1 or 2 key Customers, but as the base becomes larger and larger, any single key account customer We'll contribute a lower and lower percentage of our total revenue. I think this is kind of different from those standard App solutions provided to those Internet and Media customers like Some of our peers do. We've been more focused on vertical industries. We've been providing more AI empowered cloud solutions. I think that's more defendable approach and a direction that's not so sensitive to any 1 or a few large customers. Thank you. Next question comes from Tian Hou of TH Capital. Yes. Thank you, management, for taking my questions. Congratulations on the good quarter. I have a quick question. In the EV car area, there are lots of new players in the market. Let's say, Huawei Right now, it's like announced that they have the EV cars. So I think maybe It is better for the audience and for the Street to understand, what's the advantage of Baidu's Yes. I mentioned that we've been investing in For many years since 2013, and we've accumulated the best in class autonomous driving capability. And over the years, Apollo also morphed into a more comprehensive platform that offers all kinds of Capabilities be it B2X capability or infotainment for individual Vehicles. I think at this time, nobody on this planet has a more comprehensive solution Then Weidu for smart EV. That's why we are very confident when we launch our own car, We can provide the best user experience and best price to performance ratio For our consumers, our technology is just a more advanced and mature than And other people in this industry. And on a broader Note, I think Baidu has been investing very aggressively in AI. If you think about autonomous driving, It almost uses all kinds of AI technologies. And we've been investing in this for more than 10 years, and we Spent roughly RMB20 1,000,000,000 in R and D last year, and we will continue to Aggressively invest in R and D over the next 10, maybe 20 years. And we'll make sure that Our technology, our AI technology and our autonomous driving technology will continue to lead in this market. It's very hard for anyone who comes on the street new and to make this kind of It's very hard to imagine an eBay maker with a smaller market share. Let's say, If they are number 4 or number 5 in terms of market share, they can afford this kind of continued intensive Investment in R and D. And I think it's widely known That autonomous driving will not become mature for the next 10 or even 20 years. So this kind of sustained Thank you, management. With that, ladies and gentlemen, that does conclude the conference for today. Thank you for your participation. You may now disconnect your lines.