Earnings Call: Q4 2014

Feb 12, 2015

Hello, and thank you for standing by for Baidu's Fourth Quarter and Full Year 2014 Earnings Conference Call. At this time, all participants 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 Sharon Ng, Biden's Director of Investor Relations. Thank you. Fourth quarter full year 2014 earnings conference call. By these earnings release was distributed earlier today, and you can find the copy on our website, as well as on Newswire Services. Today, you will hear from Robin Lee, Baidu's Chief Executive Officer and Jennifer Lee, Baidu's Chief Financial Officer. After the prepared remarks, Robin and Jennifer will answer your questions. Before we continue, please note that the discussion today will contain forward looking under the Safe Harbor provisions of the U. S. Private Securities Litigation Reform Act of 1995. Forward looking statements are subject to risk uncertainties that may cause actual results to differ materially from our current expectations. Potential risks and uncertainties include, but are not limited to, those outlined in our public filings with the SEC, including our annual report on Form 20 F. Baidu does not undertake any obligation to update any forward looking statement, except as required under applicable law. Our earnings press release and this call include discussions of certain unaudited non GAAP financial measures. Our press release contains 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 will also be available on Baidu's IR website. I will now turn the call over to Baidu's CEO, Robin Leets. Everyone and thanks for joining today's call. About 2 years ago, we set out to fundamentally transform Baidu from TC Centric company to a mobile first company at the forefront of innovation in the mobile internet. It took firm commitment focused investment, King Mission And Bold And Swift execution. Today, after this ambitious 2 year push, we emerge as an even more competitive and innovative company. We have unassailable dominance in mobile search, We are the clear market leader in mobile maps and we continue to lead the market in app distribution. Baidu's dominance in the 3 key gateways, along with our technology focus, our broad portfolio of apps in video travel and more and our extensive sales force, our competitive strengths, which position us well to fulfill our mission of connecting people with services. 2014 was a year of many accomplishments, with Baidu truly seizing the mobile opportunity as mobile continued its inexorable rise. In 2014, our top line reaccelerated and our full year revenue grew 54% over the half of the year and continues to increase as a portion of overall search traffic. Mobile monetization continued its momentum ramping from just over 20% of total revenue in Q4 2003 to 42% in Q4 to 2014. In December, for the first time, search revenue from mobile surpassed platform PC. In 2014, we also cut the ribbon on our new Silicon Valley R&D Center and made notable advances in Wai and Visual Speech Technologies. And we took further steps to make Baidu a safer, more trustworthy platform for users. 2015 begins a new phase for Baidu to execute on our plan to connect people with services. We are primed to take on this new opportunity that will drive the next chapter of Baidu's growth. Now for progress on the quarter. We continue to be the clear PCN mobile search market leader in China. Our PC and mobile traffic continues to grow year on year. Notably, daily mobile searches per user increased by 22% year on year. Mobile's portion of overall search traffic continued its upward trend and the comprised and even greater proportion after exceeding 50% in 3rd end ocean after topping 50% in recent quarters. In Q4, we continued to make search faster more relevant, more visual, more personalized, and more real time. In November, we launched personalized results returning tailored more relevant search results. We made instant search faster and more relevant than before. Further improving the Baidu user experience and helping to increase page views and click through rates. We are also giving our users a more real world real time experience through live cam feeds from select travel sites in China including Mount Ele. Me, Mount Hua and Dong Huang. Our investments in technologies like deep learning and natural language processing enable us to give to our users a better differentiated search experience that is exceedingly difficult to replicate. Overall, key monetization metrics, the number of paid clicks, clicks through rates, cost per click and CPM continued to trend nicely year on year. Over the past several quarters, we continue to raise requirements and standards for Baidu's customers. We started by requiring new and existing customers to be verified through efforts help us build a safer and more trustworthy platform for our users. A few months ago, we expanded the scope to require new customers to have both PCs and mobile landing pages. This means a portion of merchants could not become our customers, unless they met our standards. As of December, 91% of our customers have mobile optimized landing pages. We continue to hear positive feedback from customers about mobile and we work with them to further improve their mobile presence through higher quality mobile landing pages, better formats and products such as Baidu Connect, We are also making it easier than ever for our customers to use multiple products across the Baidu platform. The fourth quarter, we integrated 24 products into a single interface, creating a streamlined one stop experience, display advertising, which includes our PC and mobile app network, brand zone, aligning and other related products grow over 70% in 2014 over 2013. We continue to solidify our lead in app distribution holding 42% market share as of December according to Analysis International. Our platform distributed 174,000,000 apps on an average daily basis that are from 160,000,000 apps the quarter prior. We believe Baidu remains the best platform for mobile developers to distribute apps and the most attractive ecosystem to be part of. We also drove a broader effort to increase the adoption of Baidu's unified login. In the fourth quarter, nearly 180,000,000 monthly active users locked into Baidu product including search, post bar, Naomi, Baidu Wallet and personal cloud storage. Up from RMB95 1,000,000 in the fourth quarter 2013. With the transition of our core business behind us, Midu's next new mobile opportunity is connecting people with services and enabling a closed loop transaction The internet disrupted the information and media industries. The next even larger opportunity is the disruption of service Industries. With China's young market economy with verticals, both online and offline increasing technology and the internet. And with mobile opening up new doors, Baidu's market opportunity is larger than it has ever been. In O2O, in traditional verticals Baidu can help drive value and greater efficiency by leveraging data and technology. Industries like Healthcare, Financial Services and education, industries where access is still unequal and where inefficiencies persist and arrive for radical transformation. We've just begun this effort and have a lot more to do, expect Baidu to apply the same commitment, focus and execution that helped us transition our core search business to this new opportunity, leveraging our tremendous assets, we are confident that our hard work and investments will pay off and we have significant long term shareholder value. Over the last year, we've been busy laying the groundwork to enable users to discover, connect and transact all through Baidu. Whether it's buying movie tickets or tickets to local attractions, hailing taxes and private cars, booking hotels, purchasing group buying offers, or ordering food delivery. In the past year, the number of transactions completed on the Baidu platform has grown over fourfold In each of these categories, Baidu creates value for users by delivering a better experience through a closed loop transaction. For merchants, Baidu brings them new leads and measurable ROI and conversion. In 2014, we solidified the gateway dominance of mobile Baidu and mobile maps. Adding new product features such as Discover and nearby, respectively, to offer more O2O services to our users. The past year, we also rolled out new key offerings such as Baidu Connect, Baidu Wallet and Baidu Food Delivery. Baidu Connect, which we introduced last September, has aggregated more than 6 600,000 merchant accounts. Baidu Connect is a powerful customer service platform that can be accessed by Baidu's 540,000,000 monthly active mobile search users. More and more presence with easy to use templates tailored to their verticals. We currently have 13 in total, including food and beverage, education, healthcare, and travel. And we introduced new templates for real estate, auto, financial services, and wedding videography in the fourth quarter. We now work with approximately 100 venue added service providers who have helped us sign new Baidu Connect accounts, a majority of which are new to the Baidu platform. Our goal here is to really understand merchant needs and the verticals that they operate in and provide the right integrated solutions to help drive value to their We also fully integrated the Nomi Group buying since over the past year. Over this period, we continue to strengthen Nomi's operations and infrastructure. And ramp up its business. Nomi now leverages both its direct sales force and Baidu's reseller network and has one of largest merchant basis of all top group buying platforms. The ServiceNow offers to users more personalized fundations and offers our customers an additional channel to attract new users. Baidu food delivery is a high high frequency, local consumption service that we pilot tested earlier in 2014 and have rolled out to 73 Cities. We saw great adoption from users with a number of transactions growing over 7 fold quarter on quarter. Baidu food delivery is complementary to our group buying service and is an important component in building out our closed loop offerings. Midu Wallet adoption is growing at a rapid clip, controlling the number of new user accounts quarter on quarter. Baidu Wallet is a payment option across all by products and continues to expand its online and offline merchant base. The service offerings are early stage we will continue investing in these areas to further build out our closed loop transaction capabilities and overall ecosystem. Turning now to Iqiyi, Iqiyi continued to show great momentum, more than doubling its top line growth in the fourth quarter the full year 2014. Online video is an important and strategic vertical with very attractive long term growth prospects. Fresh content is vital to the success of the platform and we remain highly committed to and supportive of IT. Over the year, we faced fierce competition and a sea of change across the industry. We've grown bigger, faster, stronger and even more capable of cutting edge innovation. We've been able to do this because of our steadfast commitment to our mission to provide the best and most equitable way for people to find what they power of technology. Our mission and our conviction sustain us now as we prepare for the next phase of growth. Are still in the early innings as we build an ecosystem that will truly connect people with services. The opportunity is exciting and visible and we are well positioned and our execution plan is clear and focused. We are fired up and ready to go to compete and to win. With that, I'll now turn the call over to Jennifer for a rundown of our financial performance in Q4 and the full year. Thank you, Robin. Hello, everyone. We closed the landmark year with a very solid quarter. In 2014, we saw the successful transition of our core search business to mobile. 2014 was also a year of significant investment as we deployed resources to secure leadership positions in key gateways and launched the cornerstone pieces of our closed loop transaction offering We're now particularly well positioned as these investments lay the groundwork for Baidu to capture the new growth opportunity. All connecting people with services. Our plan and invest aggressively in a disciplined strategic manner. We will spend to support our mobile products including mobile Baidu, mobile maps and app distribution and drive adoptions of our closed loop LBS offerings, which includes Baidu Connect, Nomi, Baidu Food Delivery, and Baidu Wallet. Key investment areas include sales and marketing, R&D, infrastructure, and traffic acquisition. We will continue to support ITE, which operate in a highly attractive and competitive industry. High quality content is key. For 2015, the key investment focus for ITE will be on content acquisition. Chinese New Year is right around the corner. As you know, because of the holidays, Q1 is a seasonally slow quarter. For this Q1 as compared to historical years, our guidance reflects the combined impact of 1 the late timing of Chinese New Year and 2, mobile's growing traffic contribution, which currently monetizes at a rate lower than that of PC. Mobile monetization is on the path of steady and healthy growth. This upward trend will continue as we progress through the year. The fundamentals of our business are robust. We're well positioned and we're ready to apply the same dedication and execution capability that drove the success of our mobile transition to our next opportunity. We're excited about our growth prospects and the confidence we are creating long term value for our shareholders For the fourth quarter, total revenues were RMB 14,100,000,000, representing a 48% increase year on year. Mobile revenue represented 42 percent of total revenue for the fourth quarter of 2014 up from 36% in third quarter of 2014. Total revenue for the full year 2014 were RMB49.1 billion, a increase of approximately 54% from 2013. Mobile revenue represented 37% of total revenue for fiscal year 2014. During the fourth quarter, Baidu had approximately 523,000 active online marketing a 16% Revenue per online marketing customer for the fourth quarter a 26% increase from the corresponding period in 2013 and an increase of 2% from the previous quarter. For the full year 2014, active online marketing customers increased by 8% and revenue per online marketing customer increased by 41% over the full year 2013 figures. Traffic acquisition costs as a component of cost revenue in Q4 was $1,900,000,000 or 13.4 percent of total revenues compared to 12.3 percent in the corresponding period in 2013 12.9 percent in the third quarter of 2014. Full year 2014 traffic acquisition costs as a percent of revenue was 12.9 percent, up from 11.6% for 2013, which primarily reflects increased contribution of contextual apps, mobile and promotion of HAW 123. In 2015, expect a gradual increase in traffic acquisition cost as a percent of revenue that we saw in 2014 to continue. Bandwidth and depreciation cost as a percent of revenue in Q4 were 5.3% and the 3.9% respectively compared to 5.94.3% in the corresponding period in 2013. In 2014, bandwidth and depreciation cost as a percent of revenue decreased to 5.8% and 4% respectively compared to 66.1% and a 4.6% respectively in 20 team. Content cost as a component of cost of revenues in Q4 were 592,000,000 representing 4.2% of total revenues compared to 3.8% in the corresponding period in 2013. Total content costs for 2014 were $1,900,000,000, 3.8 percent of total revenue compared to 2.6% in 2013. This increase was mainly due to IT's increased content cost. In 2015, we expect content cost to step up at a similar rate compared to last year. As we invest in Selling, general and administrative expenses in Q4 was RMB3.5 billion, an increase of 89% year year. Total SG and A expenses for 2014 were $10,400,000,000, a 101% increase from 2013, primarily due to an increase in promotional spending for mobile new year period to promote our mobile products and LPS offerings, which include television ads on CCTV and celebrity endorsement for Baidu Mobile Baidu and Baidu Maps. We have also seen good traction on the promotional marketing spend to drive adoption of Baidu Wallet, group buying, and Baidu food delivery. For full year 2015, will continue to spend aggressively on sales and marketing to support our key gateways and build out our our closed loop offering. We expect 2015 SG and A to step up at a similar dollar level as last year's line marketing campaigns and promotional marketing. We plan to engage in marketing and promotional campaigns strategically at times taking advantage of seasonal holidays or events. As such, sales and marketing spend will be an important expense item that will vary in magnitude quarter on quarter. These efforts are necessary to support our long term strategy and are generating good results. We'll continue to aggressively promote our products and services and monitor effectiveness closely. R and D expenses in Q4 were RMB2.1 billion, an increase of 69% over the corresponding period in 2013. Total R and D expenses for 20.14 was RMB7 billion, a 70% increase from 20 18, promoted due to an increase in the number of R And D personnel. Share based compensation expenses, which were allocated to related operating cost expense line items, including increased in aggregate to RMB339 1,000,000 in the 4th quarter from RMB177 1,000,000 in the corresponding period in 2013. 2014 increased 87% over the 2013 level. The increase reflects year end true up and incentive granted. To one of our subsidiaries. Operating profit for Q4 was RMB3 billion, an increase of 8% over Q4 2013, operating profit for the full year 2014 increased to 14% from 2013. Total headcount, including our invested entities as our as of December 31, 2014, was about 46 1400, a increase of 7% compared to the end of Q3. Most of the headcount increase was in R and D. Income tax expenses was RMB 538,000,000 for the 4th quarter. The effective tax rate for the quarter was RMB 15.6 compared to 11.2 percent in Q4 2013. For the full year, our effective tax rate was 15.4% compared to 15% in 2013. For 2015, we expect our effective tax rate to be in the high teens. Net income attributable to Baidu for Q4 was RMB3.2 billion, a 16% increase the corresponding period in 2013. Basic and diluted earnings attributable to Baidu per ADS for the 4th quarter amounted to 9.05 and 9 1, respectively. Net income attributable to Baidu for the full year increased by 25%. Net income attributable to Baidu, excluding share based compensation expenses, a non GAAP measure for Q4 was RMB3.6 billion a 20% increase year on year. Basic and diluted earnings attributable to Baiduper ADS, excluding share based compensation expenses, both non GAAP measures were 10.02 and 9.97, respectively. Net income attributable to Baidu, excluding share based compensation expenses, for the full year increased by 28%. As of December 31, 2014, the company had cash, cash equivalents, and short term investments of RMB 57,700,000,000. Net operating cash inflow and capital expenditure for the 4th quarter were $5,300,000,000 $1,500,000,000, respectively. Full year net operating cash inflow and capital expenditure was RMB17.9 billion and RMB4.8 billion respectively. Now let me provide you with our pipeline guidance for the first quarter of 2015. We currently expect total revenue for the first quarter to be between RMB12.64500000000013.065000000000, representing a 33.2 percent to 37.6 percent year over year increase. Please note this forecast reflects Baidu's current and preliminary view and is subject to change. I will now open the call to questions. Operator, we're ready to take questions. In order to be set to all callers to wish to ask questions, we will take one question at a time from each questions. Our first question comes from the line of Eddie Leung from Merrill Lynch. Please go ahead. Hi, good morning. Thank you for taking my questions. My question is about your guidance, is a relatively a large step down in terms of growth. So we understand the seasonality factors as well as mobile monitor but besides that, could you also give us some color on the macro and environment, is it, any softening of the advertising markets that, may have contributed to the guidance? And if so, have we seen any bigger fluctuations in some of your advertiser industries in terms of the budget allocation process? Q1 guidance, we wanted to make clear that what is reflected in the projection for us is mainly because of the seasonal, a very strong seasonal factor. As you know, the Chinese New Year falls right in the middle of quarter. You know, it's kind of before the first half for the first half of the quarter and people are in the holiday mood. And for the second half of the whole quarter, it's rounding enough for the whole business to fully recover. So per the the Q1 is pronouncedly affected by the factor. And obviously, we also talked about the mobile is during this time would, from a traffic perspective, would be particularly strong However, on the monetization front, it does have a diff distance versus the PC monetization capabilities. Reflected in our guidance I would say, macro is not really a consideration. We operate in an emerging market and with full of opportunities. There are not only the existing advertising customers that were service and we are also cultivating new service sectors and really reach out to build in local service and local businesses as well. So we, from an overall business perspective, business side of the perspective, the overall environment is full of opportunities and potential. So reflected in the guidance is primarily because of the seasonal factor well as the mix of Thank you. And our next question comes from the line of Alicia Yap from Barclays. Please go ahead. Hi, good morning Robin, Jennifer and Sharon. Thanks for taking my questions. I also have a related questions on the first quarter guidance. So, Jennifer, if we actually have a normal Chinese New Year this year, so let's say late January early February, what will be the guidance look like? In if we have, you know, if we only have the issues on the mobile being monetized lower, right, if we take out the seasonal factor on Chinese New Year. And then in relation to that, will the second quarter this year have a much higher sequential rebound than the previous year? And then also on the mobile Chinese New Year. Given higher percentage of traffic coming from mobile and mobile devices is more portable, shouldn't we actually continue to see more traffic and even more queries than previous year when people are away from the PC. So any color you could provide will be helpful. Thank you. Yes, Alicia, thank you for the question. As we said, the main factor driving the Q1 guidance is the, seasonal factor as well as the mobile mix. It, it, the seasonal reflected on the Chinese New Year is this year, the Chinese New Year is in term in late timing and that affects the full quarter. The mobile monetization part, it can't really clearly separate these 2 components because the mobile mix part is a moving part. Over the past 2 years as we set out to really transition, you know, to our mobile transition from to mobile first business, we have seen steadily a healthy growth of our mobile monetization capability. We are on that path and we're still on that path for steady and healthy growth of the monetization rate. So you know, this, this element is a moment in time and that happens to fall in this 1st 1 quarter. So this 1 quarter is a combined impact of those 2 and not really clearly can separate that out. But having said that, for your second question, obviously, we don't give out the Q2 guidance, but because of the Q1, the strong seasonal timing. If you expect that Q2 has a strong rebound, and I wouldn't say that would be a wrong assumption. So, you know, I do expect that. And if for Q1, we have already seen mobile traffic surpassing PC, and during holiday times, you know, mobile traffic will be particularly strong. Just as you noted, even people are on the go, they will have access to the internet through our mobile search box. So mobile traffic is strong, very strong, very solid. The fundamentals are robust, and we're just in that timing of having the mobile monetization rate trying to catch up with the PC's monetization capability? We confirmed this that the mobile traffic mix is also part of the seasonality because right around the Chinese New Year, probably 1 month before the Chinese New Year and 2, 2, 3 weeks after people are on the road. A lot of people are on the road. They will use the mobile to do searchings at DC. So if we don't consider the rapid growth of mobile traffic year on year, just looking at the seasonality, mobile would represent a larger percentage of total traffic during the Chinese Chinese New Year period. I see. Can I follow-up on this answer? Is that is there any big difference from advertiser willingness to spend and the budget spending as we move to mobile during the holiday season. Have you seen any change from the advertiser sentiment and willingness from PC to mobile shift Thanks. I would say in general, our larger, advertiser base, their they really understand the value of our platform and they have been very open to take advantage, both on the PC side and the mobile side. And I think you will note that mobile opens up new opportunities, for, example, like a local services, local services traditionally wouldn't be part of the PC centric, advertiser base, but with mobile, that is new opportunities and for these business to get on Vaidu's platform and also for users to really look for information that relates to local service merchant service providers. We are obviously on that path to develop these new sectors. And so I would say from the the existing advertiser base, there's not, you know, preferred unwillingness not to spend the joining holiday season. Their patterns are normal, but a lot of the, I would say, huge mobile traffic that generated new business opportunities, new quarries and those are elements and sectors that we are on the path to develop. And with time, that's why we're putting so much effort in Baidu Connect in group 5 in all the driving high frequency service service providers and make them become our advertiser base on the Baidu platform. So I would say not really, but we're in that transitional time to developing new customer base and mobile is the traffic base is very robust and it's just, you know, we're in that time to really cultivate new advertiser base and that could be monetized. I see. Thank you. Can I just lastly, is the on mobile still at 60% of PC in 4th quarter? That's one of the, you know, metrics we look at obviously CPC itself doesn't represent the whole monetization capability for mobile, you know, you obviously have the click through, you know, CPM and all that. Just for CPC per se, largely it stayed constant. Okay. Thank you. Great. Thank you. Our next question comes from the line of Dick Wei from Credit Suisse. Please go ahead. Hi, good morning. Thank you for taking my questions. I guess I also want to follow on the mobile monetization side. I wonder how what kind of the monetization gap do we expect to close between mobile and PC say towards the end of this year? Any management can share? And also, is it going to help to reaccelerate the full year revenue growth? I guess, so Q1 is, I guess, a midpoint is around at 35%. So is it realistic that, I guess, with mobile monetization, of the PC pricing increases. Is that what realistic to see more, the closer to a 40% or high-30s percentage growth for 2015? Thank you. Yes. Hi, Dick. As I mentioned, earlier, the mobile monetization rate is on the trajectory of growing. We have seen to steadily and healthily been growing over the past 2 years and we expect the same will occur throughout the year And so obviously, we do expect the mobile and PC traffic to, PC monetization rated, the gap are too narrow. In fact, you know, I think, we're very optimistic about the mobile monetization capabilities, given there's richer data points, and enhance the capabilities that we're building to build the closed loop transaction, drive better ROI for our customer and holistically provides really high ROI, for our customers and, and therefore, you know, Momo digitization rate should be, you know, if not exceeding the PC's monetization capability. For the Q1, I would say, somewhat you can that the Q1 year on year comparison is somewhat depressed because of the seasonal factor. And given that there is season not seeing that. And given that we do expect mobile monetization to trend up, I would say, you know, this is not truly representative of the whole year's picture. Okay, great. Janine, but just a quick follow-up on that. So I guess for Q1 guidance, We just maybe I just wanted to, quickly where they'll be, being more conservative if you finish late Chinese year because maybe the visibility is a bit lower than usual or it is just purely seasonality worse than kind of the seasonal historic seasonal early Chinese New Year. And Yeah. I think you're correct. You know, there is during the Chinese New Year's time, it is a slow time and the business typically resumes to after the Chinese New Year. So as we provide the guidance, there is obviously, not as much we're not deep that deep into the quarter or after the holidays. So obviously there is a, there is a lack of visibility, but I would say as we have always done consistently, we provide our best guidance to in our knowledge, to the business and in, that's our best expectation, as of now. Great. Thank you very much. Thank you. Our next question comes from the line of Alex Yao from JP Morgan. Please go ahead. Hi, good morning. Thank you for taking my question. I have a follow-up question on the mobile monetization. Jennifer, you say you guys are very optimistic on the mobile monetization capability over time. And then the traffic from mobile also increased rapidly, should we expect that at some point in 2015, the mobile monetization rate increase could possibly reaccelerate the revenue growth That's the first question. Secondly, given the revenue growth outlook and your investment strategy, can you talk about how should we think about the margin outlook for this year? Thank you. I think we commented on, you know, we provide 1 quarter's guidance and give you some color on how you should read this number and how you know, it may not be that presentative for the full year. So we are optimistic about our monetization capability on the mobile front And, and, and I wouldn't get into further comments on the annual, annual revenue outlook. On the investment side, I think in the prepared remarks, I try to give you as much way to think about our investment angles as possible. The key investment areas for us is to extend our service and build the closed loop transaction and enable connecting people with services. So the main activities we will carry out for products are like Baidu Connect, Nomi, the food delivery service, and Baidu Wallet. Aerospace investments and I think areas of a significant investment would be in the sales and SG and A line. And for SG and A expenses, as I mentioned, the absolute dollar step up for 2015 over 2014 would be similar compared to the year ago step up. And that would be the key item, to look out And for other main expense line items, I think they have pretty established patterns and you could, you know, really model that pretty closely. Another line items that I have caught, you know, puts you to pay attention to is content cost. And we've I give you specific, you know, ways to think about content costs as well. So I would say those two elements are the main investment area and other elements, we will continue the attraction of the prior patents in terms of investments. Thank you. Our next question comes from the line of Please go ahead. Thank you. Thank you for taking my question. I have a similar question on monetization. The question I have is because in the first half of last year, the mobile traffic growth is actually helping the monetization, it's reaccelerating the top line growth if you look at the 1st 2 quarters of last year's growth. And then towards the year end into first quarter of this year, the higher traffic from mobile is actually the problem to your monetization. So my question is really, is this because, some, low hanging fruits have been picked. Some of the early adopters of mobile search have been already on a platform. But what's left is, are those industries very hard to adopt mobile search? And then you must go to local services for a brand new area for growth. Is that situation the company is facing now? I think that's not an apple to apple comparison. You're talking about the first half of 2014, we are we're talking about the guidance for the first quarter of 2015 And the timing of Chinese New Year for 2014 2015 is very different. And as I said, both the mobile traffic mix and the timing of the Chinese New Year are in essence, seasonality. So I don't think that's a fair comparison. Regarding to the mobile monetization, I don't think we have reapped all this low hanging fruit there are still a lot of room for growth in terms of improving monetization capability of mobile and and even more exciting opportunities that on mobile, we have the chance to really connect to people with services which is in addition to the traditional sponsorship or advertising dollars. So we do see a lot of opportunities going forward. And to add on that, me, I understand your question. If you're looking at the early part of 2014, and that comparison was versus the earlier part of 2013. 2013, if you recall, you know, Momo monetization is was barely existed. So that comparison, you know, is, is, I would say, on a low base and purely you can say purely incremental and easier comparison. And as we stand in 2015 compared to 2014, Obviously, the mobile is already becoming a very meaningful component of the overall picture. The mix issue, you know, is playing a significant part so I wouldn't draw the conclusion that mobile monetization becomes a problem. It's not a problem. We're still on the trajectory of healthy and steady growth and there is a lot of room for us to continue to improve a lot of customer base to develop. So a lot of room and the potential opportunities And so it's only because of the base that you're comparing is different. Thank you. Our next question comes from the line of LLC from Oppenheimer. Please go ahead. Good morning, management. Thank you for taking my question. I also have a question relating to the mobile monetization. How much within mobile revenue, how much is coming from non search related services. Since you have been saying that mobile monetization has been increasing, growing health silly, but, mobile CTC discount to PC remains stable. So I just wonder if, if it's non search related services that's driving the mobile revenue growth? The mobile revenue predominantly is, still search. Actually from an advertiser advertising product perspective, it's not as rich as a PC today. PC has we've been doing that business for quite some time and there are different forms of products that we can use to monetize the PC traffic. For mobile side, I would say majority of the mobile search, mobile revenue is still search related. There are other revenues like display revenues that's generated out of mobile, because of ITE, for example. So it's not because of the different products that's driving the growth of the mobile. The mobile revenue is growing, while CPC is relatively stable, that is just saying that there are, we continue to improve the monetization capabilities. CPC, as I mentioned earlier, is really not the full picture for mobile monetization capability. So for the mobile monetization capabilities, you look at, you're really the display, the the relevancy, the leaks through and all that. So CPC is just one element. And because the advertising, the key words, choices are much more, the advertisers are spending more, you know, when it comes to average CPC, it could stay constant. And so that's why, you know, I think you're just looking at the CPC won't kind of solve this, your question. Got it. So is it fair to say that your mobile is still driven mostly driven by search related services? Yes. Got it. Thank you. And if I can have one more question that's relating to your SG And A spending in this 4Q. The total dollar amount is up for more than 30% Q on Q. I wonder, Jennifer, if you can help break down this additional spending by, in different categories such as pre installation or branding or promotion. If you can provide any detailed the colors, that would be very helpful. Yes. The incremental SG and A expense is almost all because of a promotional efforts that drives products, like a Baidu Wallet, group buy, and the food delivery service. We launched food delivery service in Q4. Once again, Our next question comes from the line of Alan Hallawell from Deutsche Bank. Please go ahead. Thank you very much. Yes, Jennifer very much appreciate the broad framework you offered around how to think about SG and A in 2015. I think you also suggested that we with regard to the other cost items kind of extrapolate in line with past trends. And if I'm not mistaken, we did see a pretty significant jump in R and as a percentage of revenues. Are you saying that we should probably assume maybe a similar percentage point increase a percentage of revenues on the R and D front, or can you give us a little more color as to how we should think about that, operating expense? Thank you. Well, I think if you look at the R and D expense as a percent of revenue over the years, we have steadily concentrated on investment in R&D. So, expect that, you know, planned to carry on, may be more moderate pace, not as sizable as last year. Our next question comes from the line First, I want to clarify your answer to Alicia's question at the very beginning. You just mentioned the gap between the CPC stay constant at 50% only. If I recall correctly, I think Robin mentioned in Q3 2013 that my by CPC already accounted for like 55 percent of the PCs and in Q4, that ratio also went up further to 60%, but how come now it came back to 50% in recent quarters? And also related to it's interesting that you mentioned about different seasonality of the PC and mobile traffic. So taking a longer term view, given that mobile traffic is stronger in Q1, should we expect the But by the time that a gap between the PC and mobile CTC to narrow down actually the seasonality your overall business actually should be stronger in Q1 rather than weaker in Q1. Thank you. I I think there were some numbers, you know, going around for CPC as a percent mobile versus PC. That number, I think, mentioned earlier on the call was 60%. But I I want to direct your attention probably away from CPC. CPC is only one aspect of the monetization capability. Looking at CPM, you know, the overall monetization capabilities will be more relevant. And for the second question is about Q1 mobile traffic actually. Yeah. Would would Q1 be stronger going forward when mobile monetization catch up? Yeah. Eventually, I think it will. It's going to be a gradual process. So right now, the the monetization capability for mobile traffic is still lower than PC. But it's gradually catching up. Eventually, we are confident that mobile monetization capability will be on par or even bigger than PC monetization. And when that happens and during Q1, when seasonally, mobile represent a larger traffic mix that the revenue growth will show a stronger pattern. At that time. Going forward, yes. And our next question from the line of Thomas Chung from Citigroup. Please go ahead. Hi, good morning. Wobbin, Jennifer Shao, and thanks for taking my questions. My first question is about, the integration with BlueRock. Can management talk about, how the integration goes on by do maps and what's the potential P and L impact? And my second question is related to PC search. Should we expect in terms of the PC search revenue of momentum for this year is similar to last year. On the Uber integration, we are still working on that. We are providing APIs for over to work with. And it's still working progress from what we have heard that it's the GMV or number of transactions of Uber China has been growing at a very, very fast pace So we are optimistic about the future perspective of this collaboration. And, and Thomas, also for, as you know, we look at our search business holistically, but if you to single out the PC side. And I think the PC is pretty stable and there is still room for us to continue to improve on the monetization capabilities. Be very innovative with experimenting different advertising products and continue to enhance user experience and also, you know, drive more relevant search ads that's good for the user as well as good for the customers. And so, you know, I don't, you know, we don't really separate our overall business separately, but I think we're not unhappy with the progress on the PC front. Thanks, Jennifer. Thank you. And our next question comes from the line of Cynthia Monk from Jefferies. Please go ahead. Thank you, Robin, Jennifer, and Sharon for giving us the opportunity. My question is regarding the recently announced reorganization, the management gives some color on the rationale and some of the what kind of milestone management has in mind in terms of developing new businesses that will drive the future growth of Baidu? And in addition, as a follow-up for the questions before, given the small market share of Baidu Wallet, will management consider a subsidized, subsidized taxi hailing activities for Uber and other, other companies that you have affiliation with. Thank you. Yeah. On the reorg, the combative landscape is changing quickly and market dynamics are very vibrant. So we before we had a 6 convinced unit, and we kind of combined LBM us into the mobile unit and the combined, our international business and consumer bins into the new business group that give you 3 Big Vince groups, the first one focused on search, which is our current core asset. And the second one focused on mobile, which is growing on the fastest. And the third one focused on all kinds of emerging opportunities, including health care, education, finance, etcetera. So that's the rationale behind the reorg. We think by combining some of the units the efficiency will be increased and some of the redundancy can be eliminated. So the overall company will be more agile. On Baidu Wallet, we have been subsidizing all kinds of and transactions being our ecosystem, primarily for services we operate a barrel ourselves, for example, the group buying, the food delivery or movie tickets, we occasionally would subsidize other partnership deals that will be on a case by case basis. Thank you. Robin, can you talk about some of the milestones you might be able to share with regard to the new business unit? We comprised of a number of initiatives we are working on. Right now, they are at very early stages, for example, for health care, we are trying to connect patients with with doctors. There are about 2,000,000 doctors in China, and there are lots of lots of patients Right now, the resources are not allocated optimally. Lots of patients goes to those very famous top notch doctors and, those doctors only spend a few minutes with each patient. We think that's not a good use of medical resources. To, do the matchmaking to send the relevant patients to relevant doctors. We look at that as a total transaction, we're connecting people with services. We we measure those number of transactions or deals as milestones. For education, we're trying to, to find opportunities to, to fund those, potential candidates or potential students refinancing options, consumer credits, so that they can, have more incentive to some of the classes offered by our partners. And based on our, platform, we can route traffic to a lot of potential students and encourage them to take more classes. And that will enable lots of people who didn't have the money to take on courses new system. There are initiatives like this in our emerging business group. And the main measurement is the number of transactions we complete. Out of platforms. Thank you. Thank you. And as a reminder, please refer to one question at a time. Our next question comes from the line of George Meng from Morgan Stanley. Please go ahead. Hi, good morning, Robin, Jennifer and Sharon. Thank you very much for taking my question. I wonder if you can provide more granularity of your revenue growth, especially on mobile. In terms of, for example, the advertiser categories and also type, basically if you view your business between Ka and SME, do you think that SME is actually meaningfully different in terms of growth rate from Ka and also in terms of the advertising categories, do you see any impact from, say, health care from some of your competitors? Thanks. I I think, you know, overall, the customers because of their size and their business, they do have different needs. And that's the beauty of our platform that can mitigate to whatever size and whatever kind of advertisers and whatever a budget they may have. For SMEs, I would say it's, you know, the population is huge. And, for for our SME, salespeople, you know, there are opportunities as we penetrate into, you know, the deeper 3rd, 4th tier cities and to really develop new customer base and also with our technology and the CD level bidding that gets into more refined, that geographical accuracy that really opens up opportunity for a local businesses that really want to very targeted, a promotion. And for large customers, their adoption of mobile is also progressing very well. And so their needs are due very And, and the drivers of those businesses could be different. For large advertisers, they look for novel products, ways to help them carry out campaigns and generate, you know, overall ROIs and also for branding purposes. And for SMEs, you know, the the needs will be different, you know, will be very, performance based, it could be. And so I think on both fronts, the business is growing healthily albeit because of different drivers. Hey. Got it. Anything on the categories like health care? Do you see any, you know, impact from your competitor launching health care search? Awesome. Healthcare continues to grow very strongly. It's, you know, still one of our top 5 sectors. And what we're seeing is, you know, service sectors are growing very nicely on our platform, mentioned earlier education services in like travel, even financial services, these sectors are really growing nicely and are among the top 5, sectors. Great. And finally, you mentioned branding. So you also mentioned like 70% year on year growth of your display ads. I understand it's still very small. But can you quantify what the mobile contribution within the display app if you exclude, say, IT? You know, is there any impact expected from Weixin launching their ads on Weixin? Thanks. Right now, I think most of the branding budget I spent on our PC platform, including brand zone or our union business. On mobile, we do not allow graphical display of any content So even though they are also brand owned on mobile, the over contribution, I mean, brand advertising contribution to mobile revenue is still much smaller than that of PC. Having said that, I think, the brand advertising budget for online is still very small percentage of the total brand advertising budget. And we not see any, I think both us and, we've seen them very, very small in terms of brand advertising budget. I do not see competition as an important factor right now. We do see a strong potential for brand advertisers to shift their offline budget to online and to mobile. Our next question comes from the line of Chau Wong from Nomura. Please go ahead. Hi, good morning. Thanks for taking the question. I have a question on your PC revenue growth. Since that 4Q results in 1Q guidance implies that PC revenue is down year over year. Could you comment on PC revenue growth as well as PC traffic growth? And secondly, regarding the late Chinese New Year impact, does that have a bigger impact on a brand ad loan? Thank you. Are your first question related to the PC? And I think there was, the same question earlier. I said overall, there's still we're the PC business is pretty steady. The traffic is solid. And we continue to have ways to improve on the monetization capabilities for PC. And so overall, I think that PC continues to grow. And, it we're not unhappy with that progress. What is the second question? Oh, the Q1 brand advertiser? Brand advertiser? Brand advertiser. Yeah. Q1 is a brand advertiser is seasonally slower quarter. I mean, that has been historically pattern, and brand advertiser, as Robin mentioned, we don't do that much of that on the mobile front. And because mobile's traffic is dominant component of the overall, of course, the spending will be less. And PC, because of its seasonal nature, the brand advertising spending, for, Q1 is, that's why the reason, you know, the brand, the advertising overall is a slower in Q1. Our next question comes from the line of Chi Young from HSBC. Please go ahead. Hi, this is Chish Singh from HSBC. Thanks for taking my question. My a question on Baidu Connect. So we're seeing very strong adoption from the merchants. The 600,000 figure is very, very large I'm curious what you're seeing in terms of click through from users, transactions or engagement levels. Thank you very much. Yes, as I mentioned during the prepared remark, we rolling we rolled out a lot of verticals for Baidu Connect, we enable those merchants to come up with their own customized Baidu Connect sites. Right now, the conversion is very good, but we would like to see more transactions or GMV happen on those platforms. There are a number of early adopters who have seen very encouraging results, but it will take some time for the majority of the merchants to learn how to take advantage of the Baidu Connect system and enable transactions on it. Next question please. Thank you. Our next question comes from the line of from UBS. Please go ahead. Yes. Hello. Thank you. About the content cost or the self produced content that you mentioned earlier. Can you just give us a bit more color what type of content you plan to produce and also the kind of cost associated with those? I think, you know, content cost is primarily attributable to ITE. And during the last quarter in Q4, you've already noticed that there is a step up in content cost. Our new high quality content has been acquired. It's important because over the past year, IT has established itself as the market leader and also created, this great market perception that they have the high quality content and really having the entertainment to. Unique content is the way that you differentiate yourself. And we have already started producing self produced content. Last quarter. So some cost component is reflected in the picture. And going into 2014, there will be 2015, there will be more increased emphasis on the produced content. And it's not particularly the categories that we define as of this moment. The main strategic underpinning is really to drive, high quality content that differentiates the ITE's platform versus others. And therefore, attracts users and nurtures users reliance and possibly also grow user subscription. So that's why it's strategically important And I give you some guidance in terms of, how to think about the cost related to that. And we think this is strategically important. Because as Xi is already the market leader and with this kind of method, this kind of investment It further strengthens its market leader positions and build a solid business and as we go forward. Given the attractiveness of this vertical, we expect a longer term shareholder returns. Thanks, Jennifer. Thank you. Due to time constraint, we only have time for one last question. And it comes from the line of Natalie Wu from CICC. Please go ahead. Hi, good morning. Robin, Jennifer and Sharon. Thanks for taking my question. Firstly, just clarify. You mentioned that SG and A's data pattern this year, we resembled last year. So wondering whether you are referring to a absolute value or in terms of percentage of revenue? And secondly, I noticed that you have already started a lot of auto initiatives lately, like Baidusel delivery, group buying, movie ticket, health care, etcetera. Wondering can management share with us your revenue target on this initiative? I mean, is there any target on revenue distribution from commission based business say 40% to 50%? Natalie, for your first question, is the dollar amount? And on those O2O initiatives, yes, over time, this kind of initiative, be it for delivery or group buying, well bringing revenue. It's going to be a more of a take rate basis. But right now, we are in the investment stage there are lots of subsidized in each of those categories. So, near term, we do not respect any meaningful contribution to revenue from this bin system. Oh, thank you, Robin. Is there any long term target? Yeah, of course. I think longer term, the take week based businesses will represent a very significant part of our overall revenue. We're now approaching the end of the conference call. Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Good day.