Earnings Call: Q2 2014

Jul 25, 2014

Earnings release

Hello, and thank you for standing by for Baidu's 2nd quarter 2014 earnings conference call. At this time all participants are in a listen only mode. After management's prepared remarks, there will be a question and answer session. Today's conference is being recorded. You may disconnect at this time. I would now like to turn the meeting over to your host for today's conference, Ms. Sharon Ng, Baidu Senior Management of Investor Relations. Hello, everyone, and welcome to Baidu's 2nd quarter earnings conference call. Friday's earnings release was distributed earlier today, and you can find a copy on our website as well as on Newswire Services. Today, you will hear from Robin Lee, Vaidu's Chief Executive Officer and Jennifer Lee, Vaidu's Chief Financial Officer. After their prepared remarks, Robin and Jennifer will answer your question. Before we continue, please provisions of the U. S. Private Securities Litigation Reform Act of 1995. Forward looking statements are subject to risks and uncertainties that may actual results to differ materially from our current 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 of certain unaudited non GAAP financial measures. Our press release contains a reconciliation of unaudited non GAAP measures to the unaudited 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 Baidu's CEO, Robin Lee. Hello, everyone. We had a great quarter and there are exciting things happening at Baidu generating tremendous energy and providing strong forward momentum. In the mobile era, search can be even more powerful as it connects users not only to information, but also to services. Search is one of the top 2 most used applications on mobile. According to a CNIC report released this week. This quarter, mobile monetization again progressed very well, with mobile revenue, which is largely comprised of mobile search revenue, accounting for 30% of our total revenue. The healthy mobile search monetization ramp is a testament to search as a proven base model with best As a bit of refresher, Baidu's mission is to provide the best way and most equitable way for people to find what they're looking for. Users come to Baidu to discover. In the mobile age, connecting people with what they are looking for includes not only information, content and apps, but also services. A natural extension of our platform. We hope leading positions in the key mobile entry points of search, map and app distribution. We are making investments to facilitate which allows us to have a better understanding of user behavior and conversion for merchants. Over the longer term, business, we remain the clear, dominant cross channel search leader. Mobile search traffic, again, drove overall traffic growth. In the second quarter, for the first time in history, during some holiday and weekends when people were out and about mobile traffic exceeded the traffic of desktop search. We our mobile search service grew to over 500,000,000 monthly active users in June. In Q2, we continue to aggressively invest and innovate to create a better experience for our users We revamped our homepage and our users who log in now get personalized pages with automatically refreshed content. We continue to deliver ever richer, more dynamic results directly on the search page by working with partners in verticals such as healthcare, e Commerce, education, and travel. In the automotive vertical, for example, we partnered with with auto and auto home to integrate customized auto vertical content. We boosted our search response time integrate customized through technology improvement, query prediction, search response time on PC is 10 times faster now than the beginning of the year. Joining of our PC search response is now literally faster than the blink of an eye. Baidu continues to be an online marketers preferred platform to capture leads on a large scale and generate the best ROI. It's been a little over a year since we implemented our integrated PC and mobile bidding system and the speed that continues to be overwhelmingly positive. Our customers are truly embracing the diverse range of app format adoption mobile has to offer. With over 90% of our customers choosing click to action, mobile app format that includes click to call, click to chat, and click to download, which directly type vary to conversion. System by educating our customers and providing them with the right infrastructure and tools to optimize for mobile. In search monetization, the number of paid clicks, CPM and click through rates are trending higher year on year in large part due to our investments in mobile and technologies like deep learning. For instance, we launched a personalized click ruling prediction initiative on both PC and mobile search to make search ads more relevant and use swaps for individuals and we are already seeing increases to click through rates. City level bidding, which we launched at the beginning of the quarter, is attracting new customers to our platform and we've seen overall spend from customers who participate in city level bidding increased as well. Over the short course of 3 months, a quarter of our customers have already opted to participate in city level bidding and we are very pleased with this positive early sign. Mobile Baidu, our search focused app now boasts nearly 70,000,000 daily active user which put us among the most popular native apps in China. It continued to be our largest and fastest growing single channel for mobile search. We upgraded mobile Baidu by adding more personal live vision features and refresh the content. With the new light apps that are being added, mobile Baidu is a powerful simply way for our users to discover and connect with new information and services by tying together multiple Baidu including Baidu Search, mobile map, the Nomi Group Buying Service, and Baidu Wallet. For example, a Baidu movie ticketing purchase can originate and be fulfilled all within the mobile Baidu app. Here, a user snaps a photo of a movie poster, opens a live up chooses a nearby theater, the movie and seats and the purchases, the ticket with Baidu Wallet, all without leaving Baidu mobile app. We went some movie ticket promotions in Q2 to highlight this feature and saw the movie tickets, so nearly tripled in the span of months between May 1st Labor Day to Dragon Boat Holiday in early June. In LBS, our flagship mobile map continued to extend its leading position by gaining market share with the monthly active user base, surpassing 200,000,000 in the 2nd quarter. We are currently the only mobile map in China with turn by turn voice navigation for walking. We also added more real time King's updates. Our Group buying platform, Nomi, celebrated its 4th anniversary this quarter and the platform continued to grow and scale up nicely with GMV in mobile tripling the number of users doubling since we consolidated the business in the fourth quarter last year. Our Salesforce reseller network is already providing additional feet on the ground to help non scale up. As the number one native app distribution platform, we gained further traction with the combined Baidu and the 91 wireless platform, distributing over 130,000,000 apps on a daily basis. The process of integrating and unifying the platforms has progressed smoothly. The revenue contribution from our app distribution platform continues to grow meaningfully, monetizing through both advertising and mobile games. We have a rich gaming platform and we partnered with 6 exclusive games in the second quarter. Our personal cloud storage product continued its strong momentum, growing to nearly 200,000,000 registered users in Q2 from 160,000,000 registered users in Q1. Our personal cloud storage product delivers a great user experience and drive continued user adoption of the product. Technology And Big Data are at the crops of our efforts here at Baidu. And we made some meaningful wins that reinforced Baidu's renowned as a world class technology company. We are thrilled to have Andrew in a pioneer in the field of artificial intelligence and the foremost researcher in deep learning join us as our new chief scientist and lead Baidu's overall research efforts. Andrew shared our vision that ai will transform the internet and truly change the world. This quarter, we opened up a new R And D center in Sunnyvale, California, and we announced 3 new research labs, 2 of which focused on artificial intelligence and the 3rd big data. Deep learning already touches much of what we do from speech recognition to image based search and from ad ranking to big data analytics. It will fundamentally improve ability to understand natural language, to provide more accurate translation and to make more intelligent recommendations. Baidu brings together the raw computational power, the talent, of unprecedented size and power whose performance increases with the actions. We've applied our big data capability to a broad range of datasets and have seen impressive results Our World Cup predictions has the most accurate record of predicting results from the group of 6 games to the championship. So, we are also be introducing predictive data driven products for real estate prices and even likely box office for theatrical releases. Though these examples may just be showcased, they provide a peek and what is passed As we continue to aggregate more data and improve our big data capability, we will apply big data prediction for behavior. Moments and trends. On the international front, I'm happy to announce that we launched to Gis search in Brazil last week. Now to update you our online video operations, Iqiyi's Q2 performance continued to be robust and we are very pleased with the progress. Iqiyi is now number 1 in PC monthly and daily unique visitors and number 1 in both PC and mobile by monthly time spent, respective according to IResearch. The long term prospects for online video and ICE are very attractive and we remain supportive of the platform. The 2 power off Baidu platform is our open system. We worked with all forms of applications and services and support all formats of web pages, native apps, and live apps. This enabled us to offer a rich similarly integrated Baidu experience, combining search, LVS and our wide range of consumer products all delivered with unmatched speed and reliability from China's most advanced and powerful cloud infrastructure. We are still only in the early stages of realizing the full potential of our platform and our technology and data capability. We are excited to demonstrate what we are really capable of achieving and how large the Baidu platform can really become I undertake this opportunity to remind you all that Baidu World will be held this year on September 3rd in Beijing. I look forward to seeing many of you there. Thanks, Robin. Hello, everyone. We're excited to deliver a soft set of results in Q2, with mobile strongly anchoring our business. The vast customer base continues to expand, we are encouraged by the strong progress as we continue to innovate and our customers further embrace our services. We remain committed to investing aggressively in our strategic focus areas, namely search, mobile cloud, consumer business LBS and our international business. We will manage our business in a disciplined fashion as always. These efforts centered with our dedicated focus on investing in technology will help fulfill our broader mission to also connect people stated otherwise. Year on year growth. Online marketing customers, a 4% increase from the corresponding period in 2013 and a 9% increase from the previous quarter. Revenue per online marketing customer for the 2nd quarter was 24,200. A 50% increase from the corresponding period in 2013 and an increase of 16% from the previous term. Traffic acquisition cost as a component of cost of revenues in Q2 were $1,500,000,000 or 12.7 percent of total revenues compared to 11.6% in the corresponding period in 2013 12 point percent in the first quarter. The increase reflects increased contribution of contextual ads, mobile, and the promotion of HAR 123. Bandwidth and depreciation cost as a percent of revenue in Q2 were 5.8% and 3.9%, respectively, compared to 6% 4.7% in the corresponding period in 2013. Content cost as a component of cost of revenues was $354,000,000, representing 3% of total revenues compared to 2% in the corresponding in 2013. Content costs are mainly related to ITU. Selling, general and restrictive expenses in Q2 were RMB 2,100,000,000, an increase of 99% year on year. The increase was primarily due to increased promotion spend for mobile products. A increase of 84% over the corresponding period in 2013. The increase was mainly due to an increase in the number of R and D personnel on. Share based compensation expenses, which were allocated to related operating costs and expense line items, increased aggregate to $221,000,000 in the 2nd quarter from $83,000,000 in Q2 2013. SPC increase due to more shares being granted to Baidu employees. Operating profit for Q2 was 23% over Q2 last year. Total headcount on a consolidated basis, including invested entities was about 40,500 as of Q2. This represents an increase of 17% as compared to the the effective tax rate for year. Net income attributable to Baidu for 13. Basic and diluted earnings attributable to Baidu per ADS for the 2nd quarter amounted to 10 point and $10.09, respectively. Net income attributable to Baidu, excluding share based compensation expenses, a non GAAP measure for Q2 was $3,800,000,000, a 68% increase year on year. Basic and diluted earnings attributable to Baidu per ADS, excluding share based compensation expenses, both non GAAP measures were 10.75% and 10.72%, respectively. As of June 30, 2014, company had cash, cash equivalents, and short term investments of $48,700,000,000. Net operating cash inflow and CapEx for the second quarter were RMB4.1 billion and RMB864 1,000,000, respectively. Now let me provide you with our top line guidance for the third quarter of 2014. We currently expect total revenues for to be between RMB13.42 billion and RMB13.78 billion, representing a 50.9% to 55% year on year increase. Please note this forecast reflects reduced current and limited review and is subject to change. I will now open the call to questions. The question and answer session of this conference call will start at the moment in order to be to all callers who wish to ask questions. Questions. Your first question comes from the line of Eddie Leung from Mel Lynch. Please ask your question. Hi, good morning. Thank you for taking my questions. Just a question on your mobile pieces. In the first quarter, we learned that UCWeb has established the relationship Alibaba. So just wondering if you have seen any impact on your mobile traffic as well as on your TAC spending. Thank you. At least so far, the impact has been very limited as I mentioned during the prepared remarks, mobile by Duo are making that for search is the fastest growing and largest source of our mobile search traffic. Longer term, the search app will provide different and a much better user experience for our users. And we believe this represents the trend users will increasingly rely on the Baidu native app, to get information and services. On the TAC? In terms of TAC, Eddie, as you see, sequentially, TAC as a percent of revenue continued to increase as we have indicated consistently over the past quarters. The majority of the TEG is related to, especially the changes are related to increased contribution from contextual business from mobile as the mobile's contribution is becoming a larger part of the picture as well as the how 1, 2, 3. And we do manage the union partners relationship dynamically. And we manage pack spend dynamically. But directly related to UC is not anything significant. But over time, as we have indicated in the past, we will continue to see TEG as a percent of revenue grow. The next question comes from the line of Big Wei from Credit Suisse. Please ask your question. Hi, good morning. Congrats on a very strong quarter. My question is on the margin trend. I think prior quarters guidance is, by just going to spend more in print installation marketing during the very fast growth phase of more both Internet growth. I wonder what is the outlook or what is the current thinking over the next couple of quarters or maybe next year and how is the margin trends going to be reflected with those strategy? Thank you. Hi, Dick. The way we may HR business is really focused on the top line growth and at the same time, manage our expenses in a very disciplined manner. To date, we have delivered very strong top line results. And as we look into Q3, that momentum will continue to carry. For investment allocation on the strategically important areas, we are deploying resources currently as planned. And so as you see, most of the investments are in R&D in sales and marketing as well as in infrastructure. Over the past few years, we have seen that we consistently invested in R&D And Infrastructure. For our products and technology, some of these investments are immediate and others are longer term, particularly related to sales and marketing expenses, they can be they can vary quarter over quarter depending on the events or when the product is ready to have massive marketing support. And so as we look out, the plan hasn't really changed. Our strategic focus areas will remain and our dedication of resources in these areas will continue to carry. And if you look at second half of the year, we will continue to spend in a related matter in sales and marketing related to mobile products, LBS, security products and our international efforts. Thank you. The next question comes from the line of Alan Helloell from Deutsche Bank. Please ask your question. Thank you very much. A little bit of a follow on to Dick's question, really just focusing on pre install. Jennifer, could you give us a sense of how we would consider contouring pre install, for instance, as a percentage of revenues for the rest of this year and next year, I guess, could there be more upside as a percentage of revenues, or have we achieved the desired effect of pre install, which is to encourage the behavior by which people more proactively summon the application. Can you give us a sense of the contouring? Right. In terms of the sales and marketing expenses, really, other than the people related costs, for marketing and promotional efforts, there are 3 areas. 1 is pre installation, as you mentioned, and there is also marketing branding efforts, that will require resources. And, certainly, will be promotional activities, promotional campaign as we try to push for certain products. Last year, as we have said in the past, predominantly majority of the marketing expenses were related to preinstallations. And that was, timely, rightly so. And as throughout the quarters, as our products is set this foothold and users are becoming more and more reliant on our products. Over the past few quarters, we will, we, we are seeing, slightly declining, percentage of the overall marketing spend on pre installation. But at the same time, as I mentioned in the past, It's important for us to continuing reaching out to the user base to educate our products, our brands, and at the same time, also use promotional activities to drive new products and services. For example, in driving LBS location based related services there will be promotional campaigns that either drive transactions activities or promote a certain products and those will be a part of the overall marketing spend. So the mix of the overall sales and marketing expense does tangent very But overall, this, item will continue to be a focal, resource item for us going forward. The next question comes from the line of Alicia Yap from Barclays. Please ask your question. Hi, good morning, Robin, Jennifer and Sharon. Thanks for taking my questions and congratulations on a very strong set of results. My question is regarding your international initiative. So could you share with us a rough total cost of investment that you have spent or plan to spend for your overseas commitment? And also could you share with us any timeline expectations for revenue contributions that you expect to generate from the overseas market? And then lastly, could you share with us the view your view on the difference and similarity between the Brazil market versus the Japan market where you also launch the services few years ago? Thank you. The international effort one of our strategic focus areas. We would say the international business to us is medium, longer term, strategically important. At this identified, of markets. And these markets typically are emerging markets with continued fast growth in the usage of internet. And at the same time, mobile becomes increasingly a factor in the overall to the internet. So compared to more mature markets, in your example, these markets that we are targeting our emerging markets and fast growth. And in those kind of situations, opportunities exist. From a spend perspective, we are, as I mentioned, in the early stage, to date, we haven't incurred much expenses at all, but we do have, products that we can leverage, from our China based R&D team. And we can launch products in the international markets. As I mentioned, they are medium and longer term significant, and we will take our time to penetrate in these identified markets. Overall, if we compare the scale and opportunities of the business, both from take efforts in terms of resource allocation is really a small amount. And at the same time, as I think the immediate focus is to launch the products, make sure that these products are adopted in local markets. And over time, begin to generate revenue and the revenue is really not to the near term priority for us. Thank you. Next question comes from the line of Thomas Chung from Citigroup. Please ask your question. Wobbin, Jennifer and Sharon. Thanks for taking my questions and congratulations for a great quarter. I have two questions. The first question is can you comment about how the mobile CPC right now just compared to PC? And secondly, with regard to mobile traffic contribution to your total traffic. Can you give us some color whether it has already exceeded 50% if I have missed that out? And thirdly, regarding do a mobile search. Is it true that your organic traffic has already exceeded the inorganic traffic? Thanks. Okay. On the mobile CTC, the, the trend continue to go up, as I mentioned before, but it's not as high as the desktop CPC yet. On the traffic I already said, during the prepared remark that during certain holidays and weekends, mobile traffic surpassed that of desktop traffic, but during most of the weekdays, desktop traffic is still larger in Q2 of last year. For the mobile traffic, organic mobile traffic, it's already the majority of our total mobile traffic Thank you. We'll continue the next question. The next question comes from the line of Eli Chi from Oppenheimer. Please ask your question. Good morning, Robin, Jennifer and Sharon. I have 2 follow-up questions. First, relating to your international business, do you plan to build it on your own or are you seeking M and A opportunities? And secondarily, still relating to the margins, since you have performed a very strongly in first half, can we revisit your target, that you mentioned earlier in terms of your full year net income growth target? To your first question, I think we're, you know, the company had very strong core products and technologies, which we can leverage for the international marketplace, to the extent corporation or, M and A make sense to us. We remain open minded as always. To the margin question, I commented on that earlier, our strategic focus areas really changed. The plan to deploy resources to drive those focal areas will remain. So the plan hasn't really changed. For us, The way we manage business is drive top line growth and manage the expense. And these we don't have a specific margin target. And to the extent the performance today, I think we have delivered very solid to top line growth. And the expense and resource plans really unchanged. Thank you. The next question comes from the line of Wendy Huang from Standard Chartford. Please ask your question. Thank you. Congratulations on the strong results. I just to follow-up on the MA question. From your view, what are the missing pieces in Baidu's ecosystem today? And also, how would you actually differentiate your from other big internet companies in terms of your MA approach? And also in the longer term, what kind of a different internet ecosystem that you are going to build? Compared to other Internet companies? Thank you. There are missing pieces in our ecosystem, but we do not necessarily need to to make this up through M And to us. But I think, principally, we still rely on organic growth to to complete our overall strategy, be it mobile or otherwise. I think the key difference between the Baidu ecosystem and other ecosystems, out of the market is that we are more often open system, as I mentioned earlier, meaning that we work with many of the standard service formats like native app, we drive traffic to many of the native app apps. We are the largest app distribution provider. In China, we also have our optimism. We work with many of the service providers in that format too. We are also a search engine. So we do traffic to a lot of the mobile websites in standard HTML5 formats. Longer term, we believe an open ecosystem will be more powerful, more popular. If you look at the mobile operating system, you can see that Android is much more popular than than I'll ask because it's more of an open system. Thank you. Your next question comes from the line of Piyush Mubay from Goldman Sachs. Please ask your question. You for taking my question. Robin, you talked about the fact that in the second quarter, you've seen the automobile sector kick in and with increased from 2 participants there. I'm curious whether you're seeing this happen in other verticals? And also I'm curious whether give us a sense of what the split is between SOEs and non SOE from either traffic perspective or revenue perspective? Thank you. Yeah. I used to, Automobile as an example for the vertical content providers or partners, but we yes, we do partner other content and service providers seeing other verticals I mentioned healthcare, e Commerce, and many others. So the philosophy is the same. If they're any vertical players, who, have better user experience, better, data, better content, we would like work with them. And in the meantime, that will provide more revenue opportunities for us. On the SOE and non SOE, we don't classify our advertisers and customer this way. But I would guess that a super majority of our customers are non SOE. Thank you. The next questions come from the line of Josh Charles from Macquarie. Please ask your question. Hi. Thank you for taking my questions. I have a couple as well. Ruben, you mentioned earlier about the city level bidding, about 25% of your customers are already adopting a city level bidding. I was hoping you can share with your view on local classified ad market. We don't know if that market will be augmenting your CD level bidding or it may compete with your CD level bidding? That's my first question. Thank you. Yes. I think the civil level bidding is predominantly, used by our existing customers. And, yes, we are signing up new customers too, but it's still quite different from the local classified. We aren't targeting a smaller ticket and more fragmented market, which is not the mainstream of our customer base. Thank you. The next question comes from the line of Ming Zhou from 86Research. Ask your question. Thanks. I just have a housekeeping question. We see that the R and D expense and the CapEx up pretty significantly quarter over quarter. Just wonder if you could share us actually with us the major components in there. Thanks. Hi, Ming. We continue to invest as I mentioned in R&D And Infrastructure and VADAF is our core competency and focus. R and D, we did add additional headcounts, during the quarter, and the R and D expense line item is predominantly people related. CapEx, bear in mind, CapEx in this year, other than the normal, servers and data centers, data a network that we acquire for our CapEx purposes. There's also construction related expense line item is construction related to CapEx as well. As I indicated at the beginning of the year, From an infrastructure network investment perspective, it's not going to be too much different from prior years and any incremental CapEx would be more construction related. Ask your question. Thank you, Robin, Jennifer, and Sharon, and congratulations for a strong quarter. My question, there are 2. We saw very strong growth in average revenue per customer this quarter And just wondering if management can give some more color on what was driving this? Was it mainly due to the advertising budget placed in the mobile search area. And the second question is related to mobile game. Given the consolidation of Baidu Zhu and 91 wireless, can management give us some more detail on Baidu's positioning in the mobile game value chain. And eventually, Will Baidu management consider going into content development in mobile game as well. Thank you. Okay. On the ARPU growth, I think the trend has been for a number of quarters. Mobile certainly contributed to that, but I think overall, the nature of the search business is that as long as you have the traffic, the demand is there, customers just cannot buy enough amount of traffic and So this has been the case for many, many years. We just need to come up with the necessary product, the necessary format and try to educate our customers to take advantage of our platform. So mobile is the driver, but the trend is the nature of the business has been like that for many years. On mobile games, as you know, that we are the largest distribute thereof for native apps. The base model for app distribution compress us off 2 major categories. 1 is the advertising, which is our main business, but a different format, which is distributing native apps. The other is mobile games, because we have such large distribution in power, we naturally would be able to take a off this by running mobile games. We currently do not have any plan to our own Hi, good morning, Robin, Jennifer and Sharon. Thanks for taking my question. And also congrats on this very strong quarter. I question is about your customer volume growth. Could you comment on, that as this has been the decelerating for the past couple of quarters. Would you expect any recovery in terms of full rate forecasting of volume? Thank you. Did you get the question? Personal cloud, definitely, I think I think he's asking for PCS. Philip, were you asking about the personal cloud service? So, in general, the customer volume growth It has been slowing down for the past couple of quarters. Yeah. So, I know there has been some cleanup, initiative past several quarters. So what should we expect for the customer growth trend going forward? As you know, that we have been tightening our criteria in terms of customers that slowed down the customer growth a little bit over the past year or so. I think that kind of process have largely completed during the second quarter. So going forward, we do expect, continue the customer growth. But over the past few years, you have probably seeing our strategy shift from non bar of customers to ARPU and ARPU from from ARPU to a number of customers. Really depend on the market condition, the demand from our customers and our capacity to serve the customer's needs. So I wouldn't guarantee that, going forward, either the number of customers will grow faster or is it the average spending per customer will grow faster? It really and the market condition and our capacity. Thank you for the questions. The next question comes from the line of Chasang from HSBC. Please ask your question. Hello. Thanks for taking my question. Reservation has been a really good set of results. I had, the next just really one question. In terms of on the mobile TPC, I'm wondering sort of what's your current expectation in terms of if you think that mobile CPC will be able to reach parity or even sort of be higher than desktop CPC. And I'm wondering also, are there any component, are there any categories of mobile CTC today that are already more expensive than those types of CTC? Thank you very much. Yes. No, there are cases that, mobile CTC is already higher than desktop CPC today. But overall, like I said before, the mobile CPC is still lower. Than that desktop. I'm very optimistic about the future of mobile search in sense of monetization. I think people, have more devoted attention and communication on mobile is more natural So the conversion next year it can be better. But exactly when the CPCSOS mobile service at our PC, I would not speculate right now. I think our current priority is due to, innovate to make a better user experience for our mobile products, I think monetization will follow. Thank you for the questions. The next questions comes from the line of Eric Woon from China Renaissance. Please ask your question. Mr. When your line is open, please ask your question. We'll move on to the next questions The next question comes from the line of Chau Wang from Nomura. Please ask your question. Mister Wang from Nomura, your line is now open. You may unmute locally. We'll move on to the next questions. The next question comes from the line of Natalie Wu from CICC. Please ask your question. Hi, good morning Robin and Jennifer. Thanks for taking my question and congratulations on a solid quarter. Just wondering, I remember that you mentioned that the revenue generated from acquired companies like Iqiyi Chienow and 91 wireless countries for less than 10% in last quarter. So what is the latest status? I mean, the percentage of the revenue Thanks. And can you give us some color on the detailed compensation of TAC, what is weighed off mobile and TAS mobile and tech and what is the growth outlook? Thanks. To your question on the revenue contribution, we are the main entities that is outside, you know, the, the running as an independent companies are, IT and China. Is a public company. So you get an idea of their contribution and revenue level. And overall, IT, we don't we have never in the past a separate the contribution from these smaller entities. The point is there are disclosure requirements and threshold. And to the extent they are they do not account to the materiality level, there is no separate breakdowns. So the overall revenue, is predominantly continued to be searched and, are the strong growth that you're seeing is mainly because the strong, search business and mobile search business, and that is really, going very well. To your on TAG, I did mention earlier, the TAG increase as a percent of revenue is mainly because of increased contractual revenue contribution as well as, mobile revenue contribution and how 1 to 3 promotion. There's no real separate breakdowns, but these are the 3 main items that drives the movement of tech. Thank you for the questions. The next question comes from the line of John Choi from Daiwa. Please ask your question. Hi, good morning and congratulations on a very strong quarter and thanks for taking my question. My question is on the content cost. If you look into 2nd quarter numbers, it's were down on on quarter basis. Is it just because simply on, it was more of a seasonal effect. IQI was less aggressive in acquiring content And also, the second question is regards to that. We're also hearing that IQI will be launching in house film studios and could produce several film Will this be something of a long term strategy and impact your cost line going forward? That's it. The content cost is mainly related to IKE, and the fresh content is very important, for It is a platform that require, basically, the license to content and also complemented by self produced content and the user generated content. Content cost can be, a bit lumpy quarter over quarter, but, clearly, we are committed to having fresh content leadership position. It will be a complement of different items. We're not slowing down content mission. And in absolute dollar terms, the IT is not going down content cost. So quarter over quarter variations, there's really not any strong indications that you should read to. Thank you. The next question comes from the line of Josh Askew from Stifel. Please ask your question. Two quick questions. First, on user behavior, what if you can give us a little color on the number average number of searches for top user, just kind of user behavior there. 2nd question, you mentioned, that you had a couple of exclusive games in the quarter Are those Thank you very much. On the user behavior question, number of searches per user mobile is, less than, that desktop right now. I think, it's easy to understand that, people generally would like to sit in front of desktop you know, when they are serious about something they want to do research, they want to spend a lot of time to, to draw their conclusion So that will increase the number of searches, per user. Whereas for our mobile, people more instant once they have anything in mind that they co opted as the phone and do a search and get the quick answer as they're that, by nature, the number of searches, mobile is smaller. And, to the question, if I understand your question. The game revenue is recognized on a net basis. Thank you. And our next question comes from Tian Hou from T. H. Capital. Please ask your question. Thank you for taking my question. So Jennifer, I have a question related to your traffic acquisition costs. So one driver the traffic acquisition cost to go off was the contextual ads. So as you further develop contextual ads. And to show expect, you know, this contact to app further drive up the traffic acquisition costs and also as, as today, what's the percentage of a contact to ads contribute to the total revenue? So going forward, what is our outlook, what is, you know, at the mature level, how much contact to us will contribute to total revenue? That's my question. Great. Contextual business has been the business focus for us for a couple years. And it is the phenomenal product because this generates incremental revenue for us we do share the benefit with the union parties and hence the traffic acquisition cost. Over the years, we've been growing the contextual business and the potential for that will continue to be huge. As we think about it, not only in PC world, in the mobile stage, whether it's in the, union partnerships in the forms, even in native apps, there'll be in app, contextual ads related revenue that can be generated. So we continue to improve our technology at the same time, occupy ad space where we can promote our advertisers, products and services. And to date, the, the contextual business has been going to be a very meaningful part of the overall revenue that comes from union related businesses. No separate breakdown for them, but this is one of the, obviously, the driver and also the faster growing segment of our business. And it will continue to have potential. Thank you. Next, we have follow-up questions from Dick Wei from Credit Suisse. Please ask your question. Hi, thanks for taking my questions. Just wanted to see on the mobile revenue side, if we were to break out a different advertising format, maybe on a cost per call or cost per click or cost per download or fixed fee model, how are those mix we are looking at right now and And which ones would be the more faster going format going forward? Thank you. Dick, I think, it's probably too early to draw conclusion on that. We are, experimenting all kinds of different ad formats. And we are also constantly changing the formats too all of those click to call, click to action formats are welcomed by most of our customers. I think the nature of mobile is that it enables easy communication between, potential customers and merchants. But exactly going forward, what's going to be the mainstream format It's remained to be saying. We're still doing all kinds of experiments to get a better sense on the conversion. And I also mentioned earlier that an ideal situation would be a closed loop. We will be able to track the from query to fulfillment. In that case, the format could differ from to mathematically from the existing click to call format So I think we should wait for, a few quarters to give you better sense on that kind of trend. Thank you. The last question comes from the line John Shao from Macquarie. Please ask your question. Thank you for taking my follow-up. At the beginning of the year, you thought this year you are not expecting any profit growth. I was wondering, does that still hold? You feel like the first half margins may be the baseline for Baidu going forward? Thank you. Yes, I think, Jun, we've commented on that question two times in the call. Areas, strategic focal areas that will require, resource deployment. That plan hasn't really changed. At the same time, we're very pleased to see that the top line is growing very solidly. And as we look into Q3 and that, momentum will continue to carrying. Naturally, whatever the operating, margin or, profit will be is just the falloff of the top line and the expense is. Thank you. Ladies and gentlemen, thank you for your participation in today's conference. This concludes the presentation. You may now disconnect.