Earnings Call: Q1 2014

Apr 25, 2014

Earnings release

Hello, and thank you for standing by for Baidu's 1st Quarter 2014 Earnings Conference Call. At this time, all participants are in a listen only mode. Today's conference is being recorded. I would now like turn the meeting over to your host for today's conference, Ms. Sharon Ng, Baidu's Senior Manager of Investor Relations. Hello, everyone, and welcome to Baidu's first quarter 2014 earnings conference call. Baidu's earnings release was distributed earlier today you can find a copy on our website, as well as on Newswire Services. Today, you will hear from Robin Lee, Baidu's Senior Executive Chief Executive Officer and Jennifer Lee Baidu's Chief Financial Officer. After their prepared remarks, Robin and Jennifer will answer your questions. Before we continue, please note that the discussion today will contain forward looking statements made under the Safe Harbor provisions of the U. S. Private Securities Litigation Reform Act of 1995. Forward looking statements are subject to risks and uncertainties that may cause actual results to differ materially from our current patients. 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 a reconciliation of the unaudited non GAAP measures to the unaudited most directly comparable GAAP measures and is available on our IR website at ir.52.com. As a reminder, this conference is being recorded. In addition, a webcast of this conference call will all be available on Baidu's IR website. I will now turn the call over to Baidu's CEO, Robin Maine. Hello, everyone, and thanks for joining today's call. We had a great start to the year, delivering accelerated year over year revenue growth for the 3rd consecutive quarter. The strong performance was driven mainly by our core search business, with mobile revenue maintaining strong momentum. This year, we continue to invest heavily to take Baidu's spends to the next level. As we outlined last quarter, we think of our opportunity in terms of 5 strategic areas. Search, mobile and cloud, location based services, consumer products, and international. In addition, we have invested entities in important growth sectors most notably Tunar and Iqiyi that are already recognized to leaders. These investments will pay off over different time horizons. In each case, we believe the long term opportunity is huge. For a while now, we've been witnessing the internet, taking a bigger slice of the traditional economy and broadening its role across a multitude of sectors like media, retail, travel, financial, and local services. In China, as its young market economy and less entrenched, less competitive traditional industries, This is happening at In parallel, the internet is playing a bigger role in people's daily lives with mobile enabling users to stay connected and in time anywhere. For Baidu, this is an incredible opportunity to fully realize the potential of our broad ecosystem. Spanning, media, social, online tools and all kinds of verticals. As a leading cross platform information gateway with the core of world class technology, more than ever before, we are connecting intent to action and taking users all the way from search query to physical or virtual fulfillment. With that, let's take a closer look at some of the recent key developments started with our core search offering. We are encouraged to see both PC and mobile search traffic maintaining solid growth. With our combined share of PC and mobile search page fields standing at 73% according to Analysis International. In Q1, mobile search was again the main driver of page view growth, and we expect it to surpass TC has the biggest source of search traffic later this year. The overall search market in PC as well as in mobile still has much more room to expand. In mobile search, we are the clear market leader and continue to gain share In Q1, we reached the 160,000,000 daily active mobile search users, up from 130,000,000 to quarters ago. As we continue to improve our offering and strengthen channel distribution. On the product end, we generated faster load speeds and further optimized ad formats on search page. Making click to call, click to download buttons as well as location extensions more prominent. We also brought to the mobile channel customized the vertical results for healthcare, e Commerce, and education previously available only on PC. Since the end of last year, our flagship search app has been the largest and fastest growing source of mobile search traffic and daily active users. We are now we've now made the experience richer and more personalized users can now add cards, hop trending topics, video and other content to the search home page, all of which is constantly refreshed. And as part of our Lighthouse initiative, the search app now integrates functions like Baidu Wallet, helping to bring users further into the Baidu ecosystem. On the monetization front, Baidu maintains the best platform to obtain cross channel leads. Payclicks, click through rates and CPM all grow nicely year on year in Q1. Driven by our investments in advanced technologies like deep learning and natural language processing. This quarter, we introduced an exciting new feature to our bidding system. Customers can now target users in specific cities as opposed to just at the provincial level. More targeted has helped drive higher ROI for customers and better experience for users. Mobile gave us key information like user location and contacts which enables us to target ads more efficiently. And we continue to receive great feedback from customers who are seeing strong ROI from the mobile channel. Key metrics such as the percentage of customers is mobile optimized landing pages, Presented of revenue from mobile landing pages and landing page quality are all trending higher. We are pleased with the progress we have made on mobile monetization so far, but we're just getting started. As the mobile ecosystem continues to mature and our customers see stronger and stronger ROI from mobile, we expect that the CPC gap between PC and mobile will continue to narrow. On the trust and safety front, our PASB verification program is now fully rolled out and now only customers that have plus fee verification can empathize our search page. We expect customer growth to resume in Q1. At the end of 2013, Baidu had already become the leader in app distribution in China. In Q1, we extended our lead, surpassing 100,000,000 app downloads on a daily basis. Just two quarters into our integration with 91 wireless, Baidu's app distribution capability has made huge steps forward As the integration continues, we expect to realize significant value in this important space. Our personal cloud storage product, which provides a seamless user experience across devices, has also demonstrated strong momentum. In Q1, it had 160,000,000 registered users which is a 60% increase adjusted 2 quarters from just two quarters ago. Over the same period, the total number of files uploaded more than portables, as users trusted Baidu Cloud with their files across a wide range of formats from music playlists and videos to photos and documents. AlBS and online to offline represents a huge opportunity for Baidu. For our existing customer base, of large to small and medium sized enterprises and new potential customers such as local merchants, Baidu's capability to connect query to fulfillment is an extremely powerful value proposition. In Q1, Baidu's LBS offering continued to make impressive progress as our mobile maps extending its lead by gaining market share. Monthly active users on Baidu Maps for mobile grew to nearly CNY 190,000,000, a 30% increase from the previous quarter. The number of transactions on our map platform, including hotel bookings, movie ticket purchases, group buying, and tax savings grow by over 80 percent quarter on quarter. And we are constantly expanding our point of interest to database, already the largest day in the industry and adding ever richer content. In the first quarter, we merged our Baidu Group buying platform with Nomi, rebranding the platform as Baidu Nomi. And we have seen solid growth throughout the integration process. Baidu will continue to leverage our vast traffic resources and extensive Salesforce infrastructure to help Nomi scale up quickly. We are confident that Baidu Nomi is in a great position to lead timeless growing group buying market. In consumer products, this quarter we consolidated our online games operations, combining dual cool and 91 wireless. Our gaming business is growing quickly and we expect its contribution to grow more meaningful in quarters ahead. This quarter, we also added more high quality content to our online literature operations, integrating Zhonghong, 1 of China's largest online literature sites onto the platform. Now to update you on our online video operations. IKE's Q1 performance was very impressive. With the hip show, I, Parliament 4, and the career drama, you came from the stars helping to make it China's market leader. IKE is our number 1 in PC monthly and daily unique visitors and number 1 in both PCs and mobile by monthly time spent according to high research. The long term prospects for online video and ITE are very attractive and we remain supportive of the platform. To sum up, The year has gotten off to a strong start and everything we've seen keeps us excited about Baidu's prospects for continued growth. We think terrific returns on the investment we've made. They've enabled us to tap into rich themes of opportunity. And we will keep investing in key areas to fully exploit those fast opportunities. Meanwhile, we continue to Lansend our lead as the dominant cross channel information gateway. Our core strength in technology powers our platform as truly indispensable to China's internet users, an integral part of their digital life and becoming ever more integral as Baidu will bring users further into our ecosystem. With that, I'll turn the call over to Jennifer for a rundown of our financial performance in Q1. Thank you, Robin. Hello, everyone. We're excited to have started 2014 with a strong set of results. With growth from our core business driving robust helpline growth. Integration of our acquired businesses 91 wireless and Naomi progresses smoothly, and those businesses, along with our invested entities, are contributing to the overall picture. The Baidu ecosystem today is broader than ever. While we continue to invest in improvements to our technology, it remains equally important to drive awareness and adoption of our existing services. As such, spending on sales and marketing, R and D and the TAC increase in the first quarter. And we set up our marketing efforts around the Chinese New Year period to promote our mobile products. These sorts of investments are absolutely necessary and directly contribute to the growth of our business. To support our growth momentum, we remain prepared to deploy cash aggressively where needed. Now moving to the financials. All monetary amounts are in RMB unless otherwise stated. For the first quarter, total revenues were 9,500,000,000, representing a 59% increase year over year. During the first quarter, I do had approximately 446,000 active online marketing customers, a 9% increase from the corresponding period in 2013 and a 1% decrease from the previous quarter. Revenue per online marketing customer for the first quarter was 2900, a 44% increase from the corresponding period in 2013 and flat from the previous quarter. Traffic acquisition costs as a component of cost of revenue in Q1 was RMB1.2 billion or 12.4 percent of total revenues. Compared to 10.2% in the corresponding period in 2013. The increase was mainly due to increased contractual act contributions and how one to pay promotions through our network. Bandwidth and depreciation cost as a percent of revenues in Q1 was 6.8% and 4.5% respectively compared to 6.8% and 5.6% in the corresponding period in 2013. Content cost as a component of cost of revenues were 394,000,000 representing 4.1% of total revenues compared to 1.6% in the corresponding period in 2017. This increase was mainly due to IT's increased content cost. Selling, general and administrative expenses in Q1 were 2,000,000,000 an increase of 137 percent year over year. The increase was mainly due to an increase in promotional spend, especially for R and D expenses in Q1 were RMB1.3 billion, an increase of 57% over the corresponding period last year. The increase was mainly due to an increase in the number of R And D personnel Service compensation expenses, which were allocated to related operating costs and expense line items, decreased in aggregate to RMB169 1,000,000 in the first quarter from RMB111 1,000,000 in the Easter funding period last year. FDC increased due to more shares being granted to Baidu employees. Operating profit in Q1 was $2,400,000,000, a increase of 7% over Q1, twenty thirteen. Total headcount on a consolidated basis, including invested entities, was about 34,600 as of the end of Q1. This represents an increase of 9% as compared to the period last last quarter. Income tax expense was $430,000,000 for the 1st quarter, The effective tax rate for the first quarter was 15.1% compared to 16.2% in Q1 twenty thirteen. Net income attributable to Baidu for Q1 was RMB2.5 billion, a 24% increase from the corresponding period in 2013. Basic and diluted earnings attributable to Baidu per ADS for the first quarter amounted to 7.24and7.21, respectively. Net income attributable to Baidu, excluding share based compensation expenses, a non GAAP measure for Q1 was $2,700,000,000, a 26% increase year over year. Basic and diluted earnings attributable to Baidu per ADS Excluding share based compensation expenses, both non GAAP measures were 7.72% and 7.69%, respectively. As of Q1, the company had cash, cash equivalents and short term investments of 39,700,000,000 Net operating cash inflow and capital expenditures for the first quarter were RMB3.6 billion and RMB1 billion, respectively. Now let me provide you with our top line guidance for the second quarter of 2014. We currently expect total revenues for the second quarter to be between 11.8200000000012.11000000000, representing a 56.3 to 60.2% year over year increase. Please note, this forecast reflects Baidu's current and preliminary view. And it's subject to change. Operator, please go ahead. The question and answer session of this conference call will start in a moment. In order to be fair to all callers, we wish to ask questions we'll take one question at a time from each caller. Your first question today comes from the line of Phillip Huang from Morgan Stanley. Philip Please go ahead. Hi, good morning. Thank you for taking my question. My question is about the looking at the average revenue per customer which has been expanding pretty strongly over the past couple of quarters. I wonder if you could give us more color about this, the drivers behind, in particular, what has been the trend for your PC slash monetization? Overall, the number of customer, the base, the customer base, and our pool contributes to the, top line growth. Over the past few quarters, as you know, that we have been strengthening the quality of our customer base, with the Plus V initiatives. And the with the higher quality of customers and really good ROIs, that's the really the true merits of the platform, the ARPU continues to grow strongly. The customers really adopt the customer's adoption of the mobile bidding the mobile, search product is really terrific and the mobile revenue growth is really the, the stronger and the fastest growth sector. Overall, the PC monetization capabilities continues to improve and stepping up and, you know, both the PC front and the mobile front, the monetization capability has enhanced over the quarters And the PCs, I would say the PC monetization progress is also very impressive. Your next question today comes online of Eddie Lewis from Merrill Lynch. Eddie. Please go ahead. Hey, good morning. Robin Jennifer and Sharon. I have a question about your mobile pre regulation program. Wondering if you can, give us some more color on the long term defect list of your preinstallation program. To be more specific, do you think, preinstallations will always be needed given, users, changing their handsets, quite frequently, or is there any evidence that you have seen suggesting that, preinstallations and then the follow-up use experience could actually increase the so called repeat customer rate. So any color would be helpful on that front? Thanks. Yes, Eddie, think the mobile market and mobile industry continue to evolve very quickly in the past couple of years, most of the users when they switch phones, they switch to from, function, from feature phones to to smartphones. During those kind of process, pre state and pre installation, it's very essential. We need to get users to, have a chance to try our apps, our services going forward, more often, the users will, switch phones from one smartphone to the next smartphone. They already many of them already are familiar with, services for apps we offer. So a brand is going to play a bigger role in their future decisions to use all kinds of apps and service So yes, I think going forward, preinstallation may not be as important as it was before. But branding quality of services, will be increasingly more important to us. Thank you. That's very helpful. Your next question today comes from the line of Alan Hellowel from Deutsche Bank. Alan, please go ahead. Thank you. I hope you can hear me reconnection on my side. We mentioned earlier that this year range of announced transactions that have emerged such as a hotel bookings. We've probably set up a Can you talk about the GMV that has occurred on Baidu Maps in the first quarter and what we can expect for full year 2013? Thank you. Yeah. Alan, you were kind of breaking up, but I I kind of got it. The question. Like I said during the prepared remarks, the transaction volume on the Baidu, AlBS platform has growing very significantly roughly 80% quarter on quarter. So we are very happy about the progress. We choose not to disclose the GMV at this point, because it's relatively early. We believe we are roughly number 3 in the group buying market right now, but quickly catching up. We have a very strong, platform. You know, lots of users come to Baidu through Baidu search, Baidu Maps and many other apps and services, they search for local related information. And, we have the, we need to build the capability to satisfy those kind of needs, not just in terms of information, but also, services So, Baidu Naomi and the overall, AlBS related services is trying to to meet those kind of needs. Right now, we have a lot of room for improvement, in terms of operation efficiency And going forward, that will be the focus too. We will continue to give you updates on the status and when appropriate, we are disclosed at GM Way. Thank you. Your next question today comes from the line of Dick Wei from Credit Suisse. Dick. Please go ahead. Great. Thank you for taking my questions. I have questions on the PCM mobile traffic. I wonder if you can share, with some of the new, mobile installation, what kind of organic traffic versus, like, in organic traffic, if you would, the traffic contributions on the mobile front as well as maybe on the PC side with the expanded, the affiliate the context of search program? Thank you. Yeah. I think, on PC, organic, represents a super majority of the overall traffic on mobile because, the early stage nature of the market, we had a lot of, you know, preinstallations And, we also rely on, 3rd party channels, like 3rd party browsers to, to drive traffic It's a little bit mixed, but the largest traffic source on mobile, search traffic source on mobile, also comes from the Baidu search app, which, which is part of the organic traffic We also have organic traffic from other channels, including browsers, users may explicitly choose, baidu.com, as their their search, tool choice. So we are quite happy with the progress we have made for mobile search. We believe the organic part will continue to grow at a faster pace. Great. And just a quick follow-up, one day if you can share the mobile search traffic ratio out of the total traffic? It is growing quite quickly, it is not larger than the PC traffic yet, but we do expect mobile will surpass some time this year. Great. Thanks a lot, Roman, and congrats on a good quarter and guidance. Thank you, Jay. Your next question today comes from the line of Zhongshao from Macquarie. Please go ahead. Good morning. Thank you for taking my question. My question is on your margins and the congratulations on a very strong results first for Q1. The margins for Q1 was actually better, much better than what we forecasted. But I was just wondering whether or not you still maintain the flat profit growth for this year. If that's the case, looks like expenses investment will accelerate for the rest of the year. What are some of the areas you're looking to accelerate the investments? Yes. Hi, John. We provided some comments last quarter giving you some ideas as to the margin levels where the profit levels last quarter. And that kind of commentary is still safe. As I mentioned, this is a critical year and it's an important year for investment. We have identified 5 strategic focal areas, and we're making terrific growth on each front. And the Q1, obviously, is the seasonal there is also variations for a sales and marketing spend when it relates to, events, activities or campaigns that we carry out. And so for Q1, it is just all the activities that we thought were meaningful for us. We conducted throughout the year, we'll be having more efforts focusing on branding as well as, making our products available to the end users, all kinds of products, particularly, with the mobile focus. And these kind of products, really stand from not only mobile search but like our mobile assistant, our mobile guardian, our map, our group buy products, and some of our consumer products. So it's a wider spectrum of products that we offer at the same time we're building, branding. So it's the some of variations throughout the year, as you look at operating expenses, the main drivers will be sales and marketing. And the patterns that you have seen in last year, it can, it does vary quarter over quarter. So even though Q1 might be seasonally from a revenue standpoint and margin standpoint, a low quarter in Peachtree. It may not be cool. It may not be true this this year. So for the whole year, the comment still stands. Okay, great. Thanks for the helpful comments. Question today comes from the line of Alicia Yap from Barclays. Alicia, please go ahead. Hi, Thank you. Good morning, Robin, Jennifer and Sharon. Congratulations on the good results. I think my question is, as we continue to panel into the O2O business expansion. Is there any complementary business that Baidu would like to strengthen in the area? For example, is there any need to getting into the classified Worvicker site? And similar to that, given there were recently some reported news on whether it's true or not, but do potential interest in investing or partnering with Ctrip and any possibility of the combinations of future and Trina, I appreciate if any comment on clarity from the management. Thank you. Make sure our 0 to o, mainly right now, focused on map, in terms of user products and, grew buying in terms of, commercial products. We think, yeah, a lot of things we could do. In this too important to, areas. Of course, we always try to satisfy all kinds of, location based, just needs for our users, be it takeout or movie tickets or whatever. So we will continue to add features to our, math and other existing, services to serve our users better. But our focus in terms of commercial activities, well beyond on group buying Regarding to the Ctrip Chinar thing, as you would expect, we do not comment rumors, but, I can tell you that travel is an important, strategic area for Baidu, we will continue to support, Xunar to, serve, the the users on Baidu I'll tune out better. Thank you. Your next question today comes from the line of Wendy Huang from Sandeep chatterbank. Wendy, please go ahead. Thank you. I wonder if you can comment on the loss magnitude of your non search business and when should we start to see the loss contribution from those announcements such as video and there's a tune out to narrow down. Thank you. I think, Wendy, some of the, entities, like you mentioned, video, and even travel. And, you know, these are important strategic verticals. And we have already established a pretty good leading position in the marketplace and we'll continue to support these entities. These are important, strategic focal areas for our overall value proposition and, and the platform. And, they are making great progress. We're pleased with the progress. And, and, you know, given time, they have business model. And, you know, given time, the, as they merge to be the market leader and continues to scale, profitability will improve. But at this point, that is not really the focus area. And for other strategic important areas such as LBS, such as consumer products, these are important of long term initiatives And it's early for us to expect profitability. But I think on the product front and the user accumulation front, all these funds are making terrific progress. And, and over time, they will starting to play bigger important roles in the overall revenue contribution. Thanks, Jennifer. I will go back to the queue. Your next question today comes from the line of Eric Wen from China Renaissance. Eric, please go ahead. Thanks very much for taking my questions and congratulations on a great quarter and the guidance. I have a question regarding the hardware space. I noticed that there has been, a lot of activities, from companies like Xiaomi, in, in terms of loading out home routers. As well as other, earlier hardware. I noticed that Baidu has also recently, taking, undertaking a lot of activities in launching individual, hardware products, what is the overall strategy for Baidu in the hardware space? Eric, we think, there will be a lot of, opportunities being intelligent, hard work, smart hardware. But Baidu is pretty much a software and platform company. So we try to come up with, necessary software and, systems, so that, we can we can partner with those hardware manufacturers and, foster, healthier, stronger ecosystem, around our, platform. So, we do not try to get into this area in any significant way directly, but, we should benefit from the, the growth of the hardware industry. Okay. Thank you. Your next question today comes from the line of Cynthia Meng from Jefferies. Cynthia. Please go ahead. Good morning. Thank you, Jennifer, Robin and Sharon for giving me the chance. I have a question on the Internet finance. What is Baidu's strategy on finance Internet finance and how do you see the potential regulatory risks there, we understand that Baidu is in the progress of applying for financial licenses. Thank you. Yes, we think the Internet finance represents another huge opportunity for, China And, since we have a large user base, we are evaluating ways to, to tap into the area. I think the most fundamental thing is that, we need to have a payment method which we launched in Q1, by the Wallet. This will help to make a closed loop between the user query and service fulfillment. So we recently integrated Baidu Wallet into the Baidu search app so that users, when when they search, they can also pay for services there. But I don't, count that as Internet finance. It's more an office way to, help our users to pay for our services. We are still evaluating and exploring all kinds of, to finance related services that when there is more solid progress, updates you and give you more details. Your next question today comes from the line of Ella Gee from Oppenheimer. Good morning, Robin, Jennifer and Sharon. My question is regarding the Baidu Wallet, which you just launched. Can you share with us some initial signs of, like number of merchants signed up for your services and also the user activity And also, some companies would love to use some marketing strategies such as sending out a homebuy to attract the users quickly. Do will you consider that? And if so, I wonder if you have factored in a budget in your sales and marketing? Thank you. Well, Baidu Wallet was just integrated into, the Baidu search app a couple of weeks ago we are going to do some marketing events to, to help users to get familiar with the, the way Baidu Wallet works and how convenient it is when it's integrated into, the Baidu search ads. But we think payment is very much, scenario driven, context driven, we have no plans to come up with a game like, marketing event to promote this product, we try to facilitate users' real needs by identifying, when and where the users really need a payment, system. Your next question today comes online up Piyush Mubay from Goldman Sachs of Piyush. Please go ahead. Thank you, Robin. Thank you, Jennifer. Congratulations on a great set of numbers. Could you help us think about how we can break SG and A down between the percentage that is being used to change user behavior such as pre installs? And could potentially go away and the rest of the SG and A part? Thank you. I'll see if you you see the step up in SG And A that predominantly that is because of increased promotional expenses. And the majority of the increased promotional expenses are, are for installation. And we are in we have been over the past few quarters still in the stage of, of making sure our product are available in front of the users and they get in the habit of using it. At the same time, we started to kick in branding efforts bringing efforts like, you know, over the past, Chinese New Year, to, to, to increase awareness for and the brand awareness for Baidu Search products, mobile guardian products like that. And as Rodney mentioned earlier, You know, I think at this stage, the installation is still pretty key. And, and, and, over time, the branding efforts will be the more focal point, for sales and marketing expenses. It's, it's early to say that the overall sales and marketing expenses would, would the decrease this year as you see the guidance that comments that we provided, we will still be very strong and aggressive in pushing for sales and marketing both on the installation front and the brand awareness front. And over time, I think that the brand awareness front will be, the more, focal spending areas. Would it be a right conclusion from your comments that pre installs unnecessary in round 1 and when users switch to a second smartphone, then they're already used to preempt to a Baidu app and they'll automatically download it. Would that be the right thinking? I would say that would be our hope and expectations. Your next question today comes from the line of Thomas Chung from Bank of China. Thomas, please go ahead. Hi, good morning and thanks for taking my questions. I have 2 questions. My first question is about your landing page strategy. I can more than comment about apart from travel, which are the verticals do you think are very important in future? And my second question is, if you look at your 2nd quarter guidance, it still has a very strong year on year growth. Can management provide some color about if we exclude some of the acquisitions like 91 wireless, IQI, how should we think about the core organic business growth in the 2nd quarter? Thanks. In terms of landing page strategy, you know, we already have the travel and video. And I mentioned that IT is leading in, many offices, the most critical metrics for, for online video. There are many, many other verticals, that has a lot of potential and, synergy with Baidu. We some of the areas we will try to develop by ourselves, some of the areas we, may be able to to buy, from the market. The important one, but I would think, would include, the health care education, finance, and many others. So, I wouldn't, just limit us into, the areas we mentioned that we will, constantly evaluate and, review all kinds of vertical opportunities. And with regards to your second question, the guidance we provided for Q2, we believe it's a it's our best guess it is a strong guidance. It is predominantly very much driven by the core business. Our core business, as you can imagine, on the mobile front is growing very fast and that's really the whole core business is accelerating. And that's the underlying driver for the overall acceleration of our revenue growth. The some of the invested entities like ITE was already fully consolidated last year. So on a year over year basis, it is comparable. Some of the new acquisitions like a 91 wireless, in some, the level, as you would have some publicly a affordable information is relatively really small. So that in itself is not going to move the needle for Q2 guidance on a year over year basis that much. And so I would say the strong guidance that we provided for Q2 is very much driven by the core business. Your next question today comes from the line of Alex Yao from JP Morgan. Alex, please go ahead. Hi, good morning everyone and congrats on a very strong quarter. Can you comment on the significance and the importance of your union business mobile versus PC is the union business structure difficult to do on mobile because of smaller screen or because of the apps centric user behavior at this stage? Or, have you been able to identify a mobile unit unique way to do the union business on mobile? Thank you. The union network continues to be a very important part of our overall strategy and we continue to leverage unique network, to, to promote our products. On the PC front, we have established a pretty massive union network. And through the network, I think predominantly, as you see Tag as a percent of the increase, we drive incremental revenue like contextual ads, And we also use the network to promote products like how 1, 2, 3. On the mobile front, some of the tag expenses would relate to, certain business that comes from some browser partners and there will be a little bit of a revenue split related to that. And that would drive the, the tag ratio, potentially. That hasn't been the main driver. And I would say, overall, the union network is important, not only because of those browser type of union partners, There are also many, union potential partners that we could befriend with and we could, you know, launch a contextual ad kind of business in other mobile partners, like in app advertising, for example, And those, you know, we do have the best technology, the biggest, the advertiser base. And, you know, the, we can target those kind businesses through our network of partners, and that can drive incremental revenue for us. So I would say overall, the union network continues to be very important and equally for mobile that carries incremental opportunities for us. And its contributions from, the union partners on the mobile front also increased and that would be happy spend for us. Next question today comes from the line of Chi Sam from HSBC. Chi. Please go ahead. Good morning. Thanks for taking my question. I have two quick questions. Firstly, I'm wondering, given the 100 and 3,000,000 DAU in mobile search. I was wondering if you could give us maybe a split between the app and that's coming from your own browser and as a third party browser. And secondly, I'm wondering in terms of, can you give us a rough sense of how many apps were preinstalled in the first quarter and also sort of cumulatively, given the spending on pre installation, how many apps have you actually preinstalled cumulatively? Thank you. On the, CAU distribution, I already mentioned that, own search app. I do search, represents the largest portion. Among all the the search traffic and, it is also the fastest growing one. It is, we also have other type of, you know, organic traffic from, channels like 3rd party browsers, people would type in baidu.com to, to, search especially on the on the iOS platform. I think, those users are more sophisticated, does he understand the brand, does the, quality of the search? Whereas we, we also partner with, other, different channels to, to drive search traffic to us. But, like I said, none of them represent the largest part of our total traffic. I do not have the numbers for, apps installed, you know, during the the past quarter, it it's, it's a tricky, metric because, there will be phones to be replaced and, users have all kinds of, behavior, some of them would use, the channel they prefer to a third party browser or through a in Baidu search app or many other, ways. We also have our own browser Baidu browser. A lot of users comes through by new browser to, to search to. Your next question today comes from the line of Ming Zhao from 86Research. Ming, please go ahead. Thanks for taking my question. My question is about the number of customers. So this quarter, we saw some decline, understanding that there's quality improvement process going on and seasonality, but this quarterly number below $500,000 seems way small compared with the addressable market out there We have always heard that. So my question is, what measures, is Baidu taking to grow the number to a big level. Are we going to see some significant reacceleration this year? I think that you said in the prepared remarks that Now advertisers can buy ads at city level instead of a a previous level. Does that gonna help you penetrate the merchants in similar size to those unclassified sites? Thank you. Yeah. I think, the number of customers, well, resumed growth starting from, Q2, we we did, some, you know, house cleaning over the past few quarters. In terms of the absolute number of customers, I do agree that, we still have lots of potential But, our efforts need to focus on the overall, revenue opportunity instead of the pure number, of customers. And you're right when we allow customers to, to bid on, the city level, we are actually enlarging the potential customer pool, but that still is quite different from those classified, advertisers, we think we are targeting different segments, different nature of businesses. When you go down 1 one level, down further, that will be the LBS business, which we are trying to, to tackle using the group buying, business like normally. Your next question today comes from the line of Chau Wang from Nomura. Chow, please go ahead. Hello, Chow. Your line is now open. Hi, thank you for taking my question. Actually, do you expect the recent anti monopoly activities taken by the government to have any impact on your video and literature business. Thank you. There has been no impact on our business. Next question. Your next question comes from the line of Tian Hou from T. H. Capital. Tian, please go ahead. Hi, Robin, Jennifer and Sharon. Congratulations on a good quarter. So as a question related to your online radio business, So Q1 can actually was a good quarter for your online video traffic. There's a lot of I guess, really driven by the popular content like a eye apartment. So as what we see in the past, a lot of this traffic actually driven by those kinds of hit content. So it can come and go depends on the content is self. So when you spend a lot of money, you get a good content, you have a traffic. However, one day when you buy less good content or even by a good content, the traffic will go. So it's not permanent. It's come and go. And it's like a hit to miss driven. So what is, you know, so that is also one of the reason you increase a lot of content costs So I wonder what is the long and permanent strategy to really break this kind of cost spending cycle for the online video business to go towards profitability. What's the strategy for IT? Before for Baidu? Yeah, Tianna, I think you are right. The video business is kind of hit and miss, it's quite content driven, as listed in the past. But ours strategy is really connecting user demands with this, service fulfillment and we try to provide the best quality of service, including online video services so that the Iqiyi brand, it's a very, the best recognized brand in video. And when people search for relevant content, we show them the highest quality of video service they will be more satisfied, although the business is, pretty much content driven, but the content could be, available to multiple, video service providers in a lot of cases. So we do not expect, IT to win by unique content. We expect IT to win by, the, the, the strong, quality of service brand recognition and, user traffic we can drive to them. Your next question today comes from the line of John Choi from Daiwa. Mobile search pricing trend and also has it really the CPC gap between mobile and PC has narrowed down? Thank you. Yes, I mentioned that during the prepared remarks that the CPC gap between mobile and PC continue to narrow. All of the metrics we track for mobile monetization has been trending higher. So mobile traffic is growing very, very fast, but mobile monetization, is growing even faster. Your next question today comes from the line of Wendy Huang from Standard Chartered Bank. Wendy, please go ahead. Thank you for taking my follow-up questions. I think Robin, you mentioned previously that when it comes to the image strategy, you prefer to take the majority ownership of the investees. I think given the evolution of the China's internet market and also the increasing competition, for those valuable assets, are you still sticking to that kind of approach? Also, in your MA mapping, what are the posts that you're looking to fill in the future? Thank you. Well, that strategy is still holds. We do not try to be everything for everyone. We don't think that will work. When we look at, possible, you know, targets in terms of M and A, we, we, we value synergy the most. Whenever we can find a strong synergy, we, have a strong, you know, incentive to do a deal. When synergy is not that strong, we tend not to do the deal. And in minority investment, yearly, do not give you that kind of opportunity to integrate services So we try to avoid that kind of deals in terms of our product map, there are a lot of things we try to feel many of them, we rely on internal developments, but whenever there's an opportunity to buy we prefer to buy rather than build. We are now approaching the end of the conference call. I will now turn the call over to Baidu's Chief Executive Officer, Robin Li for his closing remarks. Once again, thank you for joining us today. Please do not hesitate to contact us if you have any further questions. Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect