Earnings Call: Q4 2013

Feb 27, 2014

Hello, and thank you for standing by for Baidu's 4th Quarter and Full Year 2013 Earnings Conference Call. At this time, all participants are in listen only mode. After management's prepared remarks, there will be a question and answer session. Today's conference is being recorded If you have any objections, you may disconnect at this time. I would now like to turn the meeting over to your host for today's conference, Ms. Sharon Ng. Baidu's Senior Manager of Investment Relations. Thank you. Please go ahead. Hello everyone, and welcome to Baidu's 4th quarter and full year 2013 earnings conference call. Baidu's earnings release was distributed earlier today and find a 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 their prepared remarks, Robin and Jennifer will answer your questions. Before we continue, please note that the discussion today 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 risk actual results to differ materially from our current expectation 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 statements, except as required under applicable law. Our earnings 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.baidu.com. As a reminder, this conference is being recorded. In addition, a webcast of this conference call will also be available on Fidu's IR website. I will now turn the call over to Baidu's CEO, Robin Lee. Hello, everyone, and thanks for joining today's call. 2013 was a milestone year for Baidu, marked by our entry into new areas and significant progress in mobile. We began the year with a lot of hard work to do, but also with some incredible opportunities ahead of us. Assessment industry shift presented us with a rare opportunity and we invested heavily to build out our position at key gateways to the internet, particularly in mobile We are pleased with how quickly this investment has gained traction resulting in a broader and deeper offering that positions us for continued industry leadership. During the year, we demonstrated not only solid top line growth, but an acceleration in our We showed progress in growing our mobile ecosystem and monetizing the mobile channel. By the end of the year, There were 14 Baidu apps with over 100,000,000 activated users. At of Q4, mobile accounted for over 20 percent of our total revenue. At the same time, we are investing heavily in key strategic areas. Search remains on our core bins and our dominance in both PC and mobile is unparalleled. To disrupt traditional industries and the internet's role in the real economy continues to spend. We are investing in new areas that capitalize on our unique position as the search leader in China and are very excited about the growth potential. So in addition to search, we are now also strategically focused on the following four areas: 1, mobile and cloud 2, location based services 3, consumer products including gaming, music, online literature, and social for international operations. We also have invested entities that are very strong in their respective industries of online travel and online video. We are leveraging our strengths in search in each of these areas, all of which represent large and the exciting opportunities. And we are confident that the investments we are making will generate significant returns for Baidu in the long run. Now to update you on the latest developments, starting from our core search offering. As of January, Research by Analysis International put Baidu's share of combined PC and mobile search traffic in China at 73% Our unrelenting focus on technology and user experience has made the Baidu brand name synonymous this search. You first come to us irrespective of channel. We view our search capability holistically and we tailor our search results to different devices for users equally on the customer side, Baidu is uniquely positioned to provide cross channel end to end marketing solutions in ROI and brand building. No other player in the market comes close to this type of integrated offering and we continue to read the bar. This last year, our investments in advanced technologies such as deep learning and natural language processing have brought far reaching benefits to both users and customers. On the user side, they allow us to deliver more accurate and relevant results through intuitive input methods like voice, OCR, and image recognition. An example of our image recognition technology is our Baidu Translate app, which enables both image recognition and translation. The updated version of the app enables youth to take a photo of an object, have it identified and see results in both Chinese and English. The user response has been great and further demonstrates our world class capability in artificial intelligence. On the customer side, this technology investments help generate higher click through rates by improving paid search relevancy, which in turn improves our monetization capability. We've also taken another step in enriching our search results by displaying thumbnail images alongside with title and summary. Currently, over 80% of Baidu searches return results with thumbnail images We've also introduced heat maps, which provide real time information on congestion levels at points of interest. To give you an example, if a user were to input the query, if the summer pallets crowded now, Baidu returns are mapped on the right hand side with color coding to indicate congestion levels as this particular Beijing tourist destination. This is a real testament to our powerful data science capabilities. Over the past few quarters, our rollout of commercial knowledge graph the customized search results for different verticals continue to enhance the user experience and create superior commercial value for customers. It now covers 6 key verticals, online gaming, healthcare education, financial services, e Commerce, and travel. Going forward, in addition to delving deeper into this vertical, we will be looking to expand it into As part of our effort to create a safer, higher quality search experience for users in Q2, we introduced our plus V customer verification program and we have things continue to broaden it. As of Q4, nearly all of our online active customers had been plus V verified. This did mean that some customers who did not qualify for plus V could not spend with us during Q4, resulting in a decline in overall customer numbers, but the impact will only be short term and we believe our emphasis on customer quality benefits users as well as customers. And it's ultimately more sustainable Now on to developments in our mobile ecosystem. In 2013, we made significant progress in each of our 3 main focus areas within mobile, mobile search, app distribution, and location based services and now host leading positions in each of them. Mobile's contribution to our top line continues to grow and accounts for over 20% of total revenue in Q4 compared to about 10% just two quarters ago. The great majority of this revenue comes from mobile search and the progress we've made both a lot to our efforts to educate our customer about mobile and provide them with infrastructure such as our integrated bidding system or tools like site app, reporting tools to measure ROI across channels. At the beginning of 2013, our customers were to becoming aware of the mobile search channel and the percentage of them that add mobile optimized landing pages stood in the low single digits. By the end of the Other metrics such as mobile CPC and the portion of mobile revenue from proactive bidding continue to trend higher. Demonstrating the value our customers see in spending on the mobile channel. Organic traffic Through our own search app and mobile browser remains the fastest growing source of mobile search traffic we are very pleased with the continued attraction here. By Q4, our search app had over 400,000,000 activated users up from $330,000,000 in previous quarter. In December, we to version 5.0 on our search app for both Android and iOS. It was number 1 in the free tour rankings in the itunes store after its launch. The updated version generates search speed 60% higher than its predecessor and features an updated NFA and the personalized homepage. F distribution is another area where where we've made huge strides in 2013. According to analysis research released this week, Baidu and wireless 91 wireless led the native app distribution market with 41% share of app distribution. The initial phase of integrating 91 wireless has gone smoothly. The focus over the coming quarters will be on deepening that integration at the back end in areas like app search, cloud storage, and payment SDK ad platforms. Our technology front on the technology front, we've made great progress in helping user find the apps they are looking for by making the apps much more searchable, including through the introduction of live apps. That's great for users and great for developers of less frequently used long tail apps that have the hard time being discovered in native app stores. Our other flagship mobile product by DuMass also solidified its leading position and grew as an LBS platform. Baidu Maps is the clear number 1 in terms of accumulated users with a 54% share of market according to C And IT. Much of our focus in 2013 was on driving user stickiness by creating a massive experience that unlocks rich local services. User engagement with our LBS platform continued to increase in the fourth quarter and the number of transactions that taking place directly on the Baidu platform is growing impressively, whether it's hotel bookings, movie purchases, or group buying. Group buying plays an important role in our LBS strategy and we saw group buying trends actions on our maps grow over 60% from the 3rd quarter. In addition the addition of normie to our ecosystem brings huge strategic value to our overall e commerce and LBS offer We closed our majority investment in NOMY as the beginning of Q4 and in the current quarter, we announced our acquisition of the remaining shares. For closer cooperation and deeper integration. Strong value from combining Baidu's massive user base and strong distribution capability with normie's expertise in group buying and its sales force focused on local merchants. Looking to our key invested energies, In video, we are very happy that ITE's progress. According to I research, iQE plus PPS is number 1 in mobile by unique users. IQIYI will continue to focus on licensed high quality content and we will continue to support Iqiyi to take advantage of online video's huge long term monetization prospects. And then in travel, we continue our deep cooperation with Junar having kicked off the new year with and industry that continued to grow rapidly in China. To sum up, Q4 was a good end a transformative year for Baidu. Mobile has now become a significant part of our revenue mix as well as our user offerings. And well become more so as we continue to execute our strategy. We remain extremely excited by the growth potential in the new areas we've entered and the growing reach and on the broader economy creates huge opportunity for us. Well, we are very pleased with the progress we made in 2013, our work is not down and we will continue to invest. We remain vigilant in this rapidly changing environment and we are more energized than never about capturing the abundant opportunities now opening up the forest. Building on our existing platforms and deepening the integration of our offering. Our focus on technology and user experience still set us apart. And we are very proud of the great strides we've made towards our larger vision to build an open accessible ecosystem where an innovation can truly flourish and where developers can connect with users across multiple channels, all with the Baidu platform at its core. We look forward to 14 further down that path in 2014. With that, I'll now turn the call over to Jennifer for our financial performance we were pleased to end another strong year with a quarter of solid revenue growth and the acceleration in our business marks the starting point a new phase of growth for Baidu. We stand at the forefront of unprecedented opportunity and looking ahead we're very excited about the future. Our strong results and fast future opportunities give us the confidence to continue building our momentum and expand our reach. The important acquisitions we made during 2013 are added to the breadth of our platform. And our investments in key areas, especially in mobile, has shown very solid progress. We were committed to continue building the Baidu platform by investing in strategic areas of mobile search and cloud LBS, customer products, and, Internationally, as well as important verticals like online video and travel. The internet ecosystem is very much in a period of transformation. To capture growth in these new areas, we are prepared to deploy cash aggressively where necessary, while maintaining a disciplined approach. 2014 will be another important year for investment. We do expect to step up spending particularly in channel and marketing, infrastructure, content and traffic acquisition cost. For 2014, while we expect revenue to accelerate, we do not expect increase in absolute profit Now moving on to financials. All monetary amounts are in RMB unless stated otherwise. For the fourth quarter, total revenue were RMB9.5 billion, representing a 50% increase year over year. Total revenues for the full year 2013 were RMB31.9 billion, an increase of approximately 43% from 2012. During the fourth quarter, Baidu had approximately 451,000 active online marketing customers, a 11% increase from the corresponding period in 2012 and a 3% decrease from the previous quarter. Revenue per online marketing customers for the fourth quarter was 2900, a 35% increase from the corresponding period in 2012 and an increase of 9% from the previous quarter. For the full year 2013, active online marketing customers increased by 26% and revenue per online marketing customer increased by 13% over the full year 2012 figures. The number of active online marketing customers and revenue per online active customer exclude our group buying related business for consistency with prior reporting. Transit acquisition cost as a component of cost of revenue in Q4 was 1,200,000,000 or 12 point percent of total revenue compared to 9.6% in the corresponding period in 2012 and 11.7% in the third quarter of 2013. Full year 2013 percent, up from 8.7% for 2012, which primarily reflects increased contextual contribution and how 1 to 3 promotions through our network. The Baidu Union Network continues to be an important driver of Baidu's overall revenue growth in the long term. We will manage our network partnerships dynamically and use them to aggressively promote our products. As a result, we expect the TAC as a percent of revenues to continue to increase over the near term. Bandwidth and depreciation costs as a percent of revenues in Q4 were 5.9% and 4.3%, respectively, compared to 5.3% 4.9% in the corresponding period in 2012. In 2013, bandwidth and depreciation costs as a percent of revenue increased to 6.1% and a 4.6% respectively compared to 4.8% and 4.8% respectively in 2012. The increase in bandwidth cost was mainly due to an increase in network infrastructure capacity as well as ITEs. For 2014, we expect to pick up infrastructure investment and expect higher bandwidth and depreciation costs. Content cost as a component of cost of revenues in Q4 was $362,000,000, representing 3.8% of total revenues, compared to 1.9% in the corresponding period in 2012. Total content costs for 2013 were RMB830 million, representing 2.6% of total revenues compared to 1% in 2012. This increase was mainly due to costs. Selling and general and administrative expenses in Q4 were RMB1.9 billion, an increase of 135% year over year. Total SG and A expenses for 2013 were RMB5.2 billion, a 107% increase from 2012, primarily due to an increase in promotional spend for mobile products. In 2014, we will step up sales and marketing spend to drive installation and usage of Baidu products, particularly in mobile, In Q1, we actively kicked off our marketing efforts. For the Chinese New Year, we tailored our promotion for the holiday by showcasing Baidu migrate, which leveraged our big data capability through Baidu Maps and promoting train ticket search availability and purchase in our search ads. We also promoted Baidu Mobile Guardian to a vast audience. These efforts are generating good results. We will continue to aggressively promote our R and D expenses in Q4 were RMB1.3 billion, an increase of 80% over the corresponding period in 20 Total R and D expenses for 2013 were $4,100,000,000, a seventy 8% increase from 2012 primarily due to an increase in the number of research and development personnel. Share based compensation expenses which were allocated to related operating costs and expense line items increased to aggregate to $177,000,000 in the 4th quarter from $67,000,000 in the corresponding period in 2012. SPC expenses for 2013 increased 142% over the 2012 level, SBC increased due to more shares being granted to Baidu employees. Operating profit for Q4 was $2,700,000,000, a decrease of 4% over Q4 2012. Operating profit for the full year 2013 increased 1% from 2012. Total headcount including our invested entities As of December 31, 2013 was about 31,700, a increase of 53 as compared to the end of last quarter. About 4000 of this 5300 was related most of our own headcount increase was in R&D. Ecom tax expenses were $339,000,000 for the 4th quarter. The effective tax rate for the 4th quarter was 11.2% compared to 16.2% in Q4 2012. In Q4, we benefited from the reverse of a tax provision due to one of our subsidiaries obtained the key software enterprise Tikes lessons. For the full year, our effective tax rate was 15% compared to 13.2 percent in 2012. For 2014, we expect our effective tax rate to be in the mid to high teens. Net income attributable to Baidu for Q4 was 2 point 8,000,000,000, a 0.4% decrease from the corresponding period in 2012. Basic and diluted earnings attributable to Baidu per ADS for the fourth quarter amounted to 7.92 and 7.90 respectively. Net income attributable to Baidu for the full year increased by 0.6%. Net income attributable to Baidu, excluding share based compensation expenses, a non GAAP measure for Q4 was RMB3 billion, 3% increase year over year. Basic and diluted earnings attributable to Baidu per ADS, excluding share based compensation expenses, both non GAAP measures were 8.43 and 8.40 respectively. Net income attributable to Baidu, excluding share based compensation expenses for the full year, increased by 3%. As of December 31, 2013, the company had cash, cash equivalents and short term investments of RMB38.4 billion. Net operating cash inflow and capital expenditure for the 4th quarter were $4,100,000,000 $961,000,000 respectively. Full year net operating cash inflow and capital expenditures was $13,800,000,000 $2,800,000,000 with effectively. In 2014, we plan to step up our network infrastructure and office capacity spend. Now let me provide you with our top line guidance for the first quarter of 2014. We currently expect total revenues for the first quarter to be between RMB9.24 billion and RMB9.52 billion represent a 54.8% to 59.5 percent year over year increase. Please note This forecast reflects by Duke's current and preliminary view and is subject to change. I will now open the call to questions. Operator, please, we're ready to take questions. Thank you. We will take one question at a time. Your first question comes from the line of Dick Wei of Credit Suisse. Please ask your question. Hi, good morning. Thank you for taking my questions and congrats on a good numbers and guidance. I think it's a good strategy for investing into the fast growing mobile Internet market. I just want to follow-up on Jennifer's comments on the no absolute profit growth for the year. I suppose implies probably around kind of mid-20s or 25 percent or so operating margins for 2014. And I think that's maybe I look at it as a 700,000,000 additional spending, maybe, for that 10% operating margin decline. So I wonder what are the big kids of spendings for those 700,000,000, I suppose it would be TD, we may add like 100,000,000 or so for content, but maybe if you can help us understand a bit more about what the spendings of the buckets are, that'll be great. Thank you very much. Thank you, Dick. Yeah, I think in the prepared remarks, I try to give you some indication as you are looking out our business into 2014. We are very our revenue to continue to accelerate and at the same time, 2014 will continue to be a very important year of investment for us The key spending, I would say, is still in the most strategically important areas for us As I mentioned and Robin also mentioned, these strategically important areas are mobile search and cloud, location based services, consumer products, and our international operations. Key verticals like online video is important and will continue to be a investment driver for us as well. In terms of areas of spend, particularly in terms of cost buckets, you should expect very aggressive marketing spend going into 2014. As you see, in 2013, we established pretty solid positions for our for our mobile search and mobile map products. Going into 2014, we have that's in the pipeline and will kick in full gear to promote these mobile products. Mobile products such as mobile, mobile assistant mobile guardian as well as location based services, embedded on top of our search. So most of the spend will be for these new products. And at the same time, we'll continue to expand infrastructure, expand on content costs for IT and also take advantage of our network, our union networks to continue to promote our product. So these key cost items as identified early would be the the important cost items as you look at 2014. Next question, please. Thank you. Your next question is from the line of Philip Wong of Morgan Stanley. Please ask your question. Hi, thanks for taking question. My question is also related to the margin looking in Q4 comparing your EBITDA and adjusted EBITDA operating profit, the adjusted EBITDA actually delivered solid growth from last year. Could you share with us, are you incurring any one off costs or any amortization expense related to your equity And how should we look at that going forward? Thank you. Yes. Hi, Philip. You are aware in Q4 we completed the investment into 91 wireless as well as part of Nomi. And for these new investments, there are in incremental amortization of intangible related expenses that's embedded in Q4. As you look out for 2 2014, for each quarter, because of these new investment entities, you should expect RMB80 million to RMB100 million addition on a quarterly basis related to intangible amortization. Thank you. Thank you. Your next question comes from the line of Cynthia Meng of Jefferies. Please ask your question. Thank you, management. My question is on the mobile search pricing trend, can you give us some color on the mobile CPC versus PCCCC trend and where do we see this developing? Thank you. Yeah, the mobile search, trend has been very, exciting for us, traffic growing very quickly and, monetization catching up, the CPC, right now for mobile is roughly 60% of, the PC CPC that has been increased. So in Q3 of last year, it was 55% of the PCC last quarter, it reached 60% and we expect this will continue to go up. Thank you. Your next question comes from the line of Chung Shao of Macquarie. Please ask your question. You for taking my question. First, I want to clarify what Jennifer mentioned on the margins early I think last year, your operating margin was down about 14, 15 points year over year. And based on what you have said on the call earlier, I just want to make sure my numbers are right. It seems to me you are indicating for 2014, the operating margin should be down at 10 to 12 points. My question is actually for Robin. Robin, you mentioned earlier that this year, Baidu is going to be more aggressive in some of the vertical those are used cars and some of the other areas. Could you elaborate on some of the top, the 2, 3 key verticals? You try to expand into and could you also talk about from values perspective? Are we going to do that on our all while having a partner with some of the players like you have in the real estate business. Yeah, there are quite a number of important diverge those for us. As you know, healthcare education, very important for Baidu's current revenue mix. And we see a lot of disruptions going forward in these areas. So we will continue to push further down the value chain in verticals like this, we will continue to invest in versus like travel and online video, as we had been doing before. And there are also newer verticals that we pay attention to such as finance. So there are lots of things, lots of verticals we pay attention to. And ready to invest, whether that's through acquisition or organic growth really depend on on what we can find on the market. If we can find the right candidate on the market, certainly our position would be a faster way to get there. But if we cannot we are prepared to develop that organically. You. Your next question comes from the line of Chi Zang of HSBC. Please ask your question. Good morning. Very much. I was wondering about your 1Q guidance. Obviously, the numbers are very strong. Can you help us understand what's potentially driving the very strong revenue guidance for for the first quarter, please? Thank you very much. Yes. As we mentioned earlier, we see our own business performing very solidly and, and overall, we're building great momentum. Our core business is accelerating. And, I think on top of that, of course, sequentially, we also had, our new acquired entities that's, that's helping the overall picture. So we're very confident as we go into 2014 and we're very pleased with the progress that we're making on the top line growth. Your next question comes from the line of Alex Yao of JP Morgan. Please ask your question. Hi, good morning, everyone. Thank you for taking my question. I have a quick question on the LBS monetization strategy. So clearly Baidu Map has a very strong usage in China's mobile internet users and you guys have been integrating a lot of online to offline activity into the map products such as group by taxi hailing, hotel, etcetera, etcetera. Is there any monetization on these activities currently? And going forward, what could be the possible revenue model that drives this part of the monetization? Yes, that's a great question. We are obviously very bullish on the future of LBS. Map as more often user from the product has attracted lots of users and people rely on us to find, location sensitive information based on that, actually not just that, we also get a lot of queries and requests from mobile search that's location sensitive. In the mobile age, people are expecting kind of a a closed loop from a query, be it from math or mobile search to delivery of services. So we are trying to help users to achieve that. As you mentioned, grew by hotel booking, etcetera, very important areas that we are working on, especially grew by, it's sort of a proven model that consumers love and merchants love And going forward, this area will continue to grow at a very rapid rate I mentioned during the prepared remarks, the transaction volume grew by 60% quarter on quarter for group buy that went through the Baidu channel. And for the rest of the year and maybe many years down the road, we we do expect very fast growth in group buy activities from the Baidu LVS channel, some kind of take rate, well, will be necessary and realistic down the road. But right now, I think the focus is provide the best experience and provide a closed loop from carry to service delivery. Thank you. From the line of Alicia Yap of Barclays. Please ask your question. Hi, good morning, Robin and Jennifer. Thanks for taking my questions. My question is regarding your 20 percent of the mobile revenue. If you share with us some of the breakdown. I understand Robin said majority of that is courses related, but if we can have like give some colors in terms of what percent from the GE mobile contributions and also the 91 wireless contributions. And I think I have one follow-up, with the the the spending in 4Q. And if Jenny can break down some of the sales and marketing lines mainly because it's a big step up. Just how much of it is related to pre in terms of mix, we're seeing mobile revenue contributing on the core business as well as our invested entities. Baidu's main core business, is without that, you know, the overall mobile contribution wouldn't be, this, magnificent So Baidu's own business is, is really pushing forward on its mobile front. IT is making great progress 91 wireless, you can almost think 100% of that is mobile. But I think, you know, from a scale perspective, there is some publicly available information. You have the idea of the contribution of 91 wireless is, to the overall picture. So the mobile revenue, the mix is predominantly Baidu and it's predominantly search related. So to your second question, with regards to Q4, sales and marketing expenses, there is a step up I would say most of the step up is related to promotion related to our mobile products. And then there's also a part of that step up related to consolidation effects because of the acquisitions. For the promotions for our products. Most of that is spent on installation. We do have some offline campaigns also, such as offline campaign for our MAP products, but I would say most of that promotional spend up for the Baidu Prime business is for installation purposes LNG of Oppenheimer. Please ask your question. Thank you for taking my question. Congratulations on strong quarter. Can management share your thoughts of acquisitions for 2014 and what's your pipeline look like? And what are the areas that you would be interested in making acquisitions? Thank you. As I said before, our strategy is to grow the business organically, whenever there is an opportunity to, to do acquisition to buy us either time or resources or talent we will be open for that, but the main strategy is to grow the business organically. The market been quite hard and we are making aggressive investment as we mentioned before. So to me as CEO, I don't really try to give you indications on which area I would like to required, it really depends on the market condition, the right hand daisy and our our resources and current positions, etcetera. But I've indicated that the areas in addition to search, I've indicated the four areas that we are strategically focused on mobile, LBS, consumer products, international operations. Question comes from the line of Wendy Huang of SCB. Please ask your question. Thank you. I think with your 2014, our margin guidance, by the end of 2014, we probably will see your OP margin to be 30 percentage points lower than your historical Kiplap So, I just wonder how should we look at your long term margin potential and what are the key factors we should bear in mind in assessing your long term margin? Well, when you talk about long term, let's not just focus on this year, maybe several years, 3, 5 years down the road when you look at our revenue scale, we expect that the margin level to be similar to other internet companies at that kind of revenue level. Thank you. Your next question comes from the line of Gene Monster of Piper Jaffray. Please ask your question. Good morning. I'll add my congratulations. About a year ago, there was more talk about competition in market share shifts and that's really died down. I just kind of want to get your take from a competitive standpoint you see the landscape progressing and maybe what you are doing. I guess you're outlining some investment phases that how we should think about the competitive side, which I think, this is rarely talked about in the past year going forward. Hi, Jing. I think the main focus for us is to capture, the vast opportunities Chinese internet market presented to us. Yes, it's a very competitive market. But it's also a fast growing and there are a lot of opportunities. We pretty much focused on innovation to differentiate our product through better user experience, better technology, that kind of thing. The market is shifting very, very quickly. A strong competitor today may not be that strong going forward, a weak competitor may become very strong in our couple of quarters down the road So we pretty much focused on building our core technology platform and expand our reach two areas that's close to search. That's how we think about competition. But more importantly, like I said before, we see a lot of opportunities the Chinese economy is, it's different from those developed the world in the sense that almost virtually for all verticals, traditional players are not very competitive. There are lots of room for us to to take initiatives to do more than what the internet companies in the U. S. Can do and we see lots of room for growth in those fronts. Great. Thank you. Thank you. Your next question comes from the line of Eddie Please ask your question. Hi, good morning. Thank you for taking my questions. Two questions. The first one is about your thesis seasonality going forward. Given all these expansion into new business, including some of the acquisitions, should we look at your seasonality throughout the year in the future years? I suppose first quarter 2014 there could be some impact from acquisitions, but you're talking about, you know, a couple of years later, how should we see the seasonality? And then secondly, about your PC stretch basis. So just wondering after the launch of your integrated our bidding system. How should we looking at the growth of your PC search pieces? We still seeing some revenue growth from that area? And if so, what are the key drivers? Hi, Eddie. On your first question with regards to seasonality, Q1 will continue to be among the full quarters of the year, the most the quarter with the strongest seasonality. The Chinese New Year does affect business activities in online activities, but what we're seeing is the pickup in mobile, it actually is becoming more and more, I would say, people access to the internet without having to sit down in front of a desk or you know, if they can access the internet on the go, that's opens the seasonality. So the seasonality is over time slowly migrating, but still, you know, I think in looking at the overall, people's activity Q1 will continue to be the strongest, the seasonal quarter for the year. And you should expect, you know, kind of a step up from Q1 and relatively stable Q2, Q4 quarters. And on the PC search, revenue, yes, it is still growing. It's largely driven by improvement in relevancy our sponsored listings. We have a very good technology to identify the right query, right customers and we find ways to make the match better. So over the past few quarters, we've seen in is the click through rates include a number of increased number of clicks and things like that. So we do see room to improve in the PC search front too. But again, mobile is a much larger driver and we see much bigger opportunities in the mobile front. I think in that regard, Eddie, we do look at our business holistically. The integrated bidding platform that you mentioned really can help us holistically approach our users and help our customers with more data points to drive better ROIs. And so it's actually an advantage that with mobile and with a very strong PC base, we can deliver better ROIs for our customers and improve our business. And that's the fundamental driver for our So the key is, you know, not to really separately look at PC is really these who are generating one database for us it's one technology and we're deploying. And, and that is the, the, the all business, the overall business we're looking at. That's very helpful. Thank you, Robin and Jennifer. Thank you. Your next question comes from the line of Piyush Mubayi of Goldman Sachs. Please ask your question Thank you for the opportunity. Could I just ask what the split between organic and inorganic revenue growth was for the fourth quarter as well as for the first quarter? And if I might also ask what the mobile search revenue percentages in the fourth quarter, please? Predominantly, as we mentioned, consistently, our revenue is made up of organic revenue base. And I think some of the, I think some of the factors that got into Q4 on one consistent is the, if, if, if, if you might say, traffic acquisition related, cost and that kind of part of the revenue is, is acquired revenue that hasn't really changed much. What has been driving the contextual ad the traffic acquisition cost is our contextual business and that's an integral part of our overall technology driving advertising, to our union sites, and these are incremental revenue for us. And that has been going on for a few years. Incrementally in Q4 compared to Q3, we do have acquisition new acquisitions that helped, a bit on the top line But as I mentioned earlier, with already available public information, you should have an idea of this, kind of, addition, how that helped. Overall, it's very, very slow, very, very small, compared to our base. And it should be, you know, I think you know, it's low single digit contribution? For the second question, it's not clear to me. Were you asking about the mobile revenue percentage we already said it's over 20%. No, I was asking about mobile search specifically. So that would be excluding, excluding anything on the other side. That's excluding 91 wireless excluding Got you. That's very consistent with what we're saying about what we have disclosed. The predominantly of that 20% is driven by our main search business. Our next question comes from the line of Tal Wang of Nomura. Please ask your question. Good morning. Thanks for taking my questions. My question is, if you look at organic traffic as a percentage of total traffic on mobile versus debt on portion of organic traffic? And also what is mobile tech ratio versus PC tech ratio? Is it higher or lower? Thank you. Right now, the percentage for organic is higher on PC, because the, the early nature of mobile search consumers used to start from certain kind of search button being all kind of users or other places. So we, that's part of the investment we are making. We try to pre install our search app, we try to partner with a third party browsers and other union members for them to to promote the Baidu search. So, going forward, we would expect that the percentage of organic on mobile to continue to improve. I already said this during the prepared remarks that the organic traffic for mobile has been the fastest growing segment of the overall mobile search. Topic. And at the same time, while we're continuing to generate very strong mobile revenue growth, the mobile related tag is really a very, very small component of our traffic acquisition cost. As Robin just mentioned, we are growing faster to grow our own, mobile apps and our own mobile browsers. And the traffic acquisition costs related to mobile search is very minimal. Thank you. Your next question comes from the line of Muti Lee of Citigroup. Please ask your question. Hi, good morning. Thanks for taking my questions. Can the management briefly discuss the customer the total customer number declined quarter over quarter for the 2nd consecutive quarters already. So what's what's the main reasons? I kind of break up there, but I understand your question. The customer account went down that we mentioned during earlier in the prepared remarks that we continue to broaden our Plus V customer verification program, and this is the program that we kicked off in Q3. And, and, we continue to broaden that in Q4, for this effort, we wanted to make sure that we review our customer and ensure the customer base is high quality. And we wanted to make sure that, through plus V verification, our customers are solid and our users get the high quality search results. And this effort is ongoing, throughout customers who don't get the plus V verification, they don't get to spend in Q4. So that's the result. But as we mentioned, we see this as for and overall, it's building sustainable, healthy customer base for long term growth. And so this, this, this, this, this, I would say, is actually something good that's that's going on. And also can the management talk about what percentage of these customers are mobile marketing services on Baidu? Thank you. I don't have an exact percentage at hand, but, I think, it's a very super majority of that. Customers do have the option to opt out from mobile, but I think most of them choose to, to, promote their products through both channels. Thank you. Your next question comes from the line of Chao Ming of 86Research. Please ask your question. Thank you. Two questions. One is the big picture question. 1 is a specific product. So the big picture question is, Robbie, as you have seen that 10¢ Alibaba have invested and a partner with a lot of companies. Those kind of if you will, the families are getting bigger and bigger. So I want to get your view on those competitors, do they do they do you think you would do the same thing? Do they give you any pressure. Because in the past, your acquisition is mostly getting the controlling stake in the companies, not the minority stakes. So in this kind of environment, what's your latest thought on that? And my specific question on product is the light apps We've talked about that a lot, but we haven't seen that as we use the Baidu app. So what's the update on that? Thank you. Yeah. On the partnerships and investment question, you are right. We have kind of a different style when looking at those partner opportunities. So we tend to take controlling interest or for acquisition, so that the real synergy can be real liked and fuller and tighter integration can be implemented. We think most of synergies can be fully realized through a tight integration. That's why you see the acquisition of CVS, 91 wireless, Naomi, and we are very happy about the integration progress so far. Those kind of partnership deals or investment deals, we will be open to that, but we do not think a minority investment or a lightweight partner would really make that much those companies are still independent companies. They have their own shareholder base. They will make independent decisions going forward. So, we will do necessary partnerships with the right commercial collaboration, but we are not that interested in fewer minority state investments. On the LICAT question, it's a It's a brand new schema for mobile search or mobile app distribution. It will take some time to make this ecosystem strong and healthy, but so far are happy about the progress. Every day, we now deliver about 5,000,000, light up distribution And sometimes you may not notice that, but it is already there when you search for either calendar or whether those kind of things, the top results are like apps. Thank you. Your next question comes from the line of Thomas Chong of BOCI. Please ask your question. Hi, good morning, Robin and Jennifer. I have a quick question about the mobile revenue contribution. Given the strong momentum we see in the past two quarters from 10% to 20% in the 4th quarter. How should we think about the mobile contribution in 2014 Should we expect the incremental quarterly contributions to ramp up similar to the past 2 quarters? Thanks. We we do not want to make a linear progression on the mobile revenue contribution, the real focus for this year on mobile search is about user and user experience and traffic. We do expect that the mobile traffic to surpass PC traffic sometime this year. And our focus will be still on delivering best user experience for mobile. I think monetization will follow Charlie. Thank you. Your next question comes from the line of Wendy Huang of SEB. Please ask your question. Thank you. I have some follow-up questions the number one is, when should we actually expect the mobile search traffic to surpass that opportunity? It likely to be in 2014? And secondly, you mentioned that international operation will be one of the strategic investment areas So, I record that last time you also actually tried to extend it to the Japan. So, what were you the difference in the new round of international and also can you give more color in what specific areas that you're going to expand overseas? And lastly, on the some ways product that you're selling on a platform, how should we look at the balance sheet and also the kind of impact from this new business in the near term and long term Wendy, I kind of answered that question during the last question, I said, mobile search traffic, well, surpass that RPC sometime this year. I'll ask Jennifer to answer the rest of the question. International Off Efforts is obviously long term for us. You know, I think overall, not only we see great opportunities in China, we can leverage our technical strength and also embrace the mobile opportunities throughout the world. So as we look And you know, that is with the perspective of longer term. On your 3rd question with regards to financial services, We have, you know, in one of you we see financial services as one of the verticals and we have already demonstrated the tremendous distribution capabilities to some initial product launches. At this point, that service we provide is not taking credit exposures. And so I do not see that it's having balance sheet or P and L impact at this point. Mostly, it is, it is also, you know, I think getting into the distribution capabilities for traditional business, and that really shows the power of the internet. Thank you. Call. I will now turn the call over to Baidu's chief executive officer, Mr. Robin Lee, for his closing remarks. Again, thank you for joining us today and 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.