Earnings Call: Q3 2013

Oct 30, 2013

Earnings release

Hello, and thank you for standing by for Baidu's 3rd quarter 2013 earnings conference call. At time, all participants are in listen only mode. Objections, you may disconnect at this time. I would now like to turn the meeting over to your host for today's conference, Victor Singh, Baidu's Investor Relations Director. Hello, everyone, and welcome to Baidu's 3rd quarter 2013 earnings conference call. Baidu'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, 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 will contain forward looking statements made under the Safe Harbor provisions of the U. S. Private Securities Litigation Reform Act of 1995. Forward looking statements are subject to risks and uncertainties that may cause actual results to differ materially from our current expectations. 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. 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, and thank you for joining today's call. We are proud of the substantial progress we made in all our key strategic areas in the third quarter. Through continued improvements to our core products, we further cemented Baidu's place at the center of China's internet. Our upward momentum on mobile front was essentially was especially encouraging. Mobile revenue continued to accelerate outpacing mobile search traffic growth And we've introduced an exciting new paradigm in app distribution, which I'll talk about more in a moment. Baidu believes in opening up the endless possibilities of the Internet to as many users, developers and customers as we can. We are building an open and accessible ecosystem that fosters innovation and we strive to connect a growing number of developers to users across multiple channels. This quarter, we made great strides toward that goal At the Baidu ward 2012, we announced our 7 weapons for developers offering free infrastructure tools and resources to the developer community to create a vibrant app ecosystem. This year, in the third quarter, we made the Baidu ecosystem even more compelling by significantly strengthening our app distribution capability, particularly in native apps. Our acquisition of 91 wireless which closed on October 1, significantly bolsters Baidu's position in the Baidu area of app dispute This is a combination of 91 wireless and Baidu's mobile assistant and store and other distribution channels, Baidu is the number one app distribution channel in China. Distributing 80,000,000 apps on a daily basis. And by working closely with developers and applying Baidu's unrivaled search abilities to our vast combined library of apps, we are creating a new app search experience. Users looking for an app will no longer need to include a specific name, term or text in an app this by doing well make any text or function within the whole app searchable. And recommend the most relevant band for integrating 91 wireless. We are looking to leverage the distribution power of Baidu 91 wireless platforms to have them cross promote each other's products. We look forward to integrating the backend and bringing 91 developer base onto an integrated Baidu Cloud platform. At the same time, we are pushing forward a new paradigm we call light apps and initiative we unveiled at Baidu Ward a few months ago. While App Store an excellent distribution channel for native apps, particularly for popular and frequently used ones, less frequently used apps can get lost. Currently in China, around 0.1% of apps account for 70% of our downloads. In other words, the other 99.9% compete for the remaining 30 percent of downloads. Lighthouse have all the power and functionality of native apps and are easily discovered through Baidu Search, but unlike native apps do not need to be downloaded. For this reason, they are an ideal format for that 99.9% of less well known less frequently used apps. To give you an example, a user may look through classified listings a few times a year, for a used car or rental apartment. So there's no real need to have a traffic light as maybe fab sitting on their device. Formatting those classified listings as the light app gives the user the same functionality as with a native app without taking up space on the device. And again, the app is easily searchable. Even if the user doesn't know its name, This is tremendous potential to improve and streamline user discovery of mobile internet, content and services. While we are still in the early stages of development with light haps with a limited number of developers invited into this 1st phase, I'm convinced they have a big role to play in the future. In a daily active user base of 130,000,000 and counting our mobile search platform can be a powerful alternative distribution channel for app developers benefiting from the current level. Native Apps will continue to be important and coexist nicely with live apps. For the next several quarters, our strategy is to gradually expand the live app model to complement our native app distribution capabilities. In terms of our core search offering, this quarter we made further improvement in natural language processing, deep learning, image recognition, voice technology, and use big data. These key technologies keep us predict better than ever what users are searching for. For example, I can include a search term what movies is Jennifer Anniestone's former husband's partner in Baidu then deciphers the relationships in the search term and returns a comprehensive structured data search page with Angelina Tule's movies as imaged tiles. The user does not need to know the exact name of the actories and he can play one of the movies in 3 clicks or less. To the user, this result is simple and direct But the search is powered in the back end by our vertical landing page and sophisticated technology such as deep learning and natural language processing. Across the board with our own virtual services as well as with partners to deliver a more interactive search experience our users. From example, in our Mexico vertical, we are now partnered with over 100 hospitals to enable online advisory, medical appointment booking, online reviews, and other actions right on the Baidu search page. And our customers are seeing very meaningful returns this vertical approach. In the online gaming vertical, for example, customers who opt to in to our Iwan. Baidu.com online gaming portal have an average have on average saying user registration conversions, triple and ROI increased nearly 50% compared to a standard search marketing We are already working on going deeper in additional verticals such as online travel, financial services, and education. Both for our customers and for us, the commercial potential here is significant. As Baidu grows, so too that's our responsibility protect our users. That is why we are forging ahead with our Netizen Rights Protection Initiative This quarter, we removed who may have been defrauded or harmed by a sponsored link on the Baidu platform. Today, I believe that Baidu is doing and this will inevitably benefit not just our users, but also our platform as a whole in the long run. On the product side, uptake of our core services grew strongly in the third quarter. Our internal tracking shows that we are the clear number 1 in mobile search, and we are continuing to gain market share. The total installed base of our flagship mobile search app at the end of the third quarter was over rmb330 1,000,000, representing an increase of 50% quarter on quarter. Our search app is an important source of organic traffic for Baidu and its embedded features such as voice search, image search, QR code scanning and OCR word translation provides the best overall user experience This growth continues to accelerate and it has been the fastest growing source of Baidu mobile search traffic over the last several quarters. Personal cloud storage usage has now reached over 100,000,000 accumulated users, growing over 40% from the end of last quarter. We're now offering users 2 terabytes of free storage and response has been great. Baidu PCS is increasingly becoming the service users' turn tool for all their content storage needs across all forms of media from their Baidu music playlist and Baidu Video, Television Shows, to their Baidu library documents and photos from Baidu photo wonder. Our LBS offering now has over 140,000,000 monthly active users, up from nearly 120,000,000 monthly active users at the end of last quarter. This growth is a reflection of the continuous improvements we are making to our LBS functionality and content. Baidu mass continues to build on its strength as a key mobile gateway for local search. And it has grown into a broad platform facilitating a wide range of queries and transactions. In the past quarter, the number of transactions completed on Baidu Maps including hotel bookings, movie ticket purchases, group buying and taxi bookings continued to increase. Hotel bookings on Baidu Maps for example, doubled from the second quarter to 3rd quarter. We were the first to offer a free premium navigation product in the third quarter, and we are now offering street view in a growing number of cities. Our majority investment in group buying site normally. Announced that during Q3 boosts our ability to offer a fully integrated user experience Noomi's depth of experience and geological sales coverage in the dynamic growing buying industry making it a natural fit for our LBS offerings. Moving on now to the customer side. All signs this quarter pointed to our customers really embracing mobile and monetization grabbed off very healthily. Back in the second quarter, we rolled up our integrated PC and mobile bidding system, which continues to be well received by customers. Now three quarters of our mobile search revenue come from customers come from customer spend through actively bidding our mobile. The same proportion of our mobile search revenue comes from spending from customers with mobile optimized landing pages. We provide customers with a comprehensive range of ad formats as well as a range of simple and powerful tools to facilitate the transition to mobile and formats such as paper call and click to chat and easy to use tools like site app are helping our customers get better mobile results. Increasingly, our customers are saying that mobile search marketing is a channel they must employ. As the percentage of mobile traffic to their sites continue to rise and the trends of rapid mobile adoption continues. More and more of our customers, both SME and large customers across industries, see mobile search as a vital complementary marketing channel to PC search. For example, an SME in Shanghai that operates a chain of vocational training centers has been a PC search marketing customer since 2005. They started mobile search marketing at the end of last year as a way to differentiate themselves from the competition using Baidu's site app tool to optimize their mobile landing page. The same grid results from their mobile search span which now accounts for 30% of their total marketing spend on Baidu Platform. That's up from 8% last year. To share another example in a different segment, one of our large customers in the online travel space saw mobile as a portion of its business grow tenfold in the span of a year. Baidu worked closely with the customer to optimize their mobile landing page and better target their user Regarding a very meaningful increase in its mobile conversion rate, the customer as quant about their mobile search spend and nearly doubled their overall search spend on Baidu over the last couple of quarters. In the third quarter, we broadened our Plus We initiative, a program in which we write our customer base for proof that they are legitimate licensed defenses A large majority of our customers now have plus V verification, which provides them with a blue plus the logo in the sponsored links and provides enhanced options to advertise Sun Baidu. The benefit of this is that we have a higher quality, quality customer base, which is good for both users and customers. And good for Baidu in the long run. In the short term, this plus V initiative may have a slight negative impact on our absolute customer number account, but demand for search marketing owned by continue to search and customers continue to look to Baidu to bring a large scale of leads and measurable ROI. Our focus on serving quality customers and improving our monetization capabilities has helped drive up ARPU. In addition, we have started to make efforts to expand RBANS beyond just online marketing services. Online gaming is becoming a more important business for Baidu as we build a portfolio of game resources to leverage our distribution capabilities. PC search is a powerful channel for web games and the acquisition of 91 wireless not only complements our pre existing game distribution capability in mobile search and mobile assistant, but also provides us with 91 wireless capabilities as a mobile game operator. Gaming is a highly monetizable industry and it will become a more meaningful part of our business in the future. We see huge opportunities ahead, and we will look to grow this area going forward. A couple of updates here on our invested entities. The integration between TPS and ICE has done mostly. The combined platform is number 1 by total monthly time spent on PC according to iresearch. Baidu will remain a strong supporter of Iqiyi to grow its position in this important strategic vertical. Finally, as you know, our Invested entity Cunar has filed for an IPO. Baidu has been majority shareholder in Cunar since 2011 as Cunar is currently in it, we will not be able to elaborate more on this topic until the IPO process is finalized. You can refer to the publicly available IPO prospectus for additional details. So in summary, we were delighted to maintain strong momentum into 2nd quarter. Our leading positioning search, app distribution, LVS, and cloud Computing continues to promote a rich and Pampers ecosystem, and we substantially bolstered our application distribution capabilities with the acquisition of 91 wireless and the introduction of LightHAPS. All this is translating into strong traffic and revenue growth. This mobile plays an increasingly important role. There is still a long road that had, but for us, it's about continuing to execute on the strategy that has proven to be so successful over the last couple of quarters. Over to you, Jennifer, for a deeper look at the financials. Thank you, Robin. Hello, everyone. We're pleased to maintain strong financials growth this quarter as we continue to expand our business and ecosystem. It's clear that the investments we've been making in mobile are paying off, with mobile continuing its strong momentum, both on the usage and monetization front. Also during the quarter, we continued our aggressive investments in sales and marketing, infrastructure and R&D, particular focus on mobile. Q3 also marked the 1st full quarter that PTS was consolidated into our financial 90 one wireless closed on October 1st and the normie is expected to close in the 4th quarter. Looking ahead, we expect our core search business to continue its solid growth. We're focused on building our organic fundamentals, further complemented with strategic investments. Our business is on a solid trajectory and will continue our aggressive investments in sales and marketing, infrastructure and through investments in bandwidth and content. Now moving to the financials. All money that all money amounts are in RMB unless stated otherwise. For the third quarter, total revenue were RMB 8,900,000,000, representing an increase of 42% year on year. During the third quarter, Baidu had approximately RMB 4 4000 active online marketing customers, a 19% increase from the corresponding period in 2012 and a 1% decrease from the previous quarter. The slide drop was a result of the broader roll out of our plus V verified accounts programs, which improves the quality of our customer base. Revenue per online marketing customer for the third quarter was approximately a 19% increase from the same period in 2002 and an increase of 19% from the previous quarter. Traffic acquisition cost as a component of cost of revenue in Q3 was RMB1 1,000,000,000 or 11.7% of total revenues. As compared to 8 13. The increase in tech costs mainly reflects the increased contribution of contextual ads and how 1 to 3 promotions through our network. Bandwidth and depreciation cost as a percent of revenues in Q3 were 5.8 percent and 4.2% respectively compared to 4.3% and 4.4% in the corresponding period of 2012. The year over year increase in bandwidth cost was mainly due to the consolidation of ITE. Content costs as a component of cost of revenue were RMB222 1,000,000, representing 2.5% of total revenues compared to funding period in 2012 and 2% in the previous quarter. The increase was mainly due to ICE. Selling general and administrative expenses in Q3 were RMB1.4 billion, an increase of 115% year on year, mainly due to promotional expenses for mobile products. R and D expenses in Q3 were RMB1.1 billion an increase of 77% over the corresponding period in 2012, primarily due to an increase in the number of search R and D personnel. Share based compensation expenses, which were allocated to related operating cost and expense line increased in aggregate to RMB143 1,000,000 in the third quarter from RMB 57,000,000 in the corresponding period in 2012. The increase was primarily due to the lengthening of option terms for some grants. Operating profit for 1,000,000,000, a increase of 1.2% over Q3 2012. Total headcount, as a September 30, 2013 was about 26,400 employees, of which roughly 5000 were accounted for by in our ITE and PPS. We added 2400 more employees from the previous quarter, primarily in R&D. Income tax expense was $588,000,000 for the 3rd quarter. The effective tax rate for the third quarter was 16.3% compared to 13.5% in the corresponding period in 2012 and 16.3% in the previous quarter. Net income attributable to Baidu for Q3 was RMB3 billion, a 1.3% increase from the corresponding period in 2012. Basic and diluted earnings attributable to Baidu per ADS for the third quarter of 2013 amounted to 8.65 and 8.63, respectively. Net income attributable to Baidu, excluding share based compensation expenses, a non GAAP measure for Q3 was RMB3.2 billion, a 4.1% increase year on year. Basic and diluted earnings attributable to Baidu per ADS Excluding share based compensation expenses, both non GAAP measures were 9.06 and 9.04, respectively. As of September 30, 2013, the company had cash, cash equivalents, and short term investments of CNY43.3 billion. Net operating cash inflow for the third quarter of 2013 was CNY4.3 billion. Capital expenditures for the third quarter of 2013 were CNY 780,000,000. Now let me provide you with our top line guidance for fourth quarter 2013. We currently expect total revenues for the 4th quarter to be between RMB9.22 billion and RMB 9,480,000,000, representing a 45.5% to 49.6% year on year Please note, this forecast reflects Baidu's current and preliminary review and is subject to change. I will now the call to questions. Session. Questions. Your first Yao from JPMorgan. Please ask your question. Hi. Good morning, everyone. Thank you very much for taking my question and congratulations on a very strong quarter. My question is, on a new initiative you guys launched recently, the Internet banking service. Can you talk about your thoughts, this initiative how you guys are going to position yourself in this area and how do you think about the monetization potential? Thank you. Alex, I think the Internet banking service reaches to launched them a couple of days ago. It's in line with our overall strategy, which we call landing page. There are quite a number of very important verticals, for Baidu, many of the large customers come from, but we just don't believe that simple, title and summary, which leads the user to a website from those traditional industry would serve users the best. In fact, we can come up with better user experience by integrating more services into, into this kind of vertical websites. So we have been doing this for travel, for video, for education, healthcare, finance is not an exemption. We also see a lot of opportunities when the whole world, I mean, whole China, the offline business is moving moving online, but they are not very sophisticated in increasing the internet and they need help. So we came up ways to do our work, which is traditionally more than a typical search engine would do, but we think that would provide a better user experience. So the internet banking services, which launched is in line with this, and we believe finance is a very important vertical for Baidu going forward. Your next question comes from zhongxiao from Macquarie. Please ask your question. Good morning. Thank you for taking my question. I have a question on live app. I know you launched that initiative or announced it, by the world. I was hoping you can share with us some of the metrics as is point, for example, how many apps right now, in your live app platform or on your other platform? And what's the daily downloads look like, what type of apps, sort of, fit best with this, platform and how easy it is for developers to change or modify their native apps to the live app? Thank you. Yes, we have received a lot of in is from all kinds of different verticals. Many of them have very strong, monetization potential all, but we'd like to start from something that's easier for the developers too. Manage, and we, at current stage, only, selectively opened this up to a number of developers in verticals like news or classified, then the developers or customers who worked with us have seen very encouraging results, but this is a very early stage product So we are continuing to, to improve our technology and to make this, available to we all make this available to, more verticals that can benefit more, from the light app ecosystem. The next question comes from Dick Wei from Credit Suisse. Please ask your question. Hi, thank you for taking my questions and congrats on the strong quarter end guidance. I have two quick questions on mobile. First of all, whether Robin can comment on the monetization gap between mobile search and PC search now, how does that gap trend, for the past couple of quarters and then what about going forward? And also just related to mobile. Also, whether you can comment on the the tech DAC Dynamics. Looks like we are relatively flat, SCAC as potential revenue. Was it mainly because of, the lower tech from mobile because of large or connect traffic or was it because, we are less reliant on the PC traffic from the 3rd party? Thank you. Okay. I'll talk about the mobile monetization and, let Jennifer, talk more about the tax thing. Mobile monetization have been growing very, very quickly over the past couple of quarters. So the The the CPM or RPM growth, is faster than than the traffic growth, even faster than the traffic growth, yet it's not reaching the level of PC monetization yet. We certainly see the gap is quickly, closing. But exactly when it will catch up, it's, it's another and, right now, we think that the highest priority is still to provide the best user experience so that they will very much depend upon the Baidu search app to get information and services. Once we are more confident about that, we will give you, you know, more, quantitative numbers on the monetization And with regards to TAG, TAG over the past couple of years has been on the trajectory to increase as a revenue. We've stated that the main factor driving that is the effort to, grow our contextual business as well as promoting our 1 to 3 products. Each quarter, because of the mixed, components of all the contributing you might see some slight variation, but I wouldn't say that, this q 3, tax percent of revenue is a reflection of the future trend. We continue to use the distribute our partners sites, the network to promote our, contextualize the tax percent of revenue will continue to increase. Your next question comes from Alicia Yap from Barclays. Please ask your question. Hi, good morning. Thanks for taking my questions. So as you have a follow-up questions on the TAC going forward. So I think Jennifer you just mentioned that it will be continued to increase. But just wanted to understand with some of the new business with consolidations of 91 in Nwami. How should we look at the gross margins trend, would that be more positive impact or negative impact? And as well as on the sales and marketing trend, will the consolidation actually leads to higher expenses and some margins pressure or margin expansion? Thank you. You know, as I've stated, you know, we are in the mode and continue in the phase to aggressively promote our products. With regards to gross margin, the consolidation of new business in the fourth quarter will not materially impact the gross margin per se. I would say if you're looking at the forecast for our business, the fundamentals continues to be driven primarily by our core business, not these invested entities. They in general, do not make the kind of margin that the search business model does. So in general, they do not help per se because their relative size is so small, they don't make a material impact. These two ventures you just talked about. Specifically with regards to operating expenses, we have our foot on the pedal to really Shan sales and marketing, aggressively promoting our mobile products. As you have seen, over the last quarter, the installed app for our search, the core search app is, is the growing itself is growing by 50% quarter by quarter. You can see that, really aggressively pushing our products to these channels and we'll continue to use these different channels and ways to build our product in presence. And so we should expect that I'm not seeing that we are lessening our efforts in promoting our products and you should continue to see the step up of SG and A expenses as a percent of revenue. The next question comes from Jean Monster from Piper Jaffray. Please ask your question. Hey, good morning and congratulations. I apologize if I missed this but can you give any context into how 91 factored into the revenue guidance for the December quarter? For the Q4 guidance, the main driver, as you can see, we operate on such a large base and our core search business is the organic fundamentals of our business. That business continues on its solid growth. Q3 4 will be the first quarter that we consolidated, 91 wireless. And from some priority made available public information, you can get a feel of the scale of, its revenue size as relative to the Baidu overall picture. I mean, in comparison, it is really low in terms of the overall contribution, but because if you're looking at 91, it was 0 in Q3 course, is an embedded benefit for Q4 sequentially. But overall, I would say our business is continuing to grow and the strong in Q4 is the result of our core business that's continued to perform very well. Your next question comes from Philip Wong from Morgan Stanley. I have a follow-up question on your live app strategy. Just, I wonder if management have any target, say, by the end of this year, how many applications or developers would you like to have on your My App platform? And then also, what is your, plan to monetize your, like, F platform going forward? Thank you. Yeah. Right now, I think that the main hurdle for, mobile search is that, many of the content oriented websites do not have a mobile friendly version yet. So for the whole year this year, until the end of the year, my teams, my mobile search team's priority is really to help convert those PC centric, contents into mobile friendly content. Lightmap would be a more matera thing, next year, we are working with, many prospects to come up with, buy tab. But, eventually, lab will be an integral part of the overall, mobile ecosystem, which, you know, includes the, the, data or content driven, mobile sites, the light apps, native apps, they will combine to they will be combined to serve the needs of our users. So I at this stage, since it's quite early, I'm not going to, give you a number, on the number of developers or a percentage of. Without that showing might have. We hope we will be able to do this sometime next year. Your next question comes from Alan Halawell from Deutsche Bank. Please ask your question. This is Vivienne on behalf of Alan. We have a question regarding the competition on the mobile search front. Do you view the competition from on market share. And, probably we're expecting more synergies with, tens of support as mentioned on the sales and marketing front, is we probably will still see the surge in those SG and A for promoting, mobile. Just try to understand the landscape here of competition on the mobile, on the mobile search front. Thank you. Mobile searches, still very early. We talked about our strategy of integrating, you know, PC content, mobile content, you know, like app and native app, we are quickly making a lot of improvements for mobile search. And, we think at this time Baidu mobile search provides the best user experience far ahead of any competition. And, as a matter of fact, we based on our internal tracking, we continue to gain market share over the competition. And we probably invested a lot more than depending off the competitors in the mobile search front. Because, it's, nature of the early stage development, we'll continue to, aggressively invest both, boasting that R and D front and in the the sales and marketing front to, to present, the the Baidu mobile search option, especially the mobile search apps in front of our users. We think, this kind of investment is very worthwhile. It's actually a, you know, a very, pressure, precious, timing to spend the money on this, we think this year and next year will be very, very crucial for the eventual success of the overall mobile strategy for Baidu. The next question comes from Chi Chiang from HSBC. Please ask your question. Good morning and congratulations on a very good quarter and guidance. I was wondering if you can give us an update on your video business. If you can talk a little bit about what's happening on the competitive front as well as the trends on mobile as well as mobile monetization. Thank you. Yeah. And I think the the video is both on desktop and mobile, in terms of, time spent and uh-uh video views are growing very, very quickly. Right now, it's not a very profitable bin yet. But, the the traditional, you know, advertising industry is shifting the the the TV commercial budgets to, to video and we think eventually, this will become a very, material part of the overall online advertising, Vince. So, our focus right now is still to continue to be with the best user experience for, video, both on desktop and mobile, and, there's doubt that eventually this will become a profit moment for us. Your next question comes from Wendy Huang from Standard Chart. Thank you. I wonder if you can share your thoughts on the major difference of China's mobile search market versus U. S. And Korean markets. And also, what will Baidu do a different flavors of your global peers such as Google and Neighbors in their mobile search technology or mobile advertiser acquisition? And also, I noticed that Google recently actually started to provide the full payment and getting into the e commerce front. So why do you actually used to have some major efforts on the e commerce front? So could you give us some update on that as well? Again, I think for all of the countries or markets you mentioned, the China, US, Korea, mobile search is, in its early stage. So, we are exploring all kinds of different things to better serve our users' needs. One trend we have seen is that mobile users in China are increasingly expecting a end to end solution instead of just a finding. So users are not satisfied enough to just find the information or find a link to some website. On their mobile phones, they expect it to be able to served, for example, when a user, search for movie title, we should be able to, to, let him for her to buy the movie ticket at a Caesar nearby without leaving the mobile search app. So this is, the so called end to end solution, And we're doing this more and more, we see this asset trend, in China. Whereas for other markets, which I'm not very familiar with, so I just, you know, take some anecdotal thing to to to compare. So in the US, people are probably more used to do this kind of things through a vertical app or, in mass service, but, in China, I think more of our users prefer to start from the Baidu search box or the Baidu search app. Also because China's nature as the banking market, the offline businesses, the traditional business are not very sadly, in terms of Internet, especially mobile. So we need to do more than the Internet player seeing that the developed markets. This also present, additional opportunity, for Baidu, if we do more, we should be able to make more out of, this kind of services. Your next question comes from Eddie Loon from Merrill Lynch. Please ask your question. You guys have been making quite some progress on mobile search, but I have a question on your PC search. I understand that, it seems that you have been not improving your results as well as your monetization system on PC search. While some of your competitors are probably focused more on distribution. However, according to different traffic reports of reasons, it seems like your competitor confused to have some private share. So just want to get some of your 4 on the longer term competitive landscape on PC search? Thank you. Think, longer term, the market share is going to be decided largely, by the quality of the search or the use experience you provide. And on this front, we, you know, undoubtedly has the edge over our competition. Having said that, we acknowledge that, a small percentage of search traffic can be directed, through certain control of, channels like a browser. So you see that micro software, controls the IE browser. So, they can, gain certain amount of search traffic for that browser. Certain, you know, domestic competitors in China also control a percentage the browser market, so they can, they can control certain percent of the search traffic on on PC. But, at the end of day, Baidu is a very strong branding search. In the mind of Chinese Internet users, and we provide a superior user experience for those users who, do care the quality, off search. We think Baidu is, it's the choice for them. So going forward, we are quite confident that by providing the best user experience, combining with the strong search brand, we'll continue to dominate the PC search market. Your next question comes from Lucy Lee from Citigroup. Please ask your question. Good morning. Thanks for taking my questions. I have a question about the mobile monetizations. What's the revenue contribution from the mobile side in the third quarter. And in terms of the mobile search, category, is the top advertising category on the mobile side? Is there any big difference from the PC? Thanks for that. Yeah. Thank you. We decided not to, disclose the exact percentage of mobile revenue quarter by quarter. We just like to, qualitatively say, you know, how, pleased that we are about the the mobile, traffic, monetization, scroll and the potential. We will probably disclose this number when we think it there's some material change, that, well, shape the the shape, the overall bins for Baidu, terms of, top categories, we think that it's, it's pretty much similar to, to the desktop search, Jennifer, do you have more color on that? I I think there's our customers are, as you know, you're using the integrated bidding system to, to promote their products and services on our platform, both through the PC as well as mobile. So there is not much of the advertising sector difference, compared to the, compared to PC. Your next question comes from Mumbai from Goldman Sachs. Please ask your question. Robin, Jennifer, congratulations on a very strong number and your guidance for the fourth quarter. Could you talk the contribution from could you shed some light on how e commerce is panning out? Thank you. If we look at our key sectors, where the revenue contributions are, you know, amounting the top, in the past, we've provided the top 5 And in this quarter, you know, I would name the top 5 sectors continues to be consistently the same, namely medical health care, education, travel, machinery equipment, and online games. So these these threats sectors has been consistent. With regards to e commerce, we do separately from a different angle to look at e commerce growth and overall e commerce roll very strongly, I would say both on the Q on Q and year on year basis, it's growing faster than the larger, the overall average Your next question comes from Andy Jung from Oppenheimer. Hi, good morning. Thank you for taking my question. Can you give us some colors on the trend for your natural trial big versus acquired traffic in both PC and mobile search? And how would you, see those trend impacting your traffic exchange cost in the long run. As I said in the the prepared remark, the you call it natural traffic, we call it organic traffic for, Baidu, has been growing faster than the acquired the traffic. We see this as a trend as a very positive trend that we are providing good user experience and our brand is better and better recognized by the mobile users. And, in terms of PC, I think the traffic mix has been relatively stable. And with regards to the TAC, a composition related to surge traffic, as I've highlighted, the tag changes are mainly driven by contextual business that is non search traffic related as well as our 123 promotion So it's the tag itself, its movement is not a reflection of, you know, it is consistent with what what Robin is saying. Your next question comes from Ming Zhao from 86Research. Please ask your question. Thank you for taking my questions. My question is on the vertical approach. So I assume you are talking about the Zixin system. I'm not saying that it's good for user experience and to keep them on your properties for longer But from monetization perspective, does that mean a significant increase in ad inventories? So is it addition to the Phoenix net or is it going to replace it in the long run? And also maybe Jennifer, could you comment on margin outlook for the fourth quarter and beyond? Thank you. Yeah. In terms of the juicing vertical, we are trying to change the format of, of both the content and the sponsored, contents. We just don't believe that a sample, you know, Python and summary is the best way to present this kind of information to our users. By having a more sophisticated way of presenting this kind of information, we are, able to in general create better ROI, for our, for our customers. So that will increase monetization eventually. And it's not really a Apple to apple comparison in inventories. It's more about a different form of inventory. And with regards to, margin, as you know, we're very focused on growing our top line business and manage prunely our investments, which go through the expense line items. The margin is never a target for us, but I do, you know, have, I have in the past is some guidance, you know, to try to be helpful. Over the past 2 quarters, I've said that the, for the whole year, the last two quarters, are reflective of the year over year for the whole year's operating margins, kind of a change for the yearly base is. And for the past Q3, as you can see, a lot of the line items, the pattern continues to hold I would highlight that going into Q4, the tag will continue to increase as the general trend consistent with last year. At the same time, we are stepping up our SG and A expenses to promote our mobile So as this I have indicated in the past that, you know, 2nd half SG and A expenses will step up because a lot of our products are ready. So for the whole year, I think the guidance will be consistent as I've said in the past. And I would say over the past two Q1 and Q2, if you see 12% to 13% as the indicative, for the whole year's operating margin change level, I would towards more of the higher end. As now, we hold it into a PPS and, you know, a new business entities that are not generating the kind of operating margin as the main business. Your next question comes from Eric Wen from China Renaissance. Please ask your question. Hi, thanks for taking my questions and congratulations on the quick quarter and guidance. I just have one question in terms of 91 wireless. How should we model the intangible amortizations and goodwill allocation? Heading to fourth quarter and beyond 6 B? There will be some intangible, amortization going through operational, cost line items. We have, you know, going through this line item in the past you have seen related to Chinar, to GE as well as PPS. And there will be further items going through This card, card, card, I think is specifically pinned down this, at this point, is, is not the way that we have done in the past. I have tried to give you the indication between operations operational cost and content cost. If you look at that together, the Q4 level, I would say, step up compared to Q3 mirrors the Q2 and the Q1 relationship or Q or Q2 relationship. Your next question comes from Cynthia Meng from Jefferies. Please ask your question. Thank you, Jennifer, and Robin, and congratulations for the good result. My question is regarding the CPC on mobile, we hear anecdotal comments about mobile CPC being 50% of that of Just want to know if management is seeing any trend that the gap between mobile CVC and PC, CBC being narrowed? I kind of answered this question previously. The gap is certainly narrowing, but, that, CPC for mobile is still, lower meaningfully lower than on PC. 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. Yeah. 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 You may now disconnect.