Earnings Call: Q2 2013

Jul 25, 2013

Earnings release

Hello, and thank you for standing by for Baidu's 2nd quarter 2013 earnings conference call. Call. Today's conference is being recorded. I would now like to turn the meeting over to your host for today's conference, Victor Tseng, Baidu's Investor Relations Director. Hello, everyone, and welcome to Baidu's 2nd quarter 2013 earnings conference call. Baidu's earnings release was issued it 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 Office 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 Private Securities Litigation Reform Act of 1995. Forward looking statements are subject to risks and on such 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 the 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 in this call include discussions of certain unaudited non GAAP financial measures. Our press release contains a reconciliation of the unaudited non GAAP measure to the unaudited most directly comparable GAAP measures and is available on our IR website at ir. Baidu dot 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 pleased with the headwind we made in the second quarter. We delivered a solid financial performance and customer acquisition on the Baidu platform for stronger than ever as we added a record of 58,000 active online marketing customers. Adoption of our mobile platform gained tremendous momentum, driven in part by the launch of our integrated PC and mobile bidding platform. And for the first time, mobile revenue accounted for over 10 of our total revenue. As we have said before, we are in this for the long term, We've made great progress. We will continue to invest and execute on our roadmap to enhance Baidu's position as the center of China's internet. Before we go into a more detailed discussion, I want to quickly mention the announcement we made last week regarding our planned acquisition of 91 wireless a leading mobile app distribution platform. We look forward to providing more information once we sign a definitive agreement. However, we won't be able to answer questions on this subject on today's call Looking now to highlights from the 2nd quarter. Our core search business grew strongly this quarter. Made further improvements in terms of user experience and monetization, leveraging the advances we have made in deep learning we talked a little bit about the knowledge graph functionality on desktop search. We're now able to predict with good accuracy, what the users looking for by drawing relationships between related topics. And we are able to deliver relevant content in a structured format that both directly resolved the user's initial query and help them discover new information quickly and easily. This quarter, we wrote this new format out in selected verticals, giving users a better search experience and giving customers more effective ways to engage with users. We do this through better integration of structured information using data provided by our partners and customers. For example, in online gaming, if users search for a specific web game or even just the generic term fun games. They will be presented with categories to help them further refine their search. Images of game titles that can be played through a single click and suggestions for related games We have already heard great feedback and plan a further rollout into additional verticals in the current quarter. We also did a lot of work to reinforce Baidu's position as a trusted brand a safe search experience. There are a couple of developments we focused on to achieve this. One is the introduction of verified customer accounts, whereby prescreened verified customers now appear with the letter V on their results page. The majority of our customers now have the plus V verification. We also introduced our Netifin Rights Protection Initiative, which allows users to submit a claim if they feel they have been defrauded or harmed in some way through a sponsored link on the Baidu platform. After going through a straightforward compliance process, a user's claim can be substantiated We compensate them up to a certain amount. We received a great feedback from users and customers, and we are proud that these efforts are contributing to a safer, fairer online environment. On the customer front, as I've mentioned, we added a total of 58,000 online active customers in Q2. This is the most we've ever added in a single quarter and it's a real sign of the progress we've made in demonstrating the value of Baidu form. A part of this was nationwide search engine marketing campaign we launched in the quarter. During which we really highlighted mobile. This was our biggest push to date with close to 400 events in over 2 fifty cities. During the quarter, we also took a big step in rolling out and integrated the PC and mobile bidding system. Customers are still getting accustomed to the upgraded system, but so far has been positive. Today, Our efforts to educate customers and drive adoption of mobile advertising channel are paying off As demonstrated by the milestone we reached with mobile revenue increasingly customers are coming to realize the compelling opportunities inherent in Baidu's mobile new ad inventory, new forms of engaging users like click to call and click to chat. And better at targeting and higher click through rates. We expect further progress in the coming quarters as we push through with technological improvements in areas like geotargeting and click through rate prediction. Maidu has also taken the lead in providing customers with free tools such as site app to assist them with building out their mobile landing pages. The number of customers with optimized mobile landing pages has grown exponentially from last quarter. This is great progress as our customers clearly see value in investing in mobile. And today, our of our mobile search revenues come from customers with mobile optimized websites, further demonstrating the progress we have made and the potential still ahead. The strides we made in the buyer in terms of increasing mobile adoption and giving customers more ways to engage users drove clear improvement in both desktop and the mobile monetization. Our improvements in semantic intelligence deep learning technology and bidding systems optimization are driving meaningful improvements in ad relevance click through rates and CPM all the time. So we are optimistic we can maintain this trajectory. On the user side, over the last quarter our flagship mobile search offering continued to grow in popularity. It is now firmly established as one of the most actively used mobile services in China. And encouragingly our own native mobile search app and mobile browser are now the biggest drivers of growth within overall mobile traffic. We also continue to build up our market leading alternative input methods namely voice and image recognition. And we launched a cutting edge general image search feature on stu.baidu.com whereby users can input adding picture to search for similar ones on the internet. This technology is based technology combined with our in photo wunder, our top ranked photo app. Mobile Maps is the key gateway to mobile internet, and we've been really encouraged by the continued traction of our offering in this area. According to CNNIC, we have the most popular mobile map with over 40% of the user service choosing Maidu's mobile app, putting Baidu far ahead of the next provider, which is around 23%. We have the largest, most comprehensive point of interest database on the market and we continuously building out value added features such as hotel booking, movie ticket booking, and social features like share my location and find friends. Baidu is also an important gateway for app distribution both through search and through our App Store. This quarter, app distribution through the Baidu platform increased more than fivefold year on year and the acquisition of online video unit of PPS which will continue to operate a sub brand of ITE. Following the successful merger with ITE, we now have the largest line video platform by number of mobile users and video viewing time. PPS is very complimentary to IKE due to its differentiated user base distribution channel and clear leadership in mobile. The scale of the combined platform positions Iqiyi well in this strategically important vertical. Overall Q2 was a great quarter, especially in terms of our progress in mobile. The investment we've been making our driving growth in the areas that will matter the most going forward, whether it's search, LBS, app, distribution or online video. With our market leading technology and the strides we are making in segment we expect long term growth, we are confident Naidu will be at the core of China's internet for a long time to come. Before handing over to Jennifer for a closer look at the financials, I would like to remind everyone that Michael Ward 2013 will be held on August 22nd in Beijing. As always, we will be lass and initiatives, I hope to see many of you there. Over to you, Jennifer. Thanks, Robin. Hello, everyone. We were pleased to maintain strong growth on the on the top line this quarter as we pushed forward with our aggressive time accounted for over 10% of total revenue. In Q2, we increased our focus on promotional efforts to drive user adoption of search marketing campaign and continue our aggressive investment in R&D. We will continue to invest and position ourselves for the opportunities ahead to drive long term value for our shareholders our investment focus remains on infrastructure and R&D as well as marketing and promotional efforts to drive product adoption, particularly in mobile. Alongside this, we'll continue to pursue suitable M and A opportunities complement organic growth. Now moving on to the financials. All monetary amounts are in RMB unless otherwise noted. Year over year. During the second quarter, Baidu had approximately 468,000 active online marketing customers, a 33% increase from the corresponding period in 2012 and a 14% increase from the previous quarter. Revenue per online marketing from the corresponding period in 2012 and an increase of 11% from the previous quarter. Traffic acquisition cost as a component of cost of revenues in Q2 was RMB880 1,000,000 or 11.6 percent of total revenue as compared to 8.3% in the corresponding period in 20 12 and 10.2% in the first quarter. The increase mainly reflects increased to contextual app contribution and how 1 to 3 promotion through our network. Bandwidth and depreciation cost as percent of revenues in Q2 was 6% and 4.7% respectively compared to 4.4% and 6.5% in corresponding period of 2012. The increase was mainly due to an increase in network infrastructure capacity. Content cost As a component of cost of revenues, $151,000,000, representing 2% of total revenues. Compared to 0.6% in inclusion of IKE's content cost. New content is important for IKE's business and we continue to invest in this area. SG and A expenses in Q2 were RMB1.1 billion, an increase of 83% year over year, mainly due promotional expenses for our mobile products. Mobile promotional expenses include pre installation and downloads of Baidu App in mobile devices. Also, as some of you may have already seen in the city of Beijing, we're conducting offline marketing to promote our mobile map product. The campaign was launched at the end of Q2 and will mainly be carried out in Q3. We'll continue to invest in marketing spend in Q3 and this line item should step up next quarter. The expenses are necessary and will be monitored closely for effectiveness. R and D expenses in Q2 were R942 1,000,000, increase of 73% over the corresponding period in 2012, primarily due to increase in the number of R and D personnel. Search based compensation expenses, which were allocated to related operating costs and expense line items, increased in aggregate to $83,000,000 in the 2nd quarter from $54,000,000 in the corresponding period in 2012. The increase was a result of more shares being granted to employees. Operating profit for Q2 was RMB2.9 billion, an increase of 3% over Q2 2012. Total headcount as of June 30th, 2013, was about 24,000, a sequential increase of about 2100 employees, of which 800 were due to our acquisition of KPM. Income tax expense was RMB513 1,000,000 for the 2nd quarter. The effective tax rate for the 2nd quarter was 16.3% compared to 7.9% in the corresponding period of 2012. We benefited from a 1 off low tax rate in Q2 20 12, due to tax provision adjusted for 1 of our subsidiaries. Net income attributable to Baidu for Q2 was 2.6 1,000,000,000, a 5% decrease from the corresponding period in 2012. Basic and diluted earnings attributable to Baidu ADS for the second quarter of 2013 amounted to 7.52 and 7.52 respectively. Net income attributable to Baidu, excluding share based compensation expenses, a non GAAP measure for Q2 was RMB 2,700,000,000, a 3% decrease year over year. Basic and diluted earnings attributable to Baidu per ADS, excluding share based compensation expenses, both non GAAP measures were 7.76and7.75 respectively. As a June 30, 2013, the company had cash, cash equivalents, and short term investments of 34,100,000,000. Net operating cash inflow for the second quarter of 2013 was RMB 3,200,000,000. Capital expenditure for Q2 were RMB 548 1,000,000. Now let me provide you with our top line guidance for Q3 of 2013. We currently expect total revenue for the third quarter to be between RMB8.73 billion and RMB8.96 billion representing a 39.7 percent to 43.3 percent year on year increase. Please note this forecast reflects Baidu's current and preliminary view, which is subject to change. I now open the call to questions. Operator, Please go ahead. In order you. Your first question comes from the text robbing and general for the introduction. My question is, I want to know the revenue and the the net adds of online active customers. If we exclude the acquisitions and, exclude the the the the the traffic spot from Baidu Alliance. I want to know the mobile business margin, versus the PC business margin. Thank you. Excuses. I didn't quite understand the first part of your question. Now do you mind repeating? Sure. I want to know now that revenue growth is like 30 8%, right? What day if we exclude the acquisitions and then the revenues from, like, Baidu Alliance. If we exclude that, how much revenue growth we would have. And I know the, 58, 1000 not as for the online customers is a historic high. What if we exclude the the acquisitions? How much net adds do we have? Yeah, his question is if we don't count the acquisitions, we'll be how many customers less, how much revenue would be less than the current and what's the growth rate and apple to apple comparison basis. Obviously, one of the highlights for the quarter was the phenomenal growth in new customer additions. As you can understand, the platforms that we offer and the revenues that we earn, most of the customers are small, medium sized enterprises. When you think about the acquisitions, whether it's video or, you know, it's our travel, vertical search these are largely larger customers. So predominantly the net add of customers are coming from the Baidu Maine business. So that is the fundamental driver basically for the outstanding performance on Q2. Your next question comes from the line of Eddie Leung of Merrill Lynch. Please go ahead. Hey. Good morning, guys. Thank you for taking my questions. I'm actually, more curious on your first quarter guidance. We see the revenue growth, would be pretty impressive. I guess you're probably of that, property because of a food consolidation of PTS. And as well as the growth of contextual advertising, so I'm wondering, Jennifer, if you could give us some color on how should we look at the margin? Because, I suspect some of these growth drivers could have lower margins than the core search pieces. And then your another quick question is, could you remind us what's in other services revenue? Thank you. Yes. Yes. And in Q3, I think the whole guidance would reflect the consolidated picture on includes the PPS acquisition. From a margin standpoint, we have provided indications over the last quarter, as we reported on Q1, if you look at the year over year change in terms of operating margins, the levels, and the magnitude in the line items, it is pretty much predictive and indicative, you know, for the current outlook as you look at our business going forward. Specifically, last quarter, you see a 12 point change in operating margin. And this quarter, you're looking at a 13%. So ballpark, you know, I think that gives you a pretty good indicative level. Yes. As we've been talking about the 2 year transition period, we have been aggressively investing in the core business as well as the new growth drivers like a video LBS and some of the verticals during the investment period, the margins would be lower, but we do expect that the high growth potential will more than pay off in the future. Your next question comes from the line of Alan Halewell of Deutsche Bank. Please go ahead. Yeah. Hi, guys. Questions just about, TAC, if you don't mind. Jennifer mentioned that contextual ads and how 123 promotions but not only drove tax growth in the second quarter. If I could just ask a simple question, if I, if I'm simply a Baidu union search partner, Am I generally receiving the same revenue share as I would have same time last year, or or in the first quarter for that matter? And then also second part of the TAC question. We generally were thinking about a 50 to 100 basis points per quarter lift intact, throughout the year. And if I'm not mistaken, last quarter alone, it was maybe 120 or 140 basis points quarter on quarter. What does that say for the, the formula that we would have used for the rest of the year? Thank you. Yes. As you can tell from the attack as a percentage of total revenue, it is higher than a year ago. And in terms of revenue sharing ratio, it is slightly higher than a year ago, but not very material. And Alan, to your question, if a union pop that receives this kind of a revenue share from us, it really depends on the mix of the kind of contribution that brings to our platform. Majority of the tax spend and the tax increases are due to contractual business. And contextual business generates incremental revenue for us, and we share a part of that with our union partners. And as I mentioned also how 1, 2, 3 promotion is a driver for the increase of TAD and that has been going on since the last quarter as well. So overall, as Robby mentioned, the arrangement hasn't really changed per se. The initiatives were driving specifically are mainly in contextual ad and HAW 1, 2, 3. As you look into the future for the rest of the year, I think looking at TAC, obviously, it's dynamic and, it depends on the mix of the different sources of our revenue the our union partners help us bring in. And, I think 2012, the quarterly relationship of, the Q2 to Q4 timeframe, give you a reference of how you might be able to think about the going forward. Your next question comes from the line of Kyung Cho of Macquarie. Please go ahead. Thank you very much for taking my question. And congrats on the good results and guidance, before my I asked my question, I have a clarification. I I think Roslyn and Jennifer mentioned that, Q2, margins operating margin will be indicative for the future. Should we interpret that as the margins going forward? Should we sort of flattish from Q2 level? To that question, I would say the year over year change. As we mentioned, you know, we're in a very aggressive, investment mode. We have been investing consistently in infrastructure and R&D and this year, in particular, sales and marketing is a main focus to drive our products. And so if you look at the year over year change in terms of operating margin levels, that's what I'm referring to as indicative, not the absolute level is Oh, okay. Then if that's the case, could you please comment on the absolute level? I think this is a comparison really based off the 2012 level. I think that's a simple math. Your next question comes from the line of Jin Yoon of Nomura. In your prepared remarks, you mentioned that your bundling mobile queries or mobile search with the PC side. Does that mean that you're mandating your PC search customers to also buy inventory on the mobile side? And if so, what percentage of your total customer base is actually buying inventory or buying inventory on the mobile side? Thanks. What's up there? Thanks. All of our customers have the option to use either PC or mobile or both. They have full flexibility to decide how much percent of their budget will be spent on mobile or on the PC platform, it's the integrated platform that makes placing, ad or sponsored links on both, desktop and mobile easier and the experience, it is better. And, plus we provide a lot of optimization tools for mobile and campaigns. I think customers are increasingly, adopting the the mobile platform, but, they do have the option to about But there's no mandate in terms of, allowing, customers to or requiring customers to put XBAW percentage of their or revenue on the mobile side? There's no mandate, but there's all kinds of suggestions and customers can change the the percentage to whatever they like. Of Morgan Stanley. And congrats on the solid quarter. Could you please help us, understand more about our mobile sales for this quarter? Wonder how much of them are coming from the keyword bidding service. And, also, what percentage is from other mobile services such as other advertising or mobile videos? Thank you. Oh, I didn't quite get how much of the revenue coming from Predominantly, the mobile revenue we're generating are through the integrated bidding system that help our customers when they're at campaign across the different device. So the main mobile revenue is really coming from our search, the search business model and bidding for targeted performance for our customers. Other ancillary, mobile products generates minimum revenue. Your next question comes from the line of Cynthia Meng of freeze. Please go ahead. Thank you Jennifer and Robin for giving us the opportunity and congratulations for the good quarter and guidance. My question is on the acquisition of 91 wireless. Can management give more color on the strategy behind that. They also, the strategy to integrate that business with Baidu's own application store? And what is your outlook for the revenue potential from this acquisition? Thank you. Hi, Cynthia. Thank you for your question. We mentioned at the beginning of the call that everybody is aware that we signed the MOU on acquisition of 91. But, you know, we're still in the process to reach a definite agreement agreement. So once we do have the agreement signed and the picture much clearer, we will be, obviously sharing more details with you. Your next question comes from the line of Chi Tsang of HSBC. Please go ahead. I was interested sort of in your earlier comments out, you know, improving monetization on both mobile as well as desktop. I was wondering specifically as it relates to the desktop business what improving monetization might suggest, in terms of both CPC growth as well as sort of paid clicks. So I think a lot of is very concerned about what's happening on the desktop side. So if you can give us a little bit more color about that, that would be very helpful. Thank you. Our monetization improvement really has been solid and strong on both the PC front as well as mobile front. In the PC front, in particular, this quarter, we see strong CPM improvements and the CPM improvements is mainly delivered by the number of clicks that we drive rather than CPC. So we see that as a pretty positive development continues to be driving higher ROI and really more desired results for our customer spend. So pretty, that basically is the main driver. It's the number of clicks. Your next question comes from the line of Alicia Yap of Barclays. Please go ahead. Hi, good morning Robin, Jennifer and Victor. Thanks for taking my questions and congratulations on the solid results and guidance. My question is regarding your 3Q guidance. So, if the reaccelerations of the growth, may you confirm the continued from growth of mobile revenue? And could you share with us among the advertiser which verticals or industry actually have shown stronger adoptions to mobile search right now. And if you can also share with us, you know, mobile query trap take our contribution to the total queries right now. Thank you. Regarding to the mobile, what we have seen is that those verticals that heavily rely on Baidu platform, which is generally pretty much performance driven, have been adopting the mobile strategy or optimizing the lending page quite aggressively. So you see that customers from the health care from education. They have been making the mobile friendly website and we are very pleased that those large spenders almost all have a mobile friendly website In terms of, you know, mobile traffic and CPM growth, I think, this is the very, very early stage of mobile search on both traffic and monetization have a lot of potential going forward over the past quarter, I think both metrics have grown very, very significantly, and we do expect that kind of growth will continue. Does that answer your question? Let's keep moving. Operator, Your next question comes from Please go ahead. Hi, good morning, Robin and Jennifer and Victor. Congratulations on a solid quarter. My question is about, can you guys tell us the number of daily active users for your mobile web search in the second quarter. I remember, it's about 100,000,000 in the first quarter. And my second question is regarding the transition. I remember management has talked about the 2 years transitional period. Is there any change in your view that mobile search monetization capabilities come faster than your expectation? Thanks. I'll get back to the queue. Okay. Regarding to the, daily active user, we mentioned that it just surpassed 100,000,000 during the last quarter, I would say that this quarter, we also saw very significant growth in terms of daily active user. But I would rather not to report this number quarter after quarter. We just very significant growth in terms of mobile traffic and mobile monetization. As for the efficient period, 2 year is a rough estimate exactly how fast as the monetization capability improves or how fast the page view on role, it both decided by the market condition and by our investment in this area. We do not want to over monetize the mobile search traffic at this time. So, a priority is placed on improving user experience for our mobile search to deliver, you know, faster, more relevant results users and also to convert or help convert many offices, PC friendly content into mobile friendly content would be our priority. I think part of the reason that mobile revenue grow very significantly during the last quarter is because our customers are increasingly having a really smartphone friendly mobile websites. Your next question comes from the line of Andy Young of Oppenheimer. Please go ahead. Hi, thank you for taking my question. I have 2 quick questions. 1 is in term of your advertisers, what's the percentage of, customer have beginning to advertise on your mobile platform? And then the quick question is regarding PC, Curry Williams, is what concern you know, regarding PC, Curry growth may decline. So can you give us some color on, you know, what's a curry, the trend in in the P. D. Curry volume? A super majority of our customers are advertising both on the desktop platform and the mobile platform. What's the second part of that? On the PC core volume overall, you know, as you know, we look at our, search to service to the users, holistic perspective. And overall, quarry volume has been, having solid growth. And ultimately, we're serving the user's information needs through different devices, but ultimately it's all supported. It's a search need and it's supported by our, strong technology platforms that offers the simple and comprehensive answers to the users. So we haven't really segregated your PC versus mobile volume. As you can understand, really the tremendous growth is on the mobile side. PC is not obviously as as mobile, but overall volume is a very solid growth. Your next question comes from the line of Alex Yao of JPMorgan. My question is, about the impact from your integrated mobile feeding system. Your mobile monetization, key metrics such as CPC and, coverage, etcetera. Can you comment on this? Thank you. Yeah. The mobile monetization that has made a very significant progress over the past quarter, which means that both, coverage CPC, kick through rate, are growing. And in addition to that, like I mentioned, we are helping our customers to have come up with better, landing pages, we sometimes, force them to place those, you know, click to call or callback button, those kind of features to help customers to get better ROI. But as I said before, the priority here is really improve the user experience, we believe that having those kind of callback button or click to call button really helps the user. And, when we have a very dominant position in mobile information search and we will be able to monetize the mobile think that right now the focus is still on the user experience side. Your next question comes from the line of Pyush Mubayi of Goldman Sachs. Thank you for taking my question. Could you help us add some or could you help add some color to your mobile revenue number of 10% in terms of where you were a year ago, where you were a quarter ago. And also if possible, give us a sense of what percentage of traffic is originating on mobile? And might I clarify if, tablets are included as, mobile or do you consider them PC? Thank you. Mobile revenue when include, tablets, roughly quadrupled over a year ago. So that, will help you to understand that the growth. I don't think we have those detailed numbers in Yes. The mobile mobile revenue over, in the last year wasn't really the focus. As you know, over the past year or 2 years, the mobile usage really started to take off. And there has been constant improvement on our products to improve on the search experience. And I think only, you know, only, over this quarter that we reported, we're very pleased to see mobile now contributes more than 10% of our total revenue. Part of that is also has to do with the bidding platform that we made it much simpler for our advertisers. In terms of the mobile traffic, we have not made it a regular, regularly reported item, but mobile traffic obviously is growing, the last part, the last time that we reported on that was 20% of our total, total traffic and it continues to grow. And when we see mobile traffic, I mean, mobile revenue would represent more than 10%, that can mean including tablets or without tablets. So based on both criteria, mobile revenue exceed 10% over the 2nd of 86Research. Please go ahead. Hi, thank you very much. So Jennifer, if I look at your tax increase by almost to 300,000,000, let me be quarter over quarter, and marketing expense increased by almost 2 hun about $100,000,000 quarter over quarter. So what's the percentage of loss would you attribute to, the mobile side and she she would expect any step up in on the on the mobile's spending. Given these two items? Thank you. On tag, yes, there has been sizable step up. And as I mentioned, predominantly, it's related to contextual business as well as how 1, 2, 3 promotion. I do see in included in tag, the mobile revenue related tag, it has increased also in proportion to the, as a reflection of our mobile revenue growth, but that's not the main driver, quarter over quarter as you see the Q2 tag number. For sales and marketing expenses, the sequential increase I would say is, mostly driven by promotional expenses and that's a split between the NASH marketing campaign as well as the promotional efforts that we made predominantly for our mobile products. The national marketing campaign, I would say, is partly to develop the customer and these customers are, of course, contributing to both on the PC side as well as the mobile side. But predominantly a lot of the marketing efforts and the spending is related to mobile products. The main spenders would be our search box and map products. And we are also doing offline map promotion for users to really understand the full value propositions that can be can really made available on our map platform. And, and as I mentioned in the, prepared remarks, I do expect the sales and marketing expense continued to add job as a percent of total revenue. Your next question comes from the line of Mugee Li of Citigroup. Please go ahead. I would like to ask about the c the CPC trend over the past the quarter and how does the CDC trend between mobile and the and the PC split, like, what percentage of a, differences between the And finally, will the company disclose the mobile revenue in the future? On the CPC, as I mentioned, overall monetization capabilities improved on both the PC and the mobile side mobile CPC is not, you know, up to the PC CPC level, but, it continues to increase, in comparison. As more customers are using the mobile platforms, the, you know, the bidding itself will get more engaged and the drive, partly the CPC higher. And so that's really a reflection of customer's acceptance of the mobile advertising platform. So continue the progress on CPC but also back to the earlier comment I made, that's not the main driver of the overall CPM improvements, though. Your next question comes from the comes from the line of Fongering of Breen Capital. Please go ahead. Thank you for taking my questions. First one is actually regarding 3Q guidance. Just wonder whether you could give us a little bit more color because it's a very strong guidance, try to get a sense how much of impact does it come from the consolidation of PPS? Also wonder whether you have factor in a partial consolidation of the likely the 91 wireless acquisition. In addition, you did really well in on the mobile side. Just wonder what's the trend we should expect in 3Q and what's the potential mobile revenue target by the PPS transaction was closed in Q2. And in the Q2 number, there was about a 1 month inclusion of the PPS Financial. Q3 sequentially, it would, of course, have the full quarter's consolidation in including PPS. So sequentially, there is a, a small, I think, you know, a small increase of, a contribution from PPS. But PPS overall and together with PE is really a very small component of our total revenue contribution. So the main business continues to grow solidly and these investments we're making are also performing well. And on your question for, mobile revenue contribution, you know, we will report back when we have, you know, really meaningful material progress on this front, we will not likely make this a regularly reported item, but we will update everybody the progress we're making promptly. Yes, right now we prefer to do this kind of more qualitative description about mobile trend and mobile revenue because I think there is no widely accepted standard for what's mobile search does that include tablets, what about Android path and mobile revenue from non search, products, there are lots of moving pieces. And as we form our strategy in mobile and going forward when we have a better, you know, definition and a better, you know, track record of mobile related revenue, we will certainly give you more, quantitative number Your next question comes from the Thanks a lot. I was wondering if you could talk about your video monetization strategy, and, I have a follow-up. Thanks. I think it's very straightforward. My video has a lot of bot user and the video viewing time or media time is very long and growing faster than the general Internet usage and the main monetization is through advertising, mostly those video, commercials. It's very easy to move the TV commercial content to the video platform. So I think the monetization method is quite straightforward. Your next question comes from the line of Gena Chen of T. H. Capital. Hi, good morning. This is Gina Chen on for Tian Ho. I was just wondering if you could just kind of give more color on what the percent of search traffic is from mobile? Thank you. Yes, like I said before, we will not report that the mobile traffic percentage at the quarter when there's significant change in terms of percentage. For example, if one day the mobile traffic goes over 50%. We'll certainly let you know, but for those regular quarter on quarter changes, we prefer now to report the exact numbers. Your next question comes from the line of Wendy Huang of Standard Chartered Bank. Questions and congratulations on the progress you made on the mobile side. So I have 2 questions. One is a follow-up question on the CPC or mobile and PC Can you clarify whether you are still seeing the CPC increase on the TC side? And also I noted that in some other countries, the CPC of mobile and PC actually are already become quite similar. So do you expect in the long term in China market the mobile CPC can reach the level that of the PC level? And also my second question is regarding your mobile internet blueprint. So you are promoting your mobile map, starting from the second quarter and also you're already the number one in the mobile search and you just announced the MoU regarding the mobile app distribution platform. What are the other areas in the mobile footprint that you expect to strengthen in the next 12 months? And in particular, what will you do with your mobile browser and more so when will you launch maybe the in app search? That's a lot of questions. The CPC on mobile is still lower than PC right now. But, like I said, the the the monetization, all of the monetization metrics for mobile has been growing very quickly. In terms of tablet, for Ipads to be specific, the cost per click is higher than that of PC already for Baidu. And longer term, we are optimistic that the CPC on mobile, could catch up that off PC because of the smaller screen and the users have a better attention on the mobile sponsored links. Regarding to the mobile internet blueprint, the so called blueprint, I kind of mentioned that there are for strategically important directions, we are aggressively investing in search, of course, will be the first one and the mobile app distribution, map or LBS and video are both growing very, very quickly. So we are aggressively investing in all our the 4 strategic areas. Your next question comes from the line of Aidan Yu of CICC. Please go ahead. In regard of the mobile advertising? And did you see or would you see any cannibalization between your PC search and your mobile search feed system. And how would you see the landscape going forward compared to a landscape going forward as Tencent is already launched? It's a mobile 8 FDA. Yeah. Regarding to mobile advertising, search is very, very unique in the sense that, advertisers or customers can never buy enough amount of traffic. So it's not a budget allocation problem. It's more of a supplydemand problem. There are always not enough supply for search traffic, be it, desktop, or mobile. And, that's why we pretty much focus on improving the user experience, get users, what they want or what they're looking for, through our, mobile search services, desktop search services, and other related services, So in this sense, we are not, not much competing for, customer budgets. We are more competing on the user base and traffic Your next question comes from the line of Alicia Yap of Barclays. Please go ahead. Hi. Thanks for taking my follow-up questions. Just quickly regarding your mobile revenue, just have, I wonder whether you have any revenues come from your app distribution, your current your app store, and any revenue shares come from some of the mobile games? Yes, there are already revenue coming from the app distribution, but the very small, we also have mobile games through our mobile app distribution capabilities. We monetize the distribution capability mainly through mobile games. And that's, of course, being growing very, very fast over the past quarter. We are now approaching the end of the conference call. Chief Executive Officer Robin Lee for his closing remarks. Once again, thank you for joining us today. Please do not hesitate to contact This concludes the presentation.