Thank you for standing by for Baidu's fourth quarter and full year 2012 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, and 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, Victor Tseng, Baidu's Investor Relations Director.
Hello, everyone, welcome to Baidu's fourth quarter and full year 2012 earnings conference call. Baidu's earnings release was distributed earlier today, you can find a copy on our website as well as on Newswire services. Today, you will hear from Robin Li, Baidu's Chief Executive Officer, and Jennifer Li, 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 CEO, Robin Li.
Hello, everyone, thank you for joining today's call. In many ways, the atmosphere over the last year with the whole industry shifting into the mobile space feels a lot like the early days of the Internet. This is a huge change, we are feeling energized by the opportunities before us. The mobile and cloud-based products we are developing are our best and most creative work to date, I'm incredibly excited about the innovation that's coming out of the Baidu campus. This is the kind of atmosphere in which Baidu thrives. This is a great time to be at Baidu. Going into 2013, I'm more convinced than ever that we've got the right recipe for success. We want to give users the best experience across desktop and mobile devices, integrate with the cloud, and push out the most exciting new technologies.
With these ingredients in place, Baidu is in a great position to lead the next stage of China's internet innovation. Of course, there's a lot of work ahead of us as we transform Baidu for a new world of mobile. But we are off to a great start. Our internal tracking shows Baidu is the clear market share leader with around 80 million daily active users for our flagship web search product on mobile. We expect this trend to continue as Baidu search results become more and more location sensitive and personalized. In time of disruptive change, having killer app is key, and Baidu's LBS and maps services continue to be stars. Installations of the Baidu Maps app grow over 50% quarter-over-quarter in Q4. Ours is now the clear number 1 maps app in China with over 3.5 million daily active users.
On top of this organic growth, we are expanding partnerships with handset makers to drive more pre-installations and usage. We are turning the low-usage map service into a high-usage LBS platform to solve people's problems. By integrating data and information from our own verticals and from a whole range of third parties like SouFun in real estate, Qunar in travel, and New Oriental in education, to name a few, Baidu now has the most comprehensive data set of any LBS service provider. With a huge database of merchants and other useful local information. With more coming on board all the time, users will want to use us daily instead of weekly or monthly. A real breakthrough this last quarter was Baidu Voice Assistant. Built on self-developed voice recognition technology with the highest accuracy in Mandarin Chinese of any system on the market today.
Our voice assistant gives users fast, intuitive, and accurate responses from their device. This is more than just a voice-activated search. Voice commands are a key functionality. Now I can ask my device, "Sing a song of Andy Lau for me. Show me TVs at under RMB 3,000." Or, "Where's the nearest Bank of China?" I can ask the voice assistant to set an alarm to wake me up at 6:00 A.M. tomorrow morning, or to show me the holiday schedule for the upcoming Chinese New Year break. Voice assistant is fully integrated with all our vertical services, Baidu Tieba, and Baidu Knows as well. Our image recognition technology continue to become more sophisticated as well. Today, we have the world's most comprehensive index of facial images and increasingly powerful image matching technology with an ever-widening range of applications, from finding information to mobile commerce.
We are just in the initial stages. We are rapidly fulfilling our vision for image recognition to be just as effective an input method as text or indeed voice. In terms of client-side software, we launched an updated version of our Baidu Browser in Q4, which has seen excellent uptake. The new version is 30% faster and includes better-categorized content. The browser combines unrivaled speed with very efficient data compression, both of which were big factors in securing the deal we signed recently with France Telecom-Orange in the Middle East and Africa. The exciting work we've been doing in mobile also extends to our strategically important verticals in areas such as online video and travel. As we've said, iQIYI is well established as a top player in the market, with a leading position in terms of user time spent.
We're very encouraged by the progress it has made in the mobile space. Traffic and app installations are both growing exponentially. The iQIYI app has already hit over 100 million downloads, and 32% of its traffic is now from mobile. As content costs have stabilized, iQIYI has established a firm position in mobile and is very well-recognized by brand advertisers. We are very optimistic about the future here. Qunar is also positioned as a market leader in an area that is seeing some very exciting growth. It was the most popular travel app on the market last year, with over 24 million downloads, according to CNNIC's annual report. The same report showed around 20% of internet users in China booked their travel online in 2012, which is over double the figure from 2011.
This includes train tickets, air tickets, hotel rooms, and package tours, all of which Qunar enjoys a strong position in. With mobile booking penetration rates under 6%, there's still huge room for growth here. Turning now to the customer front. We added over 100,000 customers in 2012 to bring us to a pool of almost 600,000 on the Baidu platform. The vast majority of these customers are still coming to terms with the shift to mobile. At present, only a small fraction of merchants have optimized mobile websites. We see it as our job to help them develop the right infrastructure, resources, and know-how to convert mobile leads effectively. Although there is a lot of work ahead on this front, we are confident in the potential for growth. As I have said before, it will take a couple of years to close this gap.
We also continue to make exciting progress with large customers. Most recently, our sales team has been rolling out a new model of cooperation in important industry verticals, like the leading insurer, Ping An. In this model, the customer allocates budgets for a joint project with us, and we, in turn, open our platform to make certain data resources available in order to facilitate more seamless cooperation and better marketing ROI. Our strategic partnership with Ping An is developing new products to reach China's fast-growing legion of car owners. We all look to replicate this model we've pioneered with Ping An with other leading players in traditional industry verticals like finance, FMCG, retail, and automotive. In turn, the close working relationship we are establishing with these leading vertical players should create more opportunities in these key sectors.
As I said earlier, 2012 was a year of transition as we enter a new period of really exciting opportunity in the mobile internet space. We expect this transitional phase to accelerate in 2013 as we aggressively market our suite of products and increase our ability to monetize mobile search. Alongside this, initiatives like the Institute of Deep Learning, our first research lab launching this year, will enhance our ability to innovate and develop cutting-edge new products. By deploying the knowledge and resources we have at our disposal, I'm confident that the future opportunities will outmatch anything we've ever seen. We are just getting started. With that, I'll now turn the call over to Jennifer for a look at our financials.
Thank you, Robin. Hello, everyone. I'm pleased that we're ending another productive year with a strong set of results for the fourth quarter. I'd like to share a few highlights with you before turning to our financial results. As Robin laid out in his prepared remarks, this is a transformative period for the industry. The opportunity is enormous, and we are fully focused on growing our business. 2012 saw us launch many great products that we've integrated seamlessly into the Baidu ecosystem. In 2013, we'll continue to invest, and we'll be stepping up promotional efforts to drive installation and usage of our products. M&A efforts will continue to complement our disciplined approach to investment and channel building. As you will have seen, we completed the iQIYI transaction and consolidated their financials on December 1st. All the line items in our P&L now reflect this consolidation.
I will now take you through the highlights of our Q4 and full year financial results. All monetary amounts are in RMB unless otherwise noted. For the fourth quarter, total revenues were RMB 6.3 billion, representing a 42% increase year-on-year. Total revenues for the full year 2012 were RMB 22.3 billion, an increase of approximately 54% from 2011. During the fourth quarter, Baidu had approximately 406,000 active online marketing customers, a 31% increase from the corresponding period in 2011 and a 4% increase from the previous quarter. Revenue per online marketing customer for the fourth quarter was approximately RMB 15,500, an 8% increase from the corresponding period in 2011, and a decrease of 3% from the previous quarter. For the full year 2012, active online marketing customers increased by 22%, and revenue per online marketing customers increased by 26% over the full year of 2011.
Traffic acquisition cost as a component of cost of revenue in Q4 was RMB 607 million or 9.6% of total revenues, compared to 7.9% in the corresponding period in 2011 and 8.6% in the third quarter of 2012. TAC as a percent of revenue for the full year 2012 was 8.7%, up from 8% for 2011, which primarily reflects the increased revenue contribution of contextual ads and Hao123 promotion through our network. The Baidu Union Network continues to be an important driver of Baidu's overall revenue growth. We expect to leverage our network further to extract more 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 TAC as a percent of revenue to continue increasing over the medium term.
Bandwidth cost and depreciation cost as a percent of revenue in Q4 were 5.3% and 5%, respectively, compared to 4.3% and 4.8% in the corresponding period in 2011. In 2012, bandwidth and depreciation cost as a percent of revenue increased to 4.8% and 4.9%, respectively, compared to 4.3% and 4.5%, respectively in 2011. The increase was mainly due to an increase in network infrastructure capacity. We expect to see more bandwidth and depreciation costs in 2013 as we sustain investment in network infrastructure and also the contribution from iQIYI consolidation. Content cost was included in operational costs previously and mainly consists of amortization of licensed content cost from copyright owners or content distributors and cost of self-produced content. With the iQIYI consolidation, we have separated this line item. Content cost as a component of cost of revenue in Q4 were RMB 120 million, representing 1.9% of total revenues.
Compared to 0.6% in the corresponding period in 2011. Total content costs for 2012 were RMB 215 million, representing 1% of total revenues, compared to 0.5% in 2011. This increase in content cost was largely attributable to the consolidation of iQIYI, as said before. Selling, General & Administrative expenses in Q4 was RMB 792 million, an increase of 52% year-over-year. Total SG&A expenses for 2012 were RMB 2.5 billion, a 48% increase from 2011, mainly due to increased headcount related expenses, marketing expenses related mostly to mobile products, and the consolidation of iQIYI. 2013 will be an important year to position Baidu's many great products, particularly in mobile. We will look to aggressively drive installation and usage. In Q1, we will up our marketing efforts during the Chinese New Year period to promote our mobile products. These expenses are necessary and will be closely monitored for effectiveness.
R&D expenses in Q4 were RMB 702 million, an increase of 70% over the corresponding period in 2011, primarily due to increased headcount. Total R&D expenses for 2012 were RMB 2.3 billion, a 73% increase from 2011, reflecting our continued emphasis on investing in top R&D talent. Share-based compensation expenses, which were allocated to related operating costs and expense line items, increased in aggregate to RMB 67 million in the fourth quarter from RMB 47 million in the corresponding period in 2011. SBC expenses for 2012 increased to 40% over the 2011 level. We plan to put greater emphasis on SBC to attract and incentivize key talent. Operating profit for Q4 was RMB 2.8 billion, an increase of 24% over Q4 2011. Operating profit for the full year 2012 increased 46% from 2011. The one-month consolidation of iQIYI negatively impacted our overall operating margin by a little over one point.
Loss from equity method accounting was RMB 122 million in Q4 2012 and RMB 294 million in 2012 versus RMB 8 million in Q4 2011 and RMB 179 million in the whole year of 2011. This increase mainly reflects the loss pickup from Baidu's cash investment in iQIYI for the months of October and November 2012 and other invested entities. Having consolidated iQIYI in December, we will not be incurring any more loss pick-ups related to this investment going forward. Other income was RMB 381 million in Q4 and RMB 455 million in the whole year of 2012 versus RMB 21 million in Q4 of 2011 and RMB 78 million in the whole year of 2011. This increase mainly reflects a one-time gain for fair value adjustment arising from the iQIYI transaction. Total headcount as of December 31, 2012, was approximately 20,900, an increase of 4,800 versus the end of 2011.
R&D and the consolidation of iQIYI's 1,000 employees were the main drivers of this increase. In the fourth quarter, headcount increased by roughly 2,200 sequentially. In 2013, we will continue to increase headcount with more emphasis on R&D expansion. Income tax expense was RMB 540 million for the fourth quarter. The effective tax rate for the fourth quarter was 16.2%, compared to 16.5% in Q4 2011. For the full year, our effective tax rate was 13.2%, compared to 15.2% in 2011. The year-over-year decrease in the effective tax rate was mainly due to recognition of tax benefits obtained in 2012 for the year before. For 2013, we expect our effective tax rate to be in the mid to high teen levels. Net income attributable to Baidu for Q4 was RMB 2.8 billion, a 36% increase from the corresponding period in 2011.
Basic and diluted earnings attributable to Baidu per ADS for the fourth quarter of 2012 amounted to RMB 8 and RMB 7.99 respectively. Net income attributed to Baidu for the full year increased by 58%. Net income attributable to Baidu, excluding share-based compensation expenses, a non-GAAP measure for Q4, was RMB 2.9 billion, a 36% increase year-over-year. Basic and diluted earnings attributable to Baidu per ADS, excluding share-based compensation expenses, both non-GAAP measures, were RMB 8.19 and RMB 8.18, respectively. Net income attributable to Baidu, excluding share-based compensation expenses for the full year, increased by 57%. As of December 31st, 2012, the company had cash equivalents, and short-term investments of $32.5 billion. Net operating cash inflow and capital expenditure for the fourth quarter of 2012 were RMB 3.4 billion and RMB 786 million respectively. Full-year net operating cash inflow and capital expenditures were RMB 12.6 billion and RMB 2.3 billion respectively.
In 2013, we plan to sustain our network infrastructure spend. Let me provide you with our top-line guidance for the first quarter of 2013. We currently expect total revenues for the first quarter of 2013 to be between RMB 5.89 billion and RMB 6.08 billion, which would represent a 38.1%-42.6% year-over-year increase. I do wish to emphasize that this forecast reflects Baidu's current and preliminary view, which is subject to change. I will now open the call to questions. Operator, please go ahead.
The question and answer session of this conference call will start in a moment. In order to be fair to all callers who wish to ask questions, we will take one question at a time from each caller. If you have more than one question, please request to join the question queue again after your first question has been addressed. Please press *1 to ask your question. The first question comes from Dick Wei. Please ask your question.
Hello, good morning. Thank you for taking my questions. My question is on iQIYI. Can management talk about the impact on iQIYI consolidation into the financial numbers? I guess, first of all, I'm not sure if you can share about the revenue contribution, and was it booked on the other revenue or other services line? Also, some of the cost items, for example, bandwidth cost was up like 25% sequentially. Was it due to iQIYI as well? Lastly, Jennifer mentioned about this 1% impact in operating margin. Was it on a one-month basis, or was it more on the three months or on an annual ongoing basis? Thank you.
Hi, Dick. As I just stated in the Q4 of 2012, we completed the iQIYI transaction. iQIYI's financial beginning on December 1 was consolidated. The full fourth quarter financial reflects one month's consolidation of the results of iQIYI. Specifically to your question, iQIYI's revenue contribution to the top line, in comparison to the large scale of our business, is very small. However, in terms of category, it does have 2 categories. One is most of their revenue is online marketing revenue, as would be included in our general category of online marketing revenue. There's also our other revenue that you would see in this Q4 P&L. This is basically related to some of the copyrights that iQIYI is allowed to redistribute some of the content to other players. This is not categorized as online marketing revenue.
You would get a glimpse of the quality of basically the categories of the revenues from iQIYI. Overall, the contribution is very small. Bandwidth cost, to your question, does impact the overall sequential increase for Q4. If you look at our bandwidth sequential increases over the past few quarters, that give you the idea of the magnitude of Baidu's own business, how that has been migrating, and there has been additional increase because of the iQIYI consolidation. Having said that, I would say majority of the sequential bandwidth increase is because of Baidu's own business, not iQIYI. Bandwidth as a single item for iQIYI, of course, as you can appreciate for online video business, is a meaningful item.
Going forward, as we look at bandwidth, as I said, we will continue to invest in infrastructure and with bigger server farms and more traffic that needs to be handled, you should continue to expect bandwidth to increase over 2013, and on top of that would be the impact of iQIYI as well. I hope that give you a glimpse of the bandwidth in itself. The 1% I mentioned about the impact for Q4 is a one-month impact of iQIYI. If you want to refer that to get a fuller glimpse of the whole quarter, I think you can do the math on your own. That would be indicative of iQIYI's overall margin impact to the Baidu whole book.
Okay. Your next question comes from Alicia Yap. Please ask your question
Hi. Good morning, Robin, Jennifer, and Victor. Thanks for taking my questions. My question is regarding the ARPU. Can you explain or clarify the reasons why the ARPU for the quarter experienced a slight sequential decline? Was that mainly due to a challenging economic environment, or was that related to available of a new alternative player? How should we estimate this trend going forward? Will the high single-digit growth of ARPU is more reasonable going forward instead of the double-digit previously? Thank you.
Hi, Alicia. As you would have observed the trend over the past few quarters, we've been very successful in adding the number of customers to our platform. Most of the addition was developed in the SME business, the small medium-sized businesses, and our sales force has been very effective in executing that focus for our workforce this year. Many of the additions, because they are small businesses and particularly developed in second and third-tier cities, their spending power is not as it used to be. If you recall, in 2011, we did benefit significantly from tremendous growth in the large customers account. The year-on-year ARPU number would be somewhat affected by that. Having said that, you are also aware that the whole industry, including our customers, are seeing the transition to mobile.
Our sales force, our focus in 2013 is to ensure that we provide the right service and support to our current customers to continue to help them get the kind of desired ROI they're looking for and also educate them about the benefit of mobile platform going forward. That is basically the driver for the ARPU trend, and we will continue to be very focused on deliver high-quality service to these SME customers.
Okay, can I follow up on that? With the more focus of the sa les force driving to the mobile platform, will that also kind of indicate a little bit lower ARPU given mobile may be a little bit lower conversion?
The ARPU, Alicia, the ARPU is based on the combination of desktop search and mobile search. I would not think that mobile would necessarily negatively impact the ARPU. Overall, it should be incremental to the customer spending.
Okay, great. Thank you. Get back to the queue.
Your next question comes from Qi Sang. Please ask your question.
Hi. Thank you for taking my question. Just a couple of things. I'm wondering now with, if you folks have iQIYI firmly in control, I'm wondering if you can talk about your strategy going forward, whether it's sort of increased monetization potential or sort of increase your library. Secondly, clearly you guys are focused more on M&A this year. Following the debt deal, the first thing you did was consolidate and take control of iQIYI. I was wondering if you can give us a better idea of what sort of transactions might make sense for you this year as it relates to mobile client software, things of that nature. Thank you.
Yeah. For the video, we obviously think that it is important to us, it is also growing very quickly in terms of consumer time spent on the video, and we think we need to have a better control on that. For one thing, we will continue to aggressively invest in the video space to make sure that it will continue to be successful. In terms of strategic areas, I basically covered a lot of them during the prepared remarks. There are verticals that we like a lot. Video is one, and travel is another. We are also looking at other or all kinds of verticals and continue to evaluate what sector would make sense for us to gain more strategic hold. Overall for the company, I think for 2013, mobile is probably the most important strategic area for us.
Thank you.
Your next question comes from Jiong Shao. Please ask your question. Jiong Shao, do you have your question? It seems there is no response from that line. Cynthia Meng, please ask your question.
Thank you. I have a question on mobile. Can management give more color on the % of revenue coming from mobile for right now and also any guidance of what we should expect for 2013? Is mobile CPC lower than on the PC side? What is the % of mobile CPC as a % of PC cost per click? Thank you.
We have mentioned in the past that the whole industry is going through a transition to mobile. It's a very exciting time for us all. Having said that, the users habit and even our customers are continuing in that phase of migration. There hasn't been meaningful revenue that's contributed from the mobile or even efforts on our side. I think today, a lot of the efforts is on the user side. Going forward, I think mobile affords tremendous opportunity because it does afford more accurate information for search engines, and it allows our customers to target their potential customers more effectively and accurately. Today it's too early to comment on the CPC trend or even the monetization power. It's very exciting and very promising. As we said, the whole transition will take a couple of years to close the gap.
Your next question comes from Alex Yao. Please ask your question.
Hi, good morning, everyone, and thank you very much for taking my question. My question is about the mobile internet development in 2013. What are the key goals or targets you would like to achieve in 2013? What are the resources that are necessary to achieve these targets? Thank you.
There are basically two goals for our mobile strategy. The first and foremost is obviously mobile search. We want to make sure that users have the best experience in mobile search on Baidu, so we have been aggressively investing in this area to make sure the mobile search will continue to be the main gateway to internet for most of the users going forward. It's in the very early stage of development. We are adding a lot of new features to our mobile search almost on a weekly basis, if not on a daily basis. When I said early, I can give you an example. Mobile search this year is pretty much like 1999 for desktop search. On average, it took more than two seconds to return search results for desktop search at that time. Today, it's the same for mobile search.
Even for this kind of slow response speed, consumers are moving quickly to the mobile device to get information. We are very encouraged and excited, and we feel we need to invest to make sure we have the best search experience for our users. In addition to search, we are also investing in mobile ecosystem. We are building all kinds of tools and service capabilities for all kinds of app developers so that they can quickly build up functionalities and serve their targeted customers. We believe by fostering a healthy and large and the fast-growing mobile community, when more content, more information, more data, and more services become available on the mobile internet, people will become increasingly dependent on Baidu services. We are investing in that front, too.
Your next question comes from Jiong Shaa. Please ask your question.
Good morning. Thank you for taking my question. I have a couple of very quick ones. Just for your IGE revenue contribution for your Q1, I was wondering, do you have a number you can give to us how much of revenue from IGE you have embedded, factoring for your Q1 revenue guidance? Just following up on Robin's comments on mobile just a minute ago, would you be able to share with us now sort of roughly what kind of a traffic contribution from mobile or sort of a year-over-year, quarter-over-quarter rapid growth in mobile search queries? Thank you.
In terms of the IGE revenue contribution, as I said, with the backdrop of the overall Baidu platform business, IGE's business is really very material in comparison. You do know that we do have the IGE and we also have the Qunar. These companies, we don't separate disclose because of the materiality test is not met. That give you an idea. They're not that much different, per se, in terms of revenue contribution. Therefore, the overall guidance that you're seeing predominantly is Baidu's main business driven mainly by that.
For the mobile traffic, it's obviously growing at a much faster rate than the overall search market. Mobile search will represent an ever larger percentage of our total search traffic. I figure it probably does not make sense for us to report this number quarter by quarter. The strategic direction is quite obvious. I think I will update you when the mobile search traffic overtakes desktop search one day, and I think that will happen sooner rather than later. We just think that there is a lot of room for improvement for the mobile search technology, as well as for the overall mobile infrastructure, speed, cost of the bandwidth, all kinds of supporting technology, browser technology, operating system technology. All these kind of things will become better and better. Customers or users will search more on their mobile device.
Also, there are other forms of products or services that are closely related to mobile search. For example, the Voice Assistant product I talked about, although a lot of the requests are not really search, but there will be a very large percentage of the Voice Assistant traffic based on search. Consumers will have a lot more ways to look for information or to search for information on the mobile. We will gradually consolidate all kinds of the traffic and make the overall search experience better, and hopefully we can better monetize that in the future.
Your next question comes from Jin Yoon. Please ask your question.
Yes, good morning. Just a couple of things. Can you talk about your Traffic Acquisition Cost in the quarter? We saw a pretty significant sequential increase. First of all, how much of that is due to one-time costs or seasonality, versus what's occurring? Second of all, with the Traffic Acquisition Cost, how much of the increase is really coming from the likes of competition or from the likes of mobile now? That's my first question. My second question has to do with what comments that Robin made earlier, saying that, I think you said that mobile is not impacting ARPU. Can you clarify that? Given the fact that mobile has lower CPC, why wouldn't it have an impact on ARPU? Thanks.
Hi, Jin. On the traffic acquisition cost, you did observe that in Q4, the TAC as a % of revenue has stepped up. As I said earlier, the sequential increase is mainly due to contribution of contextual ad business as well as promotion for our products, such as Hao123. This is not seasonal. This is intended. I've said for a few quarters now that we are leveraging this Union network to grow new business such as contextual business, at the same time to also dynamically managing the partner relationships to promote our own products such as Hao123 and Baidu Browser. This is only really just the starting. We are stepping up our TAC, as I indicated before.
You should continue to expect that the TAC rate is managed dynamically. We are very ready to take advantage of this network to promote our products, as well as grow new business. Very little of the TAC is related to mobile, as we said earlier. Mobile monetization is really in its very early stage. Therefore, the TAC number that you're seeing had very little to do with mobile business.
Jin, just to give you more information on the mobile impact on ARPU. I think ARPU is decided by a number of factors, including our customer's budget, our inventory or traffic, the click-through rate, and CPC. Budget is not negatively impacted by mobile, obviously. Probably positively impacted. Although it's not obvious right now, but it should become obvious going forward. In terms of inventory or traffic, I think that, net mobile traffic is incremental to desktop search traffic, or it actually adds more inventory for our search traffic. The CPC is lower. Right now it's roughly half of the desktop search CPC, but click-through rate is not necessarily lower. If you combine all this kind of information, I would see ARPU is not necessarily going to be negatively impacted by mobile.
Your next question comes from Andy Yeung. Please ask your question.
Hi. Good morning. Thank you for taking my question. My question is about your investment in M&A strategy. Given your financial strength and your goal to build a ecosystem, can you give us some color on your organic growth and M&A strategy? How do you manage the division of labor between these two strategies?
As I said before, M&A is an important element to complement our organic growth. We have the leading market position in search technology, and that is our core competency. As the whole industry is looking into mobile, I think it's great to have the resources and ability and see the kind of innovative efforts in the industry that Baidu can invest in. As Robin mentioned earlier, our key strategic focus for 2013 is mobile. If we are launching M&A efforts, that would follow our overall strategy. We have also, in the past, invested in key verticals. You can see that our M&A strategy is really to enhance our core competency to capture the main verticals to help with the ecosystem build-up as well to invest in innovative companies, which help us position ourselves in the new industry evolutions.
That is basically how we manage our M&A initiatives.
I just want to emphasize that acquisition is not our main growth strategy. We have a lot of room for growth for our organic traffic, our own products, and we are also aggressively investing in building new products and technologies. Mobile acquisition will complement this kind of effort, but it's not going to be the main growth driver.
Your next question comes from Piyush Mubayi. Please ask your question.
Good morning. Could I just ask about desktop search trends, both from a revenue perspective as well as actual search perspective? Thank you.
Desktop search has been soft during the past quarter. We expect that trend will continue for the coming year. You may know that new PC shipment last year actually had a decrease over 2011. We are not so optimistic about the new PC shipments this year either. Desktop search will continue to be a very important way for people to find information, but the real growth side is on mobile.
I think it's important to note that ultimately, we're providing search and information services regardless of the end user devices that's coming from. We do see queries coming from a wide range of new devices. That continues to fill the overall usage of internet and people taking advantage of search engine services.
Your next question comes from Eddie Leung. Please ask your question.
Good morning. Thank you for taking my questions. My question is more on iQIYI. Could you comment on the content investment trends in 2013, as we have heard different stories about the content cost trends in the industry. Just want to get an idea on the investment amount as well as the content cost trend in the industry. Thanks.
Hi, Eddie. With the consolidation of iQIYI, we've separated the content cost line item. It is an important cost component for the online video business. I think for some of the publicly listed companies, they provide an indicative trend in terms of content. I think the market does have an expectation of how that looks like. For us, I think historically that has been mixed together with the operational cost line item. I think if we look at those two line items together, as you look into 2013, its Q4 level will probably give you an indicative line level going into 2013. Specifically, what I was saying is operational cost line item and the content cost line item, if you look at that together, the Q4 level should be indicative.
Not necessarily meaningful to single out the content cost line item because Baidu's overall cost base is so huge.
Next question comes from Vasan Ling. Please ask your question.
On the iQIYI's content cost, I see that in Q4, the content cost is RMB 120 million. Is that just for one month? If I were to think about extrapolating that, or do I think about the RMB 215 million that it spends over the whole of 2012?
The RMB 120 million, majority of that is iQIYI related. You would see that before the iQIYI consolidation, we do have some content cost, and this is related to some of the data, music and stuff like that we do acquire. That is a one-month impact, but the RMB 120 million is not all because of iQIYI.
Got it. Thanks.
Your next question comes from Mu Ze Li. Please ask your question.
Hi. Thank you for taking my question. I would like to ask the management to give some guidance for the margin trends going into 2013, and how should we model the sales and marketing and the R&D expenses into the future? Thank you.
All right. Okay. As you know, we have been investing, I indicated that very clearly earlier, that in 2013, we have many great products that we look to aggressively promote through the different kind of channels. The SG&A expense as a % of revenue in Q4, you would have already seen some of the efforts taking in shape. Historically, you have seen SG&A expenses scale with the fast growth of our business. In 2013, as we aggressively promote our readily great products, I would not expect the SG&A line to further scale, that's on the SG&A expenses. On R&D, as I said earlier, that has been our focus in terms of investment, that focus will continue to carry. We do plan some headcount increases, if we look at 2013, predominantly, that kind of human resources investment would be focused on R&D.
The Q4 R&D expense as a % of revenue should be relatively largely indicative for you as you look into the years out.
Your next question comes from Catherine Leung. Please ask your question.
Hi. Thank you for taking my question. My question is on the mobile monetization. I understand that you're testing mobile Phoenix Nest, and so I'm curious, what are the main factors determining when you will officially launch the system, and how would you expect advertisers to allocate budgets after this is officially launched, as we think about the proportion of traffic coming from mobile versus desktop? Thank you.
Mobile monetization is very early at this stage. We are experimenting all kinds of possibilities, like how many ads or promotional links we show on the search result page, and how do we display advertising information or even how do we track conversion, and all of these things are moving pieces. It's very early for us to give you any guidance on the trends. What we know is that mobile traffic continue to grow very quickly. We wanted to build the best user experience first, and we will continue to help our customers to build up a mobile-friendly website or app so that their conversion will improve. As the ROI improves for our customers, they will allocate more budget to the mobile advertising space.
Right now, our customers are given a choice whether they want their budget to be spent on mobile only or both mobile and desktop or only desktops. Many of them choose to spend both on mobile and desktops. It's just not many people really understand how to promote their product and services through mobile search or through their mobile site. There's a lot of work that we need to do to make that a better channel for our advertisers and customers.
Your next question comes from Wendy Huang. Please ask your question.
Hi. Thank you. My question is mainly about the desktop search. I think in the past one year, we have seen Facebook launch their Graph Search, Google launch Knowledge Graph, and also even Sina Weibo integrated the Renren social to do the social search. I just wonder what effort will you make on the PC front to defend your market share on the PC, and also to improve the user experience as well as the monetization further. Thank you.
Yeah, that's a great question. We think search is still young. There are a lot of ways we can improve the user experience, and there's a lot of ways we can develop a new technology to make the desktop search experience better. Let me give you a couple of the examples. For almost 15, 20 years, search result looks like the same. You have a list of 10 links, title, summary, those kind of things. We figured in a lot of verticals, we can serve the users' needs better by giving them different kind of information or different kind of display of information. That's what Aladdin was aimed for. We figured there are a lot more user requests that can be matched with a more diversified or versatile way of displaying this kind of information, including things like you just mentioned, Knowledge Graph.
When you search for a celebrity name or a popular place that has an encyclopedia entry from Baidu, we can display those structured data in a more direct way to satisfy users' needs. There are also verticals, especially for those with commercial value, such as travel or e-commerce. There are much better ways to display information for our users instead of just a title and summary. We are doing a lot of that these days, and you will find the Baidu search result will look very different a year from now.
Your next question comes from Wallace Cheung. Please ask your question. Hey, Wallace Cheung, do you have a question? There is no response. We will move on to the next. Richard Ji, please ask your question.
Thanks for taking my call. Can you comment on the revenue split between your large corporate customer as well as the SMEs? Especially, I am also curious to know their different type of growth rate, especially given the ad market start to stabilize. Should we expect a meaningful pickup from your large corporate customers in terms of their ad budget allocation?
Hi, Richard. Historically, we have not publicly disclosed the split between SME and large customers. I can tell you, predominantly, majority of our business has been coming from SME, and the split that we internally measure has been pretty consistent. There are a lot of efforts and initiatives that we can do on both the SME front as well as the large customers. You do notice that over the 2012 year period, we continued to develop the SME market, that really just shows how tremendous the market potential is and how effective our sales force can be. At the same time, on the large customer side, yes, I think the whole macro environment, in 2012 was relatively depressed. Our sales force has been doing many different things with our large customers.
The initiative that we mentioned with customers such as Ping An is really to explore not only just web search, but also take advantage of the whole media platform value of Baidu. There is vast potential that continues to be on our platform that is yet to be exploited. We are working with the large customers, they are very receptive to the idea of doing online marketing and through the Baidu's different kind of user products. With experiments like that, we can really get to more of the large customers' ad budget. We do see, on both the SME and large customer side, there is a lot of initiatives and a lot of potentials for us to continue to grow our business.
Okay. We are now approaching the end of the conference call. I will now turn the call back to Robin Li, Baidu's Chief Executive Officer, for his closing remarks.
Once again, thank you for joining us today. Please do not hesitate to contact us if you have any further questions.
Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Good day