Earnings Call: Q3 2012

Oct 30, 2012

Earnings release

Hello, and thank you for standing by for Baidu's 3rd quarter 2012 earnings conference call. At this time, all participants are in a listen only mode. After management's prepared remarks, there will be a question and answer session Today's conference is being recorded. If you have any objections, you may disconnect at this time. I would now like to turn the meeting over to your host for today's conference, Victor Sassein, Baidu's Investor Relations Director. Hello, everyone, and welcome to Baidu's 3rd quarter 2012 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 I'm going to take a look at what's going on. I'm going to take a look at the Before we continue, please note that the discussion today will contain forward looking statements made on Novick, 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 we under applicable law. Our earnings press release and this call include discussions of certain unaudited Our press release contains a reconciliation of the unaudited non GAAP measures to the unaudited most 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 thanks for joining today's call. This was another solid quarter for Baidu We posted revenue in line with guidance despite evolving industry dynamics. Our focus on integrating our services to provide a seamless experience for users and to deliver unparalleled ROI for our customers. Continues to prove very successful. And as mobile traffic continues to top, we are investing aggressively to Siemens our leadership with users. We're also working hard to close the mobile money as a GAAP, although this will inevitably involve a period of transition. As you know, we hosted our annual Baidu World conference in September, where we shared a pre vision for our future in mobile and cloud. I'll say more card net customer add of 38,000 quarter on quarter, and that's a 28, customer growth year on year. As we continue to help SMEs in Second And Third Tier Cities leverage the Baidu platform for their marketing This was due largely to improvements to efficiency of our sales teams, March work remains to be done on this front, and we are just we've just begun to realize the potential here. More traditional advertisers are also came on board from sectors like food and beverage, cosmetics and retail in this quarter. These customers are still new to the online space and we are well positioned to benefit as they move budget to online marketing We continue to see strong contributions from the travel vertical we're spending on Baidu has outpaced industry growth. We are well placed to capture future opportunities in this important sector. Lastly, Leary tremendous room to improve monetization technologies and tools to create efficiencies for customers. This will continue to be a focal point, and we expect to continue seeing gradual contributions on this front. As you know, success ultimately rests on user experience. And that's the reason we work so hard to integrate reach relevant content with Swab Search. And this doesn't just mean Baidu content. It includes all other vertical partnerships, 3rd party apps, content, websites and sponsored links. This is what Box Computing is about. And on desktop, and mobile platforms, we are delivering this experience, about 80% of our searches. What's even more impressive is that over 50 percent of this box computing results involve integrated Baidu products. Our vertical products like Postbar, Baidu Knowles, Baidu In Cytopedia, Baidu Maps, Baidu Maps, Baidu Maps, Baidu image search and video search, travel sites, China and video site, ITE, are all leaders in their respective fields. And are improving all the time. By more closely integrating them with web search, we are taking the user experience to the next level. We've also integrated 100 of 1000 of apps onto our platform. This means Baidu search box can now apply semantic intelligence to return relevant app search results. For example, if a user searches for an accounting app to keep track of our finances, she will be served with a variety of relevant apps right on the search result page. This is the kind of significant experience PC and mobile users demand and will continuously improve our ecosystem growth. We truly believe that whoever offers users the best experience while weighing in the long term. And with our deep experience and on the bending of China's Internet, we are confident that we can do this better than anyone else. I also want to emphasize the progress we've made with IKE, which is a key strategic vertical for us. China's online video industry is growing rapidly. Monthly user time spent increased by over 100% year on year in August. Which is an incredible number. During this crucial period of growth, we are pleased that IT has established itself firmly as a premier player in the market. It has reached end that's driving brand recognition and greater of time spent per user and number 2 in terms of total monthly time spent according to high research. Monthly unique visitors reached 407,000,000 in Q3 compared to 250,000,000 last quarter. Due for about 20% of and the future is arriving fast. And Baidu is in a great position to meet the challenges and afford the opportunities brought by this PC to mobile evolution. To give you a sense of this, mobile search traffic was up 110% from Q3 last year and 25% from the previous border. And based on our internal tracking, we continue to enjoy an ever stronger position in the mobile search market. Following this trend we have seen some good progress on mobile monetization, even though this may be coming off a low base. While we are encouraged by this growth. It is still going to take customers time to catch up with the shift to mobile. As we've seen in more monetization platform, educating and encouraging customers to adopt to this channel. And developing mobile ready websites are just some of the tasks ahead. I would like to remind everyone that this is not the first time Midu has navigated a complicated transition. About 4 years ago, when we realized the ever larger internet search volume and customer number, required a more sophisticated monetization system, we started something called Finix Net. Educating customers was off paramount importance. We needed to encourage them to leverage the new SEEM tools offered by Phoenix Nest, and we had to demonstrate the system's clear benefit After much careful planning and extensive customer outreach, we made the decision to fully roll out PhoenixNAF to our execution capabilities. The large majority of our tenders of thousands of customers transitioned to this new monetization platform smoothly efficiently. And today, the Phoenix Master System serves as the sturdy foundation for our The PC to mobile base for us. This shift will also require a period of retooling and customer education as we show them how to take full advantage of the mobile internet opportunity. We are fully committed to pushing this transition forward and confident that our efforts in mobile monetization will pay off in the long run. Let me update you on our mobile and cloud products, staying ahead of industry developments, creating a seamless mobile internet experience, and growing mobile track users and usage are key priorities. Our progress on this front is reflected in the strong market position of both our mobile search and LBS products like Matt. As this year's Baidu World Conference, we announced that we will now open up our sophisticated cloud infrastructure to We officially rolled out powerful new tools and resources for developers, what we call our 7 weapons. This now is designed to enable developers to build, distribute, manage, store and optimize their apps on the Baidu cloud platform. Already over 100,000 developers have registered on the Baidu platform and as more onboard, the value of Baidu Cloud to users will increase exponentially. In mid September, we launched a version 4 10 of our mobile maps app, which further integrates our industry leading LBS functionality. This involves our free proprietary online voice navigation service and real time information for users on the go. That includes real time bus arrival times. We are particularly excited by the new indoor navigation functionality. We realize isn't enough to simply tell users how to get to the mall or the theater. This function means they can find their way to the exact shop or the exact ticket office they need to get to. And Baidu, LBS now movie theaters, Karaoke House, mall, Hotels, public transportation, supermarket, parks, and all kinds of services. So the commercial potential here is huge. The latest statistics from Analysis International Red Baidu Mobile Maps number 1 in daily active user accounts, and we are building on this position all the time. As you know, we announced a few days ago that we established an LBS, the unit, which will cover all map and previous local related products. This is an indication of how important LBS is strategically for us. Total user numbers are increasing exponentially at 9 times year on year this quarter. The new division will be focused on accelerating the expansion of our LVS services to build our the strong base we have already. So there's a lot more to come here. And as part of our mobile ecosystem, we also launched a new improved mobile browser this quarter, Our aim here was to produce a highly compatible versatile interface for users to enjoy all the rich services that Baidu and Baidu's developing ecosystem can provide. The browser features the fastest HTML 5 engine on the market today. It's gaining good traction and has seen over 10,000,000 activation in the first few weeks since its launch. To conclude, the transitioning search to a more mobile centric model is well underway in China. And while we are naturally very excited by this new opportunity, We also understand well the challenges that any evolution of this scale inevitably brings want to emphasize that there will be a transition period lasting a couple of years before the mobile monetization gap will close. But I also want to make it clear that there is much by doing already doing to close the gap. We are educating customers about the monetization for mobile. And perhaps, most importantly, we are building a compelling mobile ecosystem around Baidu Core products like mobile search maps and LBS and around Baidu's unrivaled cloud capabilities. The reward that mobile stands to bring are huge and with a clear strategy in place, we are focused confident and ready to win the future. With that, I'll now turn the call over to Jennifer go through the financials. Thank you, Robin. Hello, everyone. We posted another solid quarter with good top and bottom line growth. As Robin laid out in his prepared remarks, this is a transitional time for the industry internet in China to make sure we're capturing the tremendous market opportunities we see ahead. Will continue to increase the pace of investment in our key businesses and products, key personnel, key partners, and core in the U. S. And vertical content. Now I'd like to go through our financial results for the quarters with you. All amounts are in RMB unless otherwise noted. For the third quarter, total revenues were $6,300,000,000, representing a 49.7% increase year on year. During the third quarter, Baidu had approximately 390,000 active online marketing customers, a 28% increase from the corresponding period in 2011, and a 11% increase from the previous quarter. Revenue per online marketing customers for the third quarter was approximately 16,000 a 17% increase from the corresponding period in 2011, and an increase of 3% from the previous quarter. Traffic acquisition cost as a component of cost of revenue in Q3 was $538,000,000 or 8.6 percent of total revenues compared to 8% in the corresponding period in 20 11 and 8.3% in the previous quarter. The increase was mainly driven by increased promotion of Baidu's products and services, such as contextual S and how 123 through our network. As previously started, Faidu Union is an important network for us. We have quickly improved the quality of the network in the past 2 years. We manage a dynamic relationship with our partners, and we will leverage it to drive our own products current and new. As indicated before, we expect tax as a percent of revenue to trend upwards in the coming quarters as a result. Bandwidth and depreciation cost as a percent of revenue in Q3 were 4.3% and 4.5%, respectively, compared to 4% and 4.2% in the corresponding period of 2011. This increase was mainly due to a increase in network infrastructure co capacity. SG and A expense in Q3 were $643,000,000, an increase of 40% year on year. Primarily due to a increase in marketing and promotion related expense and people related expenses. For the coming quarter, we have a lot of exciting new products and features that we look to promote. R and D expenses in Q3 was $615,000,000, an increase of 61% over the corresponding period in 2011. Primarily due to increased headcount, reflecting our continued strategic investment in R&D talent. Share based compensation expenses, which were allocated to related operating costs and expense line items, increased in aggregate to RMB 57,000,000 in the 3rd quarter from RMB39 1,000,000 in the corresponding period in 2011. Share based compensation is an important component of our overall compensation and incentive structure. We plan to put more emphasis of this to attract and incentivize key talents. Operating profit for Q3 was $3,300,000,000, an increase of 48 percent over Q3 twenty eleven. Total headcount as of September 30, 2012 was about 18,600 and Income tax expense was quarter. The effective tax rate for the 3rd quarter was 13.5% compared to 14.5% in Q3 2010, in 2011. Net income attributable to Baidu for Q3 was 3,000,000,000 a 60% increase from the corresponding period in 2011. Basic and diluted earnings at available to Baidu for ADS for the third quarter of 2012 amounted to 8.60and8.59 50. Net income attributable to Baidu, excluding share based compensation expenses, a non GAAP measure for Q3 was 3,100,000,000, a 60% increase year on year. Basic and diluted earnings attributable to Baidu per ADS, excluding share based compensation expenses, all non GAAP measures were 8.76 and 8.76, respectively. As of September 30, 2012, the company had cash, cash equivalents, and short term investments of 21,300,000,000. Net operating cash inflow for the 3rd quarter of 2012 was 3,800,000,000. Capital expenditures for the third quarter of 2012 were 504,000,000. Now let me provide you with the top line guidance for the quarter for the fourth quarter of 2012. We currently fact, total revenues for the fourth quarter of 2012 to be between 6.155000000000 and 6.345000000000, which would represent a 37.6 to 41.8% year on 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 The question and answer session of this conference call will start in a moment. Questions. After your first question has been addressed. Your first question comes from the line of Dick Wei of JP Morgan. Please ask your question. Good morning. Thank you for taking my questions. I believe a couple of dynamics play out in the second half of the year, including macro slowdown in China some change in the comprehensive landscape, maybe mobile traffic changes as well as increases SME customer I wonder if management comment how this factor impacted the Q3 results and what are you factoring in for the Q4 guidance as well? Thank you. Hi, Dick. Good morning to you. As we have laid out, the main drivers for the business. We had a very solid quarter in Q3. We had net add in terms of a number of customers. And we continue to make a good progress with traditional advertisers on the large account basis. The overall market macro situation, obviously, if we compare that to last year is softer, not as strong as last year. And I think that we continue to have a very, very solid financial performance in this environment. We did put much emphasis in our prepared remarks to talk about the opportunities that lays ahead that's the transition of forces between PC to mobile. And I think there's tremendous opportunities that's laying ahead and there's much work, great progress that has been made by us. The opportunity is skewed and we are excited about that. We stand ready to educate the market, to help our customers and to take up your financial rewards from the new universe that mobile brings to us. So if if we look at, you know, comparatively to last year, the to sum up, the macro environment isn't as healthy, but I think from an execution standpoint, the team continues to demonstrate that we can really deliver on continues to develop the market and it also shows the market potential is huge. The industry is going to transition mobile's traffic is going up very fast, and I think we're all very excited about the new opportunities. So these are factors that played into the Q3, Q4 numbers, if back to your comments, you know, the competitive landscape no new entrants really had a material impact to us, in Q3 or in our Q4 forecast. Your next question comes from Good morning. I have two questions. The first one is, we have seen, it seems like there has in the deceleration, in the deferred revenue and customer deposits growth. So could you comment on front. And secondly, you also mentioned that, you haven't seen any material impact from new entrants on your financial results in the quarter as well as your fourth quarter guidance. But how about on the traffic side? Have we seen any impact on the side? Thank you very much. Eddie, deferred revenue and the customer deposits, I think you're right in looking at of these metrics as if there's any trend. I think majority, you know, for our business is from the SME And the SME business, they pay an upfront deposit. I think on these Q3, if you look at our balance sheet, the customer deposit continued to post the sequential, a very handsome increase. The deferred revenue is more a timing issue, it has something to do with part of our large account business, depends on the tests, such as if, you know, such as, you know, if the contract has been circulated back and we have all the proper paperwork in place, there is a little bit of timing difference, but deferred revenue itself is not really a indication of future business. When we talk about, the financial impacts and traffic impacts, I feel, I think, you know, if you guys have followed by do all along, throughout our history, we've had multiple entrance, multiple, you know, always very familiar with competition and what we believe is, the player that ultimately the highest quality of search results to the users that can really address the user's needs will win. And the traffic trend that we're seeing as we talked about in our prepared remarks, the tremendous opportunity is on mobile. And much as we look at the overall user's needs, these today come from multiple devices. And our ultimate goal is to address the user's needs, their search needs regardless of what kind of end devices come coming from. So this is the overall trend that we're seeing, obviously, you know, as I mentioned earlier, mobile is growing very fast and we're we are excited about that opportunity. Your next question comes from the line Alicia Yap of Barclays. Please ask your question. Questions. My question is regarding mobile. So in your view, what are your strengths, our competitive advantage as the traffic move from PC to mobile? And what do you think is your weakness or the areas that you believe you're in the improvement as we face the traffic dilution from PC? Thank you. Yes. As you know, we have a very dominant position in the desktop web search. We have been building the best quality search service for the Chinese users more for more than 10 years. And we have a great brand for search. When users shift from PC to mobile, they naturally would look for the same brand, same quality of services. So we enjoy a lot of benefits on the mobile front. Having said that, mobile search different from, that's up searching certain ways. That's why we are working very hard to come up with, search experiences that better address, those, unique needs for mobile users. And in terms of challenge, as I mentioned over the previous prepared remarks. There's a there's a shift. So many of our customers are not really ready for for the shift that their sites are not so mobile friendly. And they are not very used to come up with the creatives that are uniquely sued the mobile users' needs. In terms of the starting point, desktop search is the undisputed gateway or starting point for most of the, internet users on, on PC or on desktop. But on mobile, things are evolving very quickly. We have seen users to use their use apps. They spend a lot of time seeing apps but less times in browser. So, we offer both a browser, and an an app specially designed for our search product. We also have the best service in terms of LBS, especially Baidu Maps and our I also mentioned that has been growing tremendously. So going forward, on the mobile, there might be you know, multiple, starting points, like search, or or math, and we are, working hard to prepare for that. And I believe that, we will continue to, be the center, of the Internet ecosystem in the mobile age. Your next question comes from the Good morning. Thank you very much for taking my questions and, thanks for all the comments on mobile so far. I also want to follow-up on mobile as well. Could could you, remind us what's the, mobile search query just for search? What's the mobile search query as a percentage of the total query? And also could you please comment on your thoughts on the differences between coverage ratio, quickest rate, and keyword price for mobile, let's say, a couple of years out. Thank you. The, mobile traffic as a percentage of total search traffic continue to grow. And, like I mentioned, the year on year mobile traffic grow double digits. So you can get a sense, that the traffic mix continue to shift. And in terms of monetization, we have done a lot of things in and we're trying all kinds of different techniques to help educate our our customers. And the coverage click through rate, cost per click, all depends on the maturity of the mobile search market or for mobile paid search market So the monetization algorithm will continue to improve user experience or user interface continue to improve. But more importantly, our advertisers or customers, they need to come up with ways to fully take advantage of that. As I mentioned before, we expect this will take a couple of years to to close the the gap. Your next question comes from the line good morning, Robin. Jennifer and Victor, and it's I'm good to take my question. So first, congrats on the strong results, again, against the dynamic market. I will create a wonderful mobile and the other is vertical. So the first question is on Trina. So can you update the company's performance in the past quarters? The second question is also regarding to mobile So currently, I found that there are several debates in the area of mobile operating system. 1 is Alibaba team was further out by Google. The data have given the dispute. And the other is Huawei's management complained that they are not invited by the Microsoft to the conference of the launch of the Windows 8 for Windows 8. So my question is, and it's out, from the management about the trend, it seems that there will be a pressure that ecosystem based on different operating systems will become more and more closed. And if that, our big 3 operating systems are come, more cloud than before. So what kind of strategy that we can take to deal with that kind of challenges? So I will stop here. Thank you. Diete, good morning. I'll take your first question with regards to performance of Chiena. Chiena, is continues to perform very well. As we highlight in our own business, the traffic, the travel vertical outperformed industry leverage, in this past quarter. So we see strong travel vertical performance, our own platform. And since we consolidate the Chinar, overall financial numbers, the Chinar business itself also posted a strong Q3 performance. I think of both the that really proves that the travel vertical has great potential and, and we're well positioned to continue to perform well, leaving this vertical. The mobile OS question, our belief is that going forward, an operating system on any single device will become less and less important. The power resides on the cloud side and the integration, seamless integration between the terminal devices and mobile operating system and the cloud computing power. We believe the system well continue, offer opportunities at least to Linux based open source, it's not closed. And Jordan has promised it to be open. But even if they are not, and single operating system on a single device will become less relevant So we have the technology to come up with the necessary capabilities And we are busy building our computing power and infrastructure on the cloud side, and we're trying to fully integrate the client side and cloud side. And going forward, we believe this will become trend and, developers will follow us on this. Your next question comes from the line of Alex Yao of Deutsche Bank. Please ask your question. Hi, good morning, everyone, and thank you for taking my question. Can you share with us the traffic the surf traffic growth trend, the PC and the mobile side, and also the, the paid click growth. Specifically, I remember you guys mentioned in the first quarter conference call that mobile search represented about 20 end of the total traffic. So right now, it's still at 20%. Does it imply the PC PC traffic growth was similar to the mobile traffic growth. Thank you. First, on the traffic roles, as I mentioned, mobile is growing very quickly triple digits over year over year. PC traffic is certainly not as exciting But overall, consumers do have information needs, be it on desktop or mobile device or even television or, going forward, there will be multiple screens for consumers. And wherever they are, we just try to meet their information needs. The overall search market will continue to grow, where we just need to come up with the right monetization algorithms and educate our customers to take full advantage of this new computing environment and new devices. And on your question, I'll pay the clicks. Sequentially, the paid, pay the click continues to grow and is, of course, one of the drivers that, drove the Q3 in terms of sequential revenue increase. Your next question comes from the line of Wendy Huang of CIMB. Please ask your question. Thanks for taking my question. My question is on ARPU front. Historically, Q3 actually has been a strong season the sequential ARPU increase. But this quarter, we have been seeing very small ARPU increase. So is it a effect of the dilution of the new customer, or is it your pricing power or paid clicks growth has reached certain limits. Thank you. I think, Alicia, as Wendy, as you note, our revenue is driven by the number of customer growth as well as ARPU per account. We did add a lot of new customers this past quarter and these customers are majority of them are SMEs. And SMEs as we develop in Second And Third Tier Cities, they're spending power you know, these of these new players are not as strong as the existing or more, more bigger players. So that's one of the elements that's driving the ARPU number. I think one of the one of the reference I would refer was last year. Last year, ARPU did the post very strong sequential growth. And last year, if you recall, we had a significant outstanding performance by the large accounts. And the large accounts, not only because It was good services and players recognizing the value of our platform, to allocate more budgets. We also had top sectors like e Commerce and group buy. And these people were spending millions with us. So that was the driver for ARPU in the past year. And this year, as you have consistently seen, the SME development has been the theme and the SME's ARPU can abilities, of course, it's no comparison to the large accounts. So just to, follow-up on that, looking into the future, where your future focus more on the small customers or big customers. We continue to have room on both fronts. I think what we have posted in terms of net customer It shows that when you put in emphasize and continues to, really try to improve the process the market potential is there. It's really waiting for us to develop. And on the large client business, think we have highlighted some of the online players that they really know how to take advantage of search engine marketing. And traditional players, it takes time for us to develop and cultivate. This year, in particular, the medical sentiment is more tight compared to prior year. So we continue to do work on that front, but I think the bigger environment does not really allow the large customers to really grow at a fast pace. But from what we're seeing, the large clients continue to have huge budget opportunities that it takes us to and them to work together to move their budget over. So in terms of potential, it's there. I think those just both on the large client and SME businesses, it takes our work to continue to develop the market. Your next question comes from the line Hi. Good morning. Thank you for question. First, let me apologize if the audio very good because we're having a storm here in New York. My first question is about, you know, your current travel cost and investment levels. I think during the quarters, your cost and expense as a percentage of revenues actually came down a little that on a sequential basis. But, do you think, you know, that level of expense are sustainable during the transfer fee between, you know, desktop, mobile, and some of the Internet search industry, like, a landscape change. And how we model your level of your spending on traffic decision calls and on the and sales and marketing going forward. Great. I think, as I said, we posted very solid Q4 financial performance. We continue to enjoy high operating margin, but I have indicated for some time that we are in the investment cycle and we should not expect that this high level of operating margin will last forever And in terms of investment in RMA's clear indication that we're going to accelerate our investment pace, In terms of the expense line items, some of the items that you referred to tag, as I said, we manage a dynamic relationship with our partners and we leverage this union network to promote our products the network to promote our products such as how 123, such as new services and products that we want to push out through the union network. So through dynamic changes, we expect the tag rates to increase. I think if you look at the historical trends, historical ranges of the tag, you know, you know, it it is dynamic and it could could move, you know, quite, quite decisively. This past quarter, we have seen the marginal tick up. And as I indicated, clearly, we expect the trend to go up in the out quarters. In terms of other line item investments, people, we have consistently invested in our R&D talent and that has an established pattern and will be continuing to be our focus. I did indicate that SB see is a strong is a very valuable item for us to leverage to incentivize our staff. And that's one item that will continue. To, that we can leverage going forward. Infrastructure has been the theme for us to invest to support our strategic initiatives like cloud and mobile. And we have increased our pace in infrastructure set up and that momentum will carry. Sales and marketing, if we look at that, we have many exciting new products, particularly on the mobile front, to push out. And we'll use these line items to push our new products. I also indicated that, affects much new opportunities. And it takes, you know, we need speedy executions and we may leverage need to complement our organic investment to position us strategically in a timely fashion. So that's basically, if you look at the activities going forward, this is kind of the, picture. I would give you, a view as you look forward. Your next question comes from the line of Jane Munstar of Piper Jaffray. Please ask your question. Jennifer, if you could talk a little bit about the money, the the expenses related to new customer adds, you seem to have seen an acceleration in customer adds. Will, some of your marketing dollars remain pretty consistent as a percentage of sales. And so, are you just getting more leverage, or is that theme, you think that theme is going to continue? I seem to hear the message about you're going to be in investment mode. But maybe you can just talk a little bit about that specifically the new at? Thank you. New customers, that we really brought on board in the past quarter, are primarily SME and in both the direct sales force as well as the distribution networks the partners we have, both contributed to the customer growth. And some of these customers, they come from the 2nd, 3rd tier cities, and they are across the industry sectors. There are some new that are calculated in these different markets, sectors, and like, agriculture, even, or local, services, like, restaurants or business services. So these are smaller, businesses that, can may have little, marketing budgets to begin with. What we are doing on the sales team front is on one to train them, to really understand the search engine marketing. On the other hand, to give them better, more user friendly interface in terms of system so that they can self-service. So while we develop these customers in their budget may be slow. We hope that we will educate them and they can see improved and great ROIs and they can continue to work with us. So I think on the top line hand, the market opportunities there, the SMEs are out there, and we are reaching out to them to develop the market. So I think on those themes, it doesn't change. I think one of the features which relates to SME is we did make note that we're seeing tremendous growth in mobile and customers take time to really understand the benefit. And I think this is particularly true for SMEs. So they're positioned to take advantage of the mobile will be timely. We'll be, you will be time consuming and we'll take a lot of efforts from our end. And by the mobile, it is is the future. And, so it's it's, we have been talking about the opportunities in mobile, and the investment that we need to do there. And the investment, we're very clear on what we need to do. We have updated you about the progress we made on the mobile front. And I think, you know, over the next some, you know, few quarters, you know, even the number of years, we will be, you know, I think, positioned to really shape the mobile picture and really educate the customer to bring them onboarded to mobile front and they can leverage and take advantage of So this is the dynamics that's going Your next question comes from the line of Philip Wang of Morgan Stanley. Please ask your question. Hey, good morning. Thanks for taking my question. I'll very quickly could you share with us your top spending category for this quarter? And, also, do you foresee any change in terms of customer mix in the near term? Thank you. Top, top spending category. Oh, top spending category. Yes. Let me, offer you this information. The top 5 sectors for in the past quarter, includes the following, medical health care, education, travel, machinery, equipment, and franchising. So if if you look at the top sectors, these are the familiar, sectors that you have seen in the past, We always have some sector, you know, 1 or 2 that changes, partly because of seasonal reasons, So when we look at the, sector growth, we feel The main sectors are the same, but to some sectors like machinery, are not as strong. And as indicated in the past that we do see the B2C sectors seems to growing steadily and healthily and the B2B seems to be relatively depressed. You know, in the last economically slowing, period. We've witnessed a similar, phenomenon. Your next question Thank you, management. I have just one question. Can you talk about your strategy on TIE is it still, going to be treated as one product, one product offering or is that I do have any plan to incorporate in the overall mobile operating for the future? Thank you. Yeah. We right now have a large state in IT, and we are very pleased about the progress GE has made. We believe management is very strong. All the numbers I mentioned during the previous remarks showed that He has a very solid leading position. Going forward, we see consumers spending more and more time on online video. And we will try to integrate the key content, more seamlessly in the overall Baidu search services that include the mobile. Your next question comes from Yes. Thank you for taking my question. As you stated, the company added more customers in the 3rd quarter than in any quarter in history. So Obviously, customers want to be on the Baidu platform. My question is, what are your customers saying about the evolving dynamics and and competition in the And do you expect competition to help grow the overall search market in China? Thank you. I think on developing these customers, particularly their SMEs, it takes a lot of our outreach to educate them. Our focus is to services, service them well. And for these customers, I think they can't get enough of us. The search engine marketing model is performance based, as you know. So for the spending that they have with us, we drive relevant traffic to their business and that creates business opportunities for these, for these customers. So our focus with these customers is how can we improve the ROI? How can we drive more traffic to these customers? And if they see the benefit that, I mean, they will increase spending with us. So that has been the constant theme. I think the beauty of searches, it is performance based And, and the customers would be happy to spend more with us if we can really drive the relevant business opportunities for them. Your next question comes from the line numbers. Could I just check with you? You talk about a change in the customer growth rate as several people have asked, several analysts have asked. If you exclude the growth I I I feel I mean, it doesn't I don't know if this is, the right way to look at our business. I can't exclude exclude the SME businesses because the SME is the majority of our business. Our large clients, if you look at that, There are maybe a 1000 of them in the country and these are typically brand players that they would have multiple marketing, promotional needs. And that can be addressed by different platforms. So these large players, if you look at them, They do have, spendings on traditional media platform. They also take advantage of display apps, in internet and they use a search to drive high performance, kind of, promotional needs. The large client business has been increasing, very strongly over the years. Last year, it was an year. And this year, obviously, the macro environment does not, is not as strong as last year. And so we have indicated that the large client business is not as growing as the triple digit kind of scenario that we saw over the past year or so. So but having said that, we continue to see very strong performance on the large clients. There is much opportunity we have and these large players have huge budgets and the opportunities is for them to really bring their, you know, bring their ad budget over. So for large clients, the opportunity is in the ARPU, but a large client business is only a small part of the overall business. So I think the business for us is we really serve a wide range of advertisers' needs. If you have low budgets, you can do advertising with us. If you have huge budgets, you know, we can also be the platform that service them. So I think, you know, I think the question is, you know, the SMEs, I can't exclude them. They are smaller spenders, large clients of business, ARPU is the opportunity, and we'll continue to develop a relationship and help them see the value that we can offer to them. Your next question comes from the line of Keith Seng of HSBC. Please ask your question. Good morning, evening. Thank you for taking my question. Can you give us an idea of what you're expecting for search market revenue growth to be in 2013 and your ability to either maintain or grow share given your initiatives and both, you know, expanding SMEs as well as mobile. Thank you. I think, you would understand that, this time we're not giving next year's outlook coming into the Q4 results, we typically give out a quarter's outlook and I hope next time around that gives you a feel of next year's picture. In terms of, market opportunities, I think, you know, we've been always very focused on servicing our customer And as the industry leader, we need to develop the marketplace. And as I said, throughout the call, we see continued potential and opportunities for us to work develop the market. I think the opportunity that's exciting lighting ahead of us is what the mobile development is really, paying out. The mobile offers our advertisers to present themselves to target audience in a higher frequency and more precision. So we're excited about this opportunity the market customers are there. I think, you know, ultimately users access Baidu, for their search needs through multiple device. And as the users take more advantage of the services we offer, that gives the opportunity for the advertising So in terms of growth initiatives, you know, we talked about all that, I think the potential continues to be huge, but obviously, you know, the the market, the final results is not, you know, we can single handedly push it through. So the market awaits us to develop and the mobile is great opportunity, but we need to educate the customers and we need to develop the market. So overall, I think, back to your question, it's not just looking at who we are today on the PC front. I think, we look at a dynamic multiple screen industry eval evolution. And your next question comes from the line of Muzy Lee of Citigroup. Please ask your question. Hi, thanks for taking my questions. My first question question is, do you see the PC search traffic volume growth for the, year to date. And, also, I would like to ask about the pricing scheme. Does Baidu offer the same price on the PC versus mobile? And how do you think this pricing range or pricing scheme will change in the next couple of years during the transition period? Thank you. As I mentioned before, PC traffic is not that 6 as mobile traffic. We are not disclosing the exact growth numbers We haven't done that before, so we can only give you this kind of a qualitative descriptions In terms of pricing on desktop and mobile, right now, pricing on mobile it's lower in terms of cost per truck. As I mentioned, we are working very hard to to, improve the monetization system for mobile and to educate our customers to take full advantage the mobile, and we expect that will take some time to close the gap. We are now approaching the end of the conference call. I will now the call back to Robin Lee, Baidu's Chief Executive Officer, for his closing remarks. Thank you, everyone, for being with us on today's call. Please do not hesitate to get in touch with us if you have any further questions. We look forward to speaking again so Thank you. Today.