Earnings Call: Q2 2019

Aug 20, 2019

Earnings release

Hello, and thank you for standing by for Baidu Second Quarter 2019 Earnings Conference Call. 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, Karen Nye, Baidu's Director of Investor Relations. You may go ahead. Thank you, operator. Hello everyone and welcome to Baidu's Q2 2019 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. On the call today, we have Robin Liu, our Chief Executive Officer Herman Liu, our Chief Financial Officer and Bo Chen, our Senior Vice President in charge of by the robot ecosystem group, our first and key business. After our prepared remarks, we will hold a Q and A session. Please note that the discussion today will contain forward looking statements made under the Safe Harbor provisions of our 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. The 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. FABIU does not undertake any obligation to update any forward looking statements except as required under applicable law. Our earnings press release on this call include discussions of certain unaudited non GAAP financial measures. We have made minor adjustments to our non GAAP measures and thus will act as our financial measures for comparison purposes. 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.id.com. As a reminder, this conference is recorded. In addition, a webcast of this conference call will be available on the Baidu IR website. I will now turn the call over to our CEO, Robin. Hello, everybody, and thank you for joining our call today. Baidu's 2nd quarter revenues reached RMB26.3 billion, above our guidance midpoint of RMB25.8 billion, bps, which can be attributed to Baidu core performing better than our original expectations. Baidu's Q2 revenues grow 9% sequentially and Baidu core revenues grow 12% quarter over quarter in spite of the impact from industry specific policies, self directed healthcare initiatives and slowing macro environment. During the significant influx of ad inventory into the market, We are seeing an upward trend for Baidu's revenues on a sequential basis. Our monetization foundation is strengthening with strong traffic growth, such as Baidu FBAU, in app search queries and feed time spend and strong growth of content and services on Baidu's platform. As our mobile ecosystem expands, we are able to better understand user behavior, as users navigating the landing pages on Baidu's platform. Over time, the deepening user insight will allow us to further improve Baidu's user experience and ad conversion for our marketing customers. On today's call, I will share recent developments on our search and suite themes and highlight the progress that we have made on our AI business. In early July, we held our annual AI developer conference, Baidu Create in Beijing, which drew approximately 7,000 developers and partners from around the world and was concurrently broadcasted from Internet. We released the Baidu Brain version 5.0, which includes industrial applications of Baidu AI technology. Baidu Brain is the common AI engine that powers all of our businesses from search and feed to dual OS, Apollo, cloud and IC. Developers can access the AI capabilities of Baidu brings through Baidu AI open platform, with our developer accounts reaching 1,300,000 in Zoom, up 37% in the first half of this year. Enabling a large developer community is important in the world of AI computing as our Baidu Cloud Ecosystem and Capability. At Baidu Create, we also expanded our strategic alliance with top industry players, including 3 d Auto, Huawei and Intel. Let's begin our operational review with MEG, our mobile ecosystem group. In June, average daily use on Baidu App continue to see robust growth, reaching 188,000,000 dollars up 27% year over year, contributed by the benefit generated when search is combined with speed. Search and speed provide Baidu 2 strong traffic engines. Baidu's SERP is an indispensable means by which people find more objective and reliable information. And our suite is powered by Baidu's AI algorithm formulated with Baidu's unmatched intent driven user insight. Our relentless focus on strengthening Baidu's mobile ecosystem by emitting news feed and short videos searchable through Baijiaha accounts and information and services found in 3rd party apps searchable through Baidu Smart Meeting program. It's driving more unique scenarios for Baidu App. In Zoom, user time spent on feed grew 37 33% year over year and in app search queries grew over 20% year over year. In addition to Baidu App, total time spent on our team and short video apps together grow robustly, up 67% year over year in June. Baidu is the premier go to destination in China to find knowledge based content and long tail information. To supplement information on 3rd party sites, we have spent years developing an expansive knowledge based content ecosystem such as Baidu Encyclopedia, Baidu Post Bar and Baidu Knowles to make useful, sought after knowledge readily accessible. As we focus on strengthening Baidu's mobile ecosystem, Chinese users are becoming more dependent on Baidu for knowledge content. For example, in June, daily spend per user on Baidu Note in Baidu App grew 65% sequentially. Daily video views of Baidu encyclopedia grew 80% year over year. And membership and services revenue for Baidu Renkoo grew 61% year over year. Baidu's mobile ecosystem is growing newsfeed and short video content creators to Baijiahao account. We saw publisher accounts reaching 2,200,000 in rooms, up 83% year over year. App developers are also making their services and information available through Baidu Smart Mini Program, with our MAUs accelerate to 270,000,000 in June, up 49% sequentially. And the number of smart mini programs increased more than 6 fold in the last 3 months. Baidu's smart mini program offers our users research content and services selection and provides traffic to app developers without requiring users to download their app. This navy's app like model improves user experience and will ultimately improve ad conversion and expand the monetization potential of Baidu's marketing services platform. Baidu's smart gaming platform is attracting well known apps such as Weibo, Meituan and JV as well as services with lower frequency music. On the latter, for example, the Shanghai Auto Show is held every 2 years in China. This past April, the event host created a mini program on Baidu and WeChat and leveraged other online sites to promote their events. In 1 month's time, the Shanghai Auto Show attracted 3,000,000 users to its Baidu Smart Mini program, which offers indoor event validation, ticket purchase, electronic event pass. In the end, Baidu was Shanghai Autosho's largest third party channel for TSL. Whereas other mini programs allow users to search the titles of mini programs, Baidu Smart Mini Programs are users to search the massive content within those mini programs to locate the most relevant information and services. Similarly, our top one capabilities, which recently satisfied 51% of the queries, allow users to search the massive content on the Internet and satisfy users' intent with Baidu's first recommendation. From the developer's point of view, Baidu's Smart Mini program helps service providers attract higher quality users with Baidu's intent focusing user base. Consistent with Baidu's search and seek philosophy, we offer an open ecosystem that embraces and promotes a wide array of smart mini program developers, which provides more options to our users. For example, long form video apps who have joined Baidu Smart Mini Program include Youku, IPV, PTTB and China Mobile's MIGU Video as well as traditional media such as Guangdong Satellite TV. Baidu Managed Play is another area that we are strengthening our mobile content ecosystem and is one of the options by which we are enabling industry specific merchants to more effectively read and engage with users. In lieu of HTML5 site, institute specific content, industry specific merchants can provide their information on Baidu managed page, which is open and freely accessible by other traffic sources. Since the merchant content resides on Baidu's platform, we are better equipped to ensure greater reliability and trustworthiness on the information offered by the merchants. Trusted data for health care industry is a form of managed page. In March, we required our healthcare marketing services customers to switch over from their H5 page to Baidu Managed page for the landing pages of their mobile app. And in July, we expanded the requirements to health care PC ads. Baidu ManagePage for the health care industry allows us to monitor the healthcare provider's information and communication with users, while enabling our Managed Page platform to continuously add new functionality. For example, live chat and call feature is the healthcare provider in digital caller ID to protect user information and consumer protection program for added consumer comfort. We are seeing significant improvement in user experience with management players and third parties on healthcare are growing faster than before. The increase in traffic, improvement in healthcare content quality and added functionality are generating meaningful lift in customer needs for healthcare providers on managed pay. While our self directed health care initiative has dragged down our recent revenue growth and Optimize makes it that much more difficult to implement in the current macro environment as the lower quality health care providers are going elsewhere. We believe improving user experience, better management of healthcare information and lead conversion for our health care customers will generate greater value for Baidu over time. Aside from health care, we are adopting managed pay for home services such as moving companies and home repair. And in July, we began to offer attorneys, which has a collective body, has fragmented online press and an easy way to promote their businesses in a card format in Baidu's search results. From the card search results, users can access an attorney's educational background, legal credentials and legal cases handled as well as social features such as user commentaries and ratings. Managed page gave us the opportunity to build industry specific solutions to empower SMEs and allow them to better leverage web traffic and engage with users without having to maintain an IT department and keep pace with Internet infrastructure and technology. SMEs can simply run a base using Baidu's managed page, and we will continue to add tools, services and features to Baidu's platform over time to improve their user engagement and lead conversion, extending MSPADE into new industries that further expand Baidu's revenue growth opportunity. Looking forward, we are excited about M and A's market position and monetization opportunities with traffic growing robustly, our mobile content ecosystem expanding and different monetization plans in the works, including the recent launch of Baidu CRM in July, especially when we step up when we step out of the weak macro environment. Moving to DuerOS. In the Q2, DuerOS voice assistant continued to gain momentum through the use of Baidu's reading technology in speech, natural language processing and search. DuerOS installed base surpassed 400,000,000, up 4.5 fold year over year and multi voice query surpassed 3,600,000,000 yen, up 7.5 fold year over year in June. Your OS 1st party smart devices is experiencing strong sales momentum. Market research firms, Panalysts and Strategy Analytics ranked Baidu, after Xiaodu Smart Meter 1 in shipment in China for the Q1, which is quite an incredible achievement considering Baidu launched Xiaodu smart devices only last year and compared to our peers who have online distribution and hardware management strategic pipeline tickets. Xiaodu Smart Display its average selling price of approximately US50 dollars per unit is becoming a sweet spot for us as it penetrates not only 1st and second tier cities, but also lower tier cities in China, becoming an important computing device for affordable Internet connectivity. Average time spent of a smart display pass rates about 2 hours a day and sales volume of smart speaker in China is forecasted to reach over 35,000,000 units this year, similar to the expected decline in smartphone unit sales in China, making AI powered smart speakers an indispensable Internet channel for content and service providers, especially with mobile Internet users and time spent growing slowing in China. The rise of smart users seems to mirror the rise of smartphones a decade ago when smartphones took over future phones with the event of iOS and Android app stores. This lift was spurred by the change in input modality and the superior experience of mobile apps. Far field conversational AI is making it easier for users to interact with smart speakers. Yaodu stands out from the competition with leading speech recognition and natural language processing capabilities. For example, recently added 4 duplex continued conversion meter enables continuous dialogue with Xiaodu smart devices without weak words, while Xiaodu intelligently distinguishes between the voice query directed at Xiaodu versus dialogue directed at human. In July, we announced the development of Baidu Hongwu, an energy efficient AI chipset to power voice interaction in homes and autos to further improve cellular digital AI capabilities while driving down unit economics. We are gradually seeing time spent on scale surpassing time spent on music and videos on smart speakers. This is quite exciting with the number of scales on DuerOS sales stores doubling sequentially to over 2,400 and DuraOS developers remain growing to about 33,000. 7 car models were recently released with DuerOS powered infotainment and 30 car models are in the pipeline, scheduled to be released with DuerOS pre installed. Turning to Apollo. We are excited that Apollo continues to be the leading autonomous driving solution in China with over 150 leading OEMs, Tier 1 suppliers, key component and other partners. In June, Apollo's test fleet of over 300 vehicles accumulated more than 2,000,000 craft kilometers across 13 cities. As of July, Baidu has received almost half of the 204 autonomous driving pilot licenses granted in China. And Baidu became the only company in China to receive P4 licenses. The highest level of autonomous driving test license issued by Beijing Municipal Commission of Transport, which permits autonomous vehicles to operate in complex driving conditions, including urban nodes, tunnels, suguzhong and other scenarios. Also in July, First Automotive Works announced commercial production of Level 4 autonomous passenger vehicles to support Apollo powered robotaxi pilot problem, which is scheduled to be deployed in Changsha, the capital city of Hunan Province, along Baidu's B2X solutions later this year. Turning to Baidu Cloud. We continue to see momentum of our cloud business with revenue of RMB1.6 1,000,000,000 in the 2nd quarter, up 92% year over year. Baidu Cloud leverages AI capabilities of Baidu Brain to enable enterprises a better way to do business. For example, Baidu Cloud worked with a hardware manufacturer to integrate Baidu AI capabilities into their screening solution that helps smartphone component OEMs automate the quality assurance sprints process achieving faster throughput while reducing overhead costs. Baidu AI powered hardware and software integrated solutions can take a snapshot of the semiconductor smartphone component from 18 angles simultaneously and determine whether the component satisfies the design mechanism to a criteria of the OEM customers. Unlike human screening, Baidu AI powered 2A screening allow OEM customers to access the data of training results for an added comfort of quality compliance. We are excited about the opportunities of Baidu's computer banking capabilities to help Baidu Cloud enterprise customers in sectors like consumer electronics, metal, auto to improve their business. Turning to IT. IT continue to see solid subscriber growth with membership reaching 100,500,000 in Zoom that's up 50% year over year, which provides a strong foundation for iQIYI to offer blockbuster original entertainment content. With that, let me turn the call over to Herman to go through our financial highlights. Thanks, Robin. Hello, everyone. Welcome to Baidu's Q2 2019 call. All monetary amounts that we will be discussing are used in the news unless stated otherwise. Let's now turn to Bhargyu's Q2 2019 financial highlights. Total revenues grew 26,200,000,000, up 6% year over year, excluding spinoff revenues and up 9% year quarter over quarter. Revenue from the prior was point 5,000,000,000, up 3% year over year, excluding spin off revenues and up 12% quarter over quarter. Let me give you more color on Baidu's core revenue. Baidu's marketing services revenue is well diversified with the top 12 industry sectors making about 2 thirds of Baidu's core revenue. Half of the 12 sectors saw year over year sales decline including healthcare, online gaming, financial services and auto logistics. The ceiling being towards performing sectors by ecore revenues would have grown in the mid teens year over year in the Q2. Although the increase in ad inventory in the market has impacted overall growth rate of our marketing services, we've said to say that bigger part of our revenue slowdown can be attributed to self directed healthcare initiatives and the softening of macroeconomic conditions. Additionally, revenue derived from Baidu's union partners contributed to a 3% drag on Baidu's core year over year revenue growth, which is an example of our goal to optimize profits on TAC revenues versus bidding for incremental revenue and negative margins. Total marketing services customers in the second quarter was approximately 330 1,000 down 4% year over year and up 5% quarter over quarter. Please note that this customer number excludes more new customers and other calculation policy adjustments that we have made internally, that's excluding customers with minimal daily spending. Our new AI businesses continue to see flat growth I'm sorry, our new AI businesses continue to see fast growth, particularly by the cloud, which generated $1,600,000,000 revenue since Q2, up 92% year over year. IT revenue reached 7,100,000,000 up 15% year over year. Membership revenue continued to see strong growth, up 38% year over year. While IT ad business was down 16% year over year, mainly due to slowing macro, delay of top content launches and slower than expected recovery of food advertising. Turning to comp sales. Excluding stock compensation and intangible asset integration, cost of sales was $15,900,000,000 up 30 2 percent year over year. Content, bandwidth and other cost of revenue increased to support Baidu's traffic growth, greater video consumption and new AI businesses, including bandwidth and distribution expenses for Baidu Cloud, cost of goods sold related to Xiaodu Smart Speaker. TAC increased 27% year over year as a result of higher TAC revenue there and expansion into offline connected streams and other areas. SG and A expenses, excluding stock compensation were 4,700,000,000 up 30% year over year, primarily due to the increase in channel and promotional marketing, mainly for Baidu family of apps. On a sequential basis, SG and A expenses were down 14% as we scaled back our marketing spending that do not meet our stringent ROI criteria. This has pampered the sequential growth of our app, including haokan short video and streaming flash video. We plan to continue to manage our marketing dollars with a strong disciplined ROI approach. R and D expenses excluding stock compensation were 3,700,000,000 up 13% year over year primarily due to increased personnel related expenses and up 5% on a sequential basis. Non GAAP operating income was 2,000,000,000 and non GAAP operating margin was 7% compared to 2% last quarter. Non GAAP operating income for Baidu Core was RMB3.5 billion or RMB508 million, down 55% year over year and up 65% quarter over quarter. On a non GAAP basis, total expenditure for Baidu Core were approximately 700,000,000 increased sequentially, less than the $1,000,000,000 that we had spent at the beginning of the year. Since our last earnings call, we have been reviewing our businesses for operational efficiency and have made significant progress in implementing spending discipline, while making investments in future revenue growth in our 2 year plan. Non GAAP operating margin for Baidu Core was 18% in the 2nd quarter compared to 12% last quarter. We expect by 3rd quarter incremental revenue growth to have higher margins and non GAAP operating margin to rise above 20% in the Q3. At the Internet platform, a big part of Baidu's core cost structure is fixed, fit with the approximate 2,000 scientific and engineers for Baidu's AI lab and a large server network and other infrastructure equipment. Thus, we plan to build our revenues will likely bring about higher margins. Total other income was 1,200,000,000 which included equity net income of 429,000,000 compared to equity net loss of 360,000,000 last quarter. Income tax was 416,000,000 and effective tax rate was 28% compared to 18% in Q2's last year. Primarily due to the lower pre tax income generated from Baidu Core and to IC not being able to recognize tax benefits from its losses in the current period. Non GAAP net income attributed to Baidu was 3,600,000,000 and non GAAP net margin was 14%. Non GAAP net income attributed to Baidu Core was RMB4.7 billion or US690 $1,000,000 down 46% year over year and up 160% quarter over quarter. Non GAAP net margin for Baidu Core was 24% compared to 10% last quarter. Adjusted EBITDA were $3,400,000,000 for US4.5 million dollars Adjusted EBITDA margin was 13%. Adjusted EBITDA for by this quarter was RMB4.8 billion or US694 million dollars and adjusted EBITDA margin for by this quarter was 24% in the 2nd quarter compared to 19% last quarter. As of June 2019, past and short term investments were $137,300,000,000 or $20,000,000,000 dollars Excluding IT, cash and short term investments for Baidu Core was RMB120.9 billion or US17.6 billion dollars Free cash flow was US5.6 billion dollars and free cash flow for Baidu Core was RMB4.9 billion or US710 million dollars Total employees of Baidu Core was approximately 29,900. Turning to 3rd quarter guidance, we expect total revenue to be between 26,900,000,000 28,500,000,000 representing a decrease of 5% to an increase of 1% year over year or a decrease of 1% to 5% increase in CNY 1,000,000,000, excluding spin off revenues of $1,000,000,000 increase for the Q3 of 2018. And this often will go between 0% to positive 3% year over year and between 2% to 9% quarter over quarter. We forecast our current and preliminary route and are subject to change. Before I turn the call over to the operator, let me summarize by Duke's Q2. We have made solid progress with our search and food business. Traffic growth remains robust for Baidu apps via news with double digit growth in in app services and continued robust growth on Zoom time spent. User experience is significantly upgraded with content and services providers offering native apps like experience on Baidu's mobile platform. Our emphasis on improving search and feed monitoring is in progress. We witnessed double digit sequential revenue growth in the 2nd quarter and expect further sequential growth into the 3rd quarter. Our focus is diversified away from past traffic and growth search revenues through in app search and food is proving to be a dominant search model as in app services allow us to gain more user insights across vast domain of knowledge, content and services and continuously improve our user engagement for both Baidu and our marketing services customers. We are making voice assistant, cloud and smart transportation, which will be critical revenue drivers as we look out 1 to 2 years. On the content management side, we will be diligent on reining in our expenditures with significant ROI implementation. While balancing the need for near term and long term revenue growth. ISP is widening the challenging macro environment with strong membership The question and answer session of this conference call will start in a moment. In order to defer to all callers to reach Your first question comes from the line of Gregory Zhao from Barclays. You may ask your question. Hi, management. Thank you for taking my question. So if we exclude our lease delinquency guidance, SG and A and also the content cost growth had some substantial slowdown during the quarter. This was a very big contrast to your investment during the Chinese New Year around Q1. So just want to understand your marketing and promotional strategy for your product portfolio like the SolarWinds and also your mobile Baidu app and also the content cost trend in the rest of the year? Thank you. Thanks, Greg, for the question. As we mentioned on the prepared remarks, our estimate mainly marketing expenses are very ROI driven. So, when we are spending this panel cost and other marketing programs, we're looking at the lifetime value that we can get from it. So when we're probably good and we think that we can generate more revenue compared to the cost that we'll accumulate that we'll spend more money. Because we're transitioning from a TAC model to a in app services model, TAC, we get revenues in the quarter that we spent, but in the channel cost and marketing program in our services, which we're spending expense in that 1 quarter and we might be deriving revenue from the users in the quarters after that. There's a lag. But even with that, we are very good playing heavily to ROI. So, you see us spending more, faster than us spending more than Q1 when we see higher ROI. With the current macro conditions and some of the issues that we talked about in the prepared remarks, the ROI has come down. And as a result, we've been very diligent in seeing now that the marketing cost that has a low ROI. And we'll be looking at that continuously very closely as we move forward for the remainder of the year. With regards to content cost, I think it's been growing on a year over year basis. So, recognizing by the record that content cost is not that significant. For example, in the second half in the second quarter, we're talking about maybe RMB0.5 billion per quarter. So, although the increase is similar to on a percent basis, but the total cost we're talking about half of. So when we're increasing even a growth in the business, the business is very small. I don't think it's that our semiconductor expenses are overall expenditures. Thank you. Your next question comes from the line of Elisa Yap from Citigroup. Your line is open. Hi, thank you. Good morning, Robin, Herman and Sharon. Thanks My question is related to the Mi Mi programs. So with increasing applications and services tapping into Baidu Mini Program Ecosystem, and I think management also commented some positive developments on the progress and traction earlier. So how should we think about the tractions of these mini programs to translate into the monetization upside over time? And then any update on the upcoming rollout of the CRM initiative? Thank you. I'll have Sendoh answer your questions. Okay, thanks for your question. So just that many programs have captured and much attention from the developers. We see the benefits of of the smart mini programs already. But for the users, the better smart mini programs offers them weaker content in various like them. And then for developers, the Smart Mini Programs use our AI powered algorithms to clean the massive content in the small mini program and recommend the development content and service to the users based on their proactive search for information service. So this small native program already has been a help to developers to acquire users and in turn to enhance better user experience for the Baidu on the Baidu's platform. So actually, as we've already seen, Baidu's 1, Milligram has attached some long known apps like Beibro, Meituan, Jingdong as well as services with lower frequency are users like the Shanghai Hashi Zone. So that's why we also have our customers from different sectors, industry sectors, they have tried to merge many programs of their landing page for their campaign. So we see pretty significant ROI look for all those who try to build smart mini programs. So actually, your smart mini programs also offer our customers and the developers much more options to engage the users in their service. So with that, we buy the ROI would be further improved. So that is how we're going to see many programs, how many programs you think you have first to strengthen our modernization capabilities actually. As to CRM, I believe it's a start and because we got most of our customers, they have the leads generated from by these pipeline. So combined with CRM, we have more ways to help the customers with their users better and to explore the wins in a better way to improve their effectiveness and also clearly improve the ROI. So that's why we are using the CRM to help the content on our platform first and then the next level we're going to provide more valuable features to the customers to provide for the recompete of the brand. Thank you. Let me add a point. For the Smart Mini Programs, I think from a service provider, there's a couple of points that key for them. First is, as the number of smartphones in China is declining and we saw that last year, we saw that half of this, it's more it costs more and more to actually leverage app stores in order to have an installation of their app. So, economics is much better than app stores because afterwards you have to spend the final cost and the natural is going to get the ROI whereas mini programs because we're in the business, these are natural results to be answered. So rather than the system just in directing the traffic over to your apps, you have the first pivot panel app, Secondly, there's usually more spec, for example, to convert a sale from a mini program to within an app versus if you're native in the Baidu's platform and can move it directly to that advisory on the mini program. So I think, first of all, you're able to see that result right away. You don't need users to download the app. And secondly, I think what those cases that Joe have explained would help drive up conversion. So obviously, with better conversion, marketing customers are usually focused on better conversion, looking at ROI. So with better conversion, you have, we believe, over time, more people building for the more people developing smart mini programs so that when they have that good search results, you have better conversion. I think from a user perspective, you probably have users over time rely more and more on search and more than by the way because of that, I know the data experience directly with the new co brand. Thank you. Your next question comes from the line of Jen Ho from TH Capital. Robin, Herman, the question is related to the Baidu's efforts in content bidding. So as new guys aggressively developing food business, you guys also need to build a very healthy content. So in addition to your so by, recently, we saw from the news you acquired some stakes in Juhu. And also, I think just yesterday, you put money in the Guo Ke. So I want to see Huong Guo Ke. In this way, they help you in the content ecosystem building. And also in the going forward, what are some other content area you see we need to continue to build up? And so is there any other potential company management on the horizon? So that's the question. This is Go actually. I want to answer your question first. For serving a company that is extremely important for our whole business. As we already shown you, so for the Baijiahao, so we see the craters on Baijiahao grow significantly over year over year reaching 2.2 1,000,000 credits on writing. So that is still not enough for us because you have come to Baidu from the only commission to also service. That's why we did discuss how we are challenging the small mini programs to provide further information and service which we see significant growth as well. And in addition to both Faizao and some of our medical programs, We are also working with even wider collaborators to providing valuable information. As we have noted, Michael, we invest in Zihu. We've got Zihu providing additional information, complementary information to Baidu's Qdao. And we see our users' interest are to successfully. They have so much interest in different content. So that's why we invested in this. So along with that, we are trying to looking for try to support more and more content which can satisfy our users' interest. So to sum up, we are keeping to looking for the site of content. And as we know, the content is extremely important for the whole business today. So, we are developing our own platform to standard content. We are looking for partners to get more useful information into this as well. So, this is let me give the answer to the comments. I think our content strategy is pretty much to adopt the overall user experience to the new mobile ecosystem, meaning that we will make our site partnership for our investment. If that deal can help us to improve the user experience, the content may be available on the open web or on the PC internet, but if we can have a deal that enhances the mobile user experience with that kind of content, we will do it or if that kind of content is not available on the open web or not available on the PC internet, if it's an offline net content, we will also do it. So basically, the content strategy is to make the experience, either make the better or make something that was not available to become available to our Internet users. I'll just add one more thing on that. So, let me just mention that we're looking for better future experience. As a when we switch by the Qudao by the note to the Smart Mini program in our platform, we see significant user spend time growth actually. So for Zuhu, now it's most of the content are presented in the form of H5. So with this deal, we're going to convert all the Zihu content and by this platform to smart mini programs. And this will be another example to show how we are going to contribute the strength through the Smart Mini Programs actually. And just to add, you asked which area we would be interested in. When you look at our content, 5 gs as a whole, there's really 2 categories of content. We're looking at a content that's smaller. In this case, this will includes 5 gs models, that would be good. But we're looking at, for example, the vast amount of services and information that are in accident and making that basically having a negative back experience. So services is very important. And thirdly, we're looking at industry verticals where right now, it's fragmented on the Internet, so if you can concentrate it within Baidu's content platform so that they have better conversion, so that they can build user engagement and have better user experiences. So 2 areas: knowledge, services and industry vertical information. Your next question comes from the line of Abi Leon from Bank of America Merrill Lynch. You may ask your question. Good morning, guys. Could you share your thoughts on the recent news of potential new entrants? So are you going to see any difference this time? And then just a quick follow-up on Herman's comments on some of the advertising industry. Given the recent business in some of the verticals, could you remind us what the top, for example, 3 or 5 verticals we have right now? It's not new actually. So this business is pretty profitable as we are known. So we have players that are trying to enter into this business in the positive business. So as we switch, we just have a very high engine barrier actually because you will come to a certain end with a very specific information name and so on. We need to locate information out to 100 I mean 100 of billions of web pages to get information located. So this is quite different from other business like Seed because for Seed, we usually show general interest and then the engines to match the users' general interest. It's not easy to tell right around, but for sale, the user has a very strict demand and strict criteria to charge the performance. So that's why we see for us, and I know we are actually the only one that's successful training engine model with both circuits and cities so far in the world. So in our experience, we see it is relatively easy to see some search to see because we can generalize the user interface out of their queries, but not the other way. So we're not surprised to see new players in this market. And we have been we have seen this many times. So that's why we're happy to renew But with the Baigao and the more mini programs, we are selling our mobile ecosystem and we see we're providing very new experience for the users Yes. And Eddie, with regards to our top healthcare, as you guys know, our top end business, the other industries are much smaller. So 2 thirds, the same industry is all of that percent of this quarter revenue. And those would include industry sectors by increasing wind gain education. Your next question comes from the line of James Green. From Mizuho Securities. You may ask your question. 2, if I may. 1st, and maybe Robin, you can talk about you sound pretty excited about the prospect of dual operating system and voice search going to next year. And maybe you can help us understand the roadmap and just the commercial roadmap going to 2020. And maybe help us understand what verticals that you weren't able to monetize on Texas, now you're able to monetize and voice? And also what verticals that you could optimize potentially with voice search over Texas? And also second question on Herman. On 4Q revenue growth, is that going to be similar to your guidance in 3Q? And also in operating expenses for figures stepping up about $400,000,000 in exchange? In total expenses in 3Q, so we expect various awards from 24% -0.01 percent. Yes. On the Duo it's a whole new ecosystem. It's fully leveraged by those investments in search and in AI technologies for the past many, many years and we are offering a better and better user experience. It does lower the direct entry significantly. I talked about it during the prepared remarks that we are entering lower cities with more affordable devices. And we're also able to accessing people at very young age or very old age It's just a lot easier to see and we see strong momentum continue to go into the time horizon, maybe the coming years. Talking about the potential of being found on this business, right now, it's been very clear. We have not really seriously tried to monetize this product, but we see a huge potential in many fronts. For example, in education, it's very natural for kids to learn things through this kind of from new devices games, it can offer a very different experience than mobile games because for mobile, you have to hold your handset, but for the smart display, you hand the free and we have cameras and capture users' behavior intelligently. So there are many, many possible big models, including the app model, including the subscription model for all kinds of content and services. And this is a whole new era for entertainment, for education, and for the smart life for many, many people who may not spend a lot of time in mobile home. And James, the question you asked about revenue and expenses, We typically do not give guidance out of 2 quarters. And with the current macro situation, it's hard to predict what's going to happen in 2 quarters. But I would use a reference example if we look at last year, Q2, Q4 had very minimal sequential growth. So if the economy keeps pace and so forth, we will probably have similar trends. I can't comment at this point given that we don't have as much visibility in current macro situation. And so when we set our expenditures for the second half, we're cognizant of the current weather situation and the economic conditions. So from an expenditure perspective, in terms of total expenditures provided to core cost of sales plus operating expenses, we're going to try to keep pace with our total expenses, expenditures for Q2. So we should not see to significant increase from the Q2 level. And mind you that this would address, for example, our revenue, for example, increase significantly and so forth. So that's our current thinking right now. Your next question comes from the line of Nathalie Wolf from CICD. You may ask your question. Hi, good morning. Thanks for taking my question. I have a question regarding your CRM open platform. How do we understand the related financial impact in midterm and longer term? And what kind of incentive you're going to provide to attract developers to your platform? And also, if I know, I'm still curious about the small mini program. Just wondering what kind of sectors are the most frequent users for your smart mini programs as individuals, do you observe the change of ad budget on your platform of those, frequent NAMIN program users? And would the proof of it, if management can elaborate more on the difference we have observed among different sectors for the means of program users? Ma'am Li, on the financial impact clients and customers. They already spent a lot of money to try to acquire and sell customers for their products and services. And we help them to better manage this process and achieve achieve better conversion. We think longer term, the time offering will be able to provide independent product value and we'll be able to charge a significant amount of money for we would like to help our advertisers and customers to think in a more holistic way. They acquire traffic from the Baidu channel and we help them to better manage the traffic or better manage the users. And that helps them to improve the overall efficiency of the whole marketing funnel that led to the difference between RCI and independent guide product. Dov, can you talk about that? Okay. For the small mini programs, I mean, I'm a few new things. So actually, the users, as I already said, right, for the users who can't provide, they're not only $22,000,000 of facilities. So with small mini programs, we provide both information and service to the users. So that's why we're seeing growth for small mini programs in quite a few different verticals, including the tribal, real estate, education and all stuff. Stuff. So let's say for Google and with the Hong Shu, right, so in general, we can provide information to users. And for this type of small milligrams, we in a different size like a few millions of users. Gillette, the users actually invite this type of very smart. So the smart meter WAM is very accessible to developers with making together. You're really looking for some information. New users because the user come here for access related, again, or locate some information. So type of business, you're also good players for the Smart Mirror customers adopting many programs that's their landing page. So we see examples from travel like cities from real estate from education like, right. So all of those customers, we do see their performance, budget performance are getting better through different traffics. So these are just some examples to see and we are expanding the coverage of the landing pages through small mini programs. So down the road maybe you can see more stable samples into sand moisteners. Your next question comes from the line of Yun Yoon from New Street Research. You may ask your question. Mr. Junyoung, you may ask your question. Sorry about that. I'll put myself on mute. Apologies again. Just on the meeting programs again, I wanted to just kind of go back into kind of the healthcare vertical, just kind of where we are on kind of bringing everyone up to speed? And at the same time, you were also talking about moving more of the other verticals into the mini program. You kind of just on the traction of that. That's kind of my first question. And my second question is, we'll stop there and then I'll follow-up with the second question. Thanks. Okay. Thanks for the question. Actually, if we mentioned in the remarks, right? So smart metograms and the managed pages are 2 formats, 2 forms we are using for the landing pages. So for the marketing customers, we cannot have to simply use small mini programs, but you can use, I mean, a lighter version, many pages. For the healthcare vertical or industry, so as Roni has already mentioned, all the margin customers, we have moved from H5 to many pages. So in this way, we cannot only guarantee the quality of the content and information pertaining for the landing page, we can also help the marketing customers to engage in a better way with their users. So you can choose smart medical RANs as another way or a relatively heavy way with even stronger capabilities to strengthen the engagement. So that's why for all the services we've seen in relatively complicated interactions as you fulfill users in news and so on. So for those type of business, more minimal rent or better way to do this. Down the road, to guarantee the quality of the landing page, to the correctness of the information, we will strongly recommend the marketing customers to use either managed business or small mini program. But in the meanwhile, this will be most of the cases, if not all, using small medical ones or managed cases, the customers already see the list in their ROI. So we've got to know, they are going to do 3 even by themselves. I think that's what I can offer now. Great. Just one follow-up. Go ahead. Yes. In terms of sector, in addition to health care, we are also making the moving companies, home repair, attorneys, they are all using managed stages to say. Got it. If I could just one just follow-up. I remember just the last time you guys had a healthcare cleanup in like in 2015, there was a little bit of a drop off in terms of the number of advertisers not being able to qualify. You said in this time around that a lot of the, I guess, marketers have moved over. Have you seen any kind of the overall TAM or actually the number of advertisers be able to drop off this time as well? Are you seeing that some of these advertisers are not able to qualify? And is that anything material? Your question is, are we seeing the number of healthcare marketing services customers drop off? Yes, because that's right, we're not able to qualify or not able to make the transition because I think that happened a little bit in 2015, correct? Yes. We actually so when you look at the number of customers from the healthcare sector, we see them are starting to drop off at the beginning of the year and we've seen that consistently into Q2. And as Robin mentioned earlier, because once they use the managed pages, we're able to screen the content using our AI. We're installing, for example, call, live call capabilities and messaging capabilities. So we use our AI to also stream the communication with users to make sure that they're providing content and information that's more secure and more trustworthy. So as a result of that, it's a filtering system for the lower quality healthcare providers. So those are probably going to go out, so probably going to drive revenue for other people. For us, we're basically turning away the lower quality customers in healthcare. Your next question comes from the line of Luis Mobali from Goldman Sachs. You may ask your question. Thank you for the additional color on traffic growth rates in the Q2. I wonder if you could just take us through what you think are the drivers of the acceleration in that number from the Q1? And should we expect that to potentially continue, at least based on the July and August data that you've seen currently? And my second question is, I know you've talked about the medical vertical quite a bit, but can I ask what the number would have been or the growth rate would have been for the core if you excluded the medical vertical? And also on medical, could you talk about what percentage of traffic is on your landing page is and what the initial 2 bank is? Thank you. So can you answer the traffic question? The new distribution position is guiding higher and ahead actually. So, as a urban business, so we are spending margin budget in a smart way to see more about ROI. So that's why nowadays when we look at the new rigors we acquire, so their lifetime spend on Baidu is growing pretty significantly actually. So also, the test is the content quality and also the service provided by smart, meaningful ones, we can see even bigger improvement within the users in our service. And all that together, that's why we can explain the fact that it's growing quite significantly. But for sure, in summary, also a good time for such as being in general. So that's another reason to see the growth. But in general, I think that better content that we just mentioned from the front by the off management and also the strong collaboration with the partners to provide better content and service, so we can see the engagement between users and platform in terms of markets. Okay. With regards to the questions on the numbers, I think one of those that helped us grow sequentially are like retail and e commerce like education, travel did very well too and then service related industries. So, these are some of the highlights for the Q2. And then with regards to healthcare revenue, we're seeing double digit declines in healthcare revenue. So, when you look at the Q2, as a percent of the total Baidu core revenues, we're talking about less than onetwo of our revenues. So that has declined significantly when we look at it from our last year. But I think for the long term, it's better for us because we're now having a better way to ensure better quality of the content both looking at the language and also monitoring the kind of content communication between the merchants with the users. We are now approaching the end of the conference call. Thank you for your participation in today's conference. You may now disconnect. Good day.