Hello, and thank you for standing by for Baidu's fourth quarter and full year 2018 earnings conference call. At this time, all participants are in a listen-only mode. After management's prepared remarks, we will be question and answer. 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, Sharon Ng, Baidu's Director, Investor Relations.
Hello, everyone, and welcome to Baidu's fourth quarter and full year 2018 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 Li, Baidu's Chief Executive Officer, and Herman Yu, Baidu's Chief Financial Officer. After our prepared remarks, we will hold a Q&A session. Please note that the discussion today will contain forward-looking statements made under the Safe Harbor Provisions of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from our current expectations. Potential risks and uncertainties include, but are not limited to, those outlined in our public filings with the SEC, including our annual report on Form 20-F.
Baidu does not undertake any obligation to update any forward-looking statement except as required under applicable law. Our earnings press release on this call include discussions of certain unaudited non-GAAP financial measures. Our press release contains a reconciliation of the unaudited non-GAAP measures to the unaudited and 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 along with our earnings press release, which is intended to supplement our prepared remarks today during today's call and provide a reconciliation of the differences between GAAP and non-GAAP financial measures. Unless otherwise specified, we refer to non-GAAP measures on the call, which should not be considered as a substitute for the financial information prepared in accordance with GAAP.
These GAAP measures are included as additional clarifying items to aid investors in further understanding the company's performance. Please refer to the non-GAAP financial measures section of Baidu's press release for further information about our use of non-GAAP measures. I will now turn the call over to our CEO, Robin.
Hello, everybody, thank you for joining our call today. In 2018, we expanded Baidu's beyond search with AI by strengthening our mobile foundation and leading in new AI businesses, which puts us on strong footing as we enter 2019. On mobile, the growth rate of Baidu App DAUs accelerated over the past year, growing 24% year-over-year to 161 million in December 2018, compared to a range of 17%-19% in the past four quarters. Haokan, our short video app, duplicated Baidu App's search plus feed strategy and saw its DAUs grow to 19 million in December from 1 million a year ago. Quanmin, our flash video app, whose short video are usually under 1 minute long, saw its DAUs grow to 4 million within one quarter of official launch.
Aggregated feed time spent on Baidu, Haokan and Quanmin apps grew 112% year-over-year. The robust growth of Baidu's organic traffic is strengthening our search foundation, as well as enabling us to leverage Baidu's AI to become an important player in feed and short video offerings, which are experiencing strong momentum in China. On new AI businesses, DuerOS, we believe, has become the most popular voice assistant in China with the largest install base, reaching 204 million in December. On product innovation, we launched the first smart display in China, Xiaodu at Home, and were the first to introduce a commercial level four vehicle in China, Apollo, with King Long Automotive. On cloud, we've helped enterprise customers build a competitive edge through Baidu's AI solution. Enterprise AI have tremendous potential in China. By leveraging powerful AI computing, it gives China's traditional industries a technological advantage over its regional peers.
In 2018, Baidu reached a historical milestone with revenues surpassing CNY 100 billion. We are excited to pursue the next CNY 100 billion of growth by leveraging Baidu's AI to expand beyond search into fast-growing consumer markets, as well as new AI opportunities in enterprise and government sectors. Let's begin our Q4 review with search and feed. Our focus in 2018 has been investing in organic traffic to accelerate our growth and strengthening Baidu's content ecosystem to give users a better experience with search and feed. Daily active users on Baidu App, our flagship app, has been accelerating over the past year, due in part to the improved search experience and the strength of our feed. During the recent Chinese New Year gala, the most popular TV show in China, Baidu participated in the red envelope giveaway, which turned out to be a success.
More users now realize that Baidu App is better, safer, and more powerful as it integrates search and feed seamlessly and provides a native app-like experience. In the future, we do expect search traffic in the Baidu App to grow much faster than the overall search market. Over the past year, we have made significant progress in expanding our content network on Baijiahao, which now hosts 1.9 million Baijiahao accounts. With significant coverage of top-tier publishers on Baijiahao accounts, we leverage Baidu's AI to push the most relevant content to new Baidu App users and make their onboarding experience smoother. We deployed the same methodology to Haokan earlier this year by attracting a large base of high-quality video content publishers and used Baidu's AI to enable smoother onboarding for new Haokan users.
As a result, Haokan was the second fastest-growing app among the top 10 short video apps in China in terms of DAUs, MAUs, and total daily time spent during the three months ending December, according to QuestMobile. The fastest-growing app over the same period was Quanmin, a short video app that we are incubating. Quanmin's DAU grew to 4 million in one quarter. Short video is a growing market in China, and we expect this demand to grow even faster with the arrival of 5G. Our foray into short videos is seeing strong results. For example, excluding iQIYI, Baidu distributed over 3.5 billion video views daily in December. That's up 56% from last quarter. With users showing insatiable appetite for short videos, we are leveraging Baidu AI to better tag the video content and personalize each distribution based on user preferences.
Whereas Baijiahao accounts fulfill our users' demand for feed content, Baidu Smart Mini Program allows them to enjoy native app experience from our partner network of service apps. Through the pull-down of the home screen, search result, and feed viewing, Baidu App users can access the functionalities of our partner apps directly from the Baidu App. We believe the future of mobile search will shift toward closed-loop native app experience from the current search experience that directs users to HTML5 sites. MAUs of our Mini Program have grown to 147 million in December, up 30% sequentially. In December, we open-sourced Baidu Smart Mini Program to allow our top partners to build their own Mini Program network. On monetization, the integration of search and feed in Baidu App brings together significant synergies. During the quarter, we expanded our optimized cost per click, or OCPC, offerings to OCPX.
For example, we're now offering OCPM for impressions and OCPV for video views, which enable feed ads to use the same optimization algorithms. With feed and search under one roof, we are seeing customers opting for omni marketing, which is a powerful marketing campaign leveraging the reach of search, feed, and app opening interstitial ads. Over time, we believe the adoption of Baidu Smart Mini Program will also be a revenue driver for us. Early A/B testing indicates that advertisers using Baidu Smart Mini Program are getting better ROI than using H5 sites as the landing pages for their advertisements. Turning to DuerOS voice assistant. DuerOS is gaining strong market adoption, with an installed base reaching 204 million in December, up from 141 million in September.
Voice queries on DuerOS continue to grow robustly, reaching 1.6 billion in December, representing a sequential CAGR of over 100% for the last seven quarters. Our customers want smart devices that understand them better, that provide better search results, and that offer more and better services. As a result, we will continue to make heavy investments in AI to provide best-in-class speech recognition and natural language processing technology. We have also begun testing the DuerOS skill store, where customers can subscribe to both free and fee-based skills. The DuerOS skill store currently offers over 1,000 skills, such as DouYu live video, Dragonfly FM online radio, and Citic Academy online literature, and has a developer community of 27,000 engineers. In the fourth quarter, our first-party smart device sold exceptionally well. Xiaodu's smart speaker was the best-selling smart speaker on JD.com, Pinduoduo, and Gome.com during the Double 11 event.
Xiaodu at Home, our smart display, saw unit sales accelerate from previous quarters. To expand the use of DuerOS voice assistant in November, we added to our lineup of Xiaodu smart devices. Xiaodu smartphone car mount, a smartphone charger under $15, equipped with far-field microphone that enable users to operate DuerOS skills such as Baidu Maps and Phoenix New Media through conversational AI, freeing their hands to allow a safer driving. Stay tuned for new Xiaodu smart devices as we will be launching soon. DuerOS for Apollo, a version of DuerOS adopted for in-vehicle usage, has already been pre-installed in Chery's high-end Exeed cars and will be pre-installed in selected models of Ford, Lincoln, Great Wall Motor, and Byton cars later this year. Our goal for DuerOS is not only to make interactions with smart devices simpler.
We also see a need from users to be able to switch their skills interchangeably across mobile, home, and car. Built into DuerOS for Apollo is a skill store that operates mini programs from the Baidu App, which will bring convenience to both our users and the developer community. In the hospitality sector, DuerOS now powers Baidu smart display to provide personal concierge in over 2,000 rooms across a score of hotels in China, particularly five-star hotels, including the newly opened InterContinental Shanghai Wonderland. Turning to Apollo. At CES in Las Vegas last month, we released Apollo 3.5, which supports autonomous driving on complex urban roads. We also introduced Apollo Open Road for the developer community and Apollo Enterprise, offering solutions to support commercial production, including DuerOS for Apollo, valet parking, assisted highway driving, minibus, and intelligent maps.
In the fourth quarter, we added First Automotive Works and Volvo as Apollo partners for commercial production of level four passenger cars. Apollo has garnered over 135 OEM, tier-one parts suppliers, and other strategic partners to date, including recent additions of Volkswagen, China Unicom, Carwale, Quantum Computer, and Star Network Technology. Beyond autonomous driving, we are receiving interest from Chinese municipalities to partner with them and provide smart transportation solutions. With the support of local government, we see commercial opportunities to minimize traffic congestion, reduce air pollution, and improve road safety by leveraging Apollo V2X, or Vehicle to Infrastructure solution. For Baidu Cloud. In December, we open-sourced OpenEdge and an edge computing platform that extends Baidu Cloud data processing and machine learning to edge devices.
Baidu's OpenEdge has received positive feedback from the developer community, reaching number 1 on GitHub in the open-source edge platform category shortly after launch and continues to hold the top spot in current ranking as of February. Baidu Cloud is seeing strong growth in both revenue and customer base and is expanding AI solutions across different industry verticals such as telecom, manufacturing, financial services, and transportation. For example, last quarter, we showcased a top telecom operator in China that used a Baidu AI solution to power one of their call centers. After initial implementation, Baidu AI solution was handling millions of calls per month and reducing the average customer call time by over 70%. We recently signed with the telecom customer to expand Baidu AI-powered automated call center solution to power several more call centers.
At the same time, we are receiving interest from financial institutions as well as airlines to power their customer call centers. Some investors may wonder how the economics will work for Baidu as we enter enterprise AI. Investing in feed and voice assistant are natural extensions of Baidu's search business. As we venture into enterprise AI, we have the potential to leverage the same AI to significantly expand Baidu's total addressable market into the massive enterprise and government sectors. In the case mentioned above, just like the economics of ERP project, the economics of cloud-enabled AI solution may have low margins in the beginning, but with each replication, the project margin improves, and our AI solution become better with machine learning models and experience accumulated.
Turning to iQIYI, as an entertainment IT powerhouse in China, iQIYI continue to see strong subscriber growth, adding 36.6 million subscribers in 2018 to 87.4 million members in fourth quarter. Baidu and iQIYI co-launched a hybrid OTT TV box with Sichuan Cable TV, enhancing the home entertainment experience through AI. This is the OTT TV following the release of Gehua Little Fruit earlier this year. With that, let me turn the call over to Herman to go through the financial highlights.
Thank you, Robin. Hello, everyone. Welcome to Baidu's fourth quarter and full year 2018 call. Before I begin with financial review, let me make a few notes. All monetary amounts used in my discussion are in renminbi, unless stated otherwise. Starting on January 1st, 2018, we adopted ASC 606, a new revenue accounting standard that nets value-added tax on the revenue and constant revenue line. To increase comparability with 2018 numbers, 2017 revenue numbers and related metrics such as margin, have been adjusted assuming net of VAT. We had a terrific year in 2018. Total revenues grew to CNY 102.3 billion, up 28% year-over-year, 31% year-over-year, excluding revenues from spin-off businesses, which were approximately CNY 4.1 billion and CNY 3.1 billion in 2017 and 2018 respectively. Revenues for Baidu Core reached CNY 78.3 billion, up 22% year-over-year, or up 26% year-over-year, excluding spin-off revenues.
Non-GAAP net income to Baidu was CNY 23.3 billion, up 35% year-over-year, and non-GAAP net margin reached 23%. Non-GAAP net income attributed to Baidu Core was CNY 28.5 billion, up 37% year-over-year, and net margin was 36% versus 33% last year. Adjusted EBITDA reached CNY 24.3 billion, up 4% year-over-year, and EBITDA margin was 24%. Adjusted EBITDA for Baidu Core grew to CNY 31.5 billion, up 18% year-over-year, and adjusted EBITDA margin reached 40% compared to 42% the prior year. Free cash flow was CNY 27.2 billion. Free cash flow generated by Baidu Core was strong at CNY 24.9 billion or $3.6 billion. Turning to fourth quarter 2018. Total revenues reached CNY 27.2 billion, up 22% year-over-year, or 28% year-over-year, excluding spin-off revenues, which was CNY 1 billion in Q4 2017.
Revenue from Baidu Core grew to CNY 20.5 billion, or $3 billion US, up 20% year-over-year, excluding spin-off revenues. Marketing customers grew over 10% year-over-year, which can be largely attributed to our industry-leading performance-based ad product, like dynamic ads and OCPC, as Robin mentioned. We saw strong strength coming from education, e-commerce/retail, and service customers, which were partially offset by the weakness in healthcare, gaming, real estate, and to a lesser extent, financial services. The customer sector weakness was mostly impacted by industry-specific policies. On healthcare ads, we successfully rolled out Baidu's new policy to require healthcare customers in the field of andrology and gynecology to shift the landing pages of their ads to Baidu's content platform.
By requiring healthcare marketing customers to place their content in structured data format on Baidu's platform, which allow for comparison across service providers, site commentary and ratings, and other important features, we are in a better position to monitor the sites of our healthcare customers and weed out those that offer questionable services. With phase one of the healthcare provider network transition, we are on track to shift the ad landing pages of other healthcare customers this year. The new business model not only will improve the quality of marketing customers and the information on healthcare sites, it would also give us a better understanding of user interest, which over time would allow us to further improve the navigation and relevancy of online healthcare information in China.
Using similar technology, we see an opportunity to build a content vertical for online literature and make it easier for authors to distribute their literary works online and receive revenue share. The online literature market in China is shifting to an ad-supported model versus paid content, which presents Baidu with a huge market opportunity playing to our strength as a leading marketing platform. Another bright spot in Baidu Core revenue is our cloud business, which reached CNY 1.1 billion revenue in the fourth quarter, more than doubling from last year. Revenue from iQIYI reached CNY 7 billion, growing at a robust rate of 55% year-over-year. Membership revenue continued to be strong, with 37 million subscribers added in 2018, bringing the total subscribers to 87 million in the fourth quarter.
Driven by premium content and hot originals like "Tang Dynasty Tour," "The City of Chaos," and "Original Sin." iQIYI is becoming a strong entertainment IP powerhouse through its relentless effort and focus on originals, on premium content, and multiple monetization models of the same IP, such as membership subscription, online games, e-commerce, and cross licensing. Turning to cost of sale. Excluding stock compensation, cost of sales was CNY 15.5 billion, up 54% year-over-year. Content cost was up 96% year-over-year to CNY 7.5 billion, mainly due to iQIYI's increased investment in content and, to a much lesser extent, investment in Baijiahao content. SG&A expenses, excluding stock compensation, were CNY 5.4 billion, up 61% year-over-year, primarily due to the increase in channel and promotional marketing to acquire new users for the Baidu family of apps.
As Robin mentioned, time spent for Baidu App, Haokan, and Quanmin together grew 112% year-over-year in Q4, which illustrates our ability to convert marketing CNY into repeatable traffic. Our focus to place greater organic traffic that shifting our financial model to spending up some marketing CNY will spread out over the life of the user. In other words, revenue from channel spend has a delayed effect, whereas revenue from CAC is reported in the quarter of expense. In the first half of 2018, a big part of our marketing expenses were spent on promoting the Baidu App. In the second half, Baidu App seeing strong growth, our app promotion expanded to other products such as Haokan short video and Quanmin Flash video. Our traffic acquisition mix shifting from CAC traffic to organic traffic will dampen our profit margin in the near future.
With extensive internal ROI analysis, we believe over the long term this will strengthen Baidu's foundation in search and Feed, especially with users super apps and the increase in popularity of mini apps in China. Turning to R&D expenses. Excluding stock compensation, R&D expenses were up CNY 3.6 billion, up 19% year-over-year, mainly due to the increase in personnel. Non-GAAP operating income in the fourth quarter was CNY 2.7 billion. Non-GAAP operating income for Baidu Core was CNY 5.8 billion, down 17% year-over-year, and non-GAAP operating margin for Baidu Core was 28%. Income tax expense was CNY 484 million. Effective tax rate was 26% compared to 16% last year, primarily due to IG not being able to recognize tax benefits from its losses in the current quarter. Non-GAAP net income to Baidu was CNY 4.6 billion, down 17% year-over-year.
Non-GAAP net income attributed to Baidu Core was CNY 6.5 billion, down 1% year-over-year, and net margin reached 31% compared to 36% last year. Adjusted EBITDA was CNY 4 billion and adjusted EBITDA margin was 15%. The adjusted EBITDA for Baidu Core was CNY 6.9 billion, down 12% year-over-year, and adjusted EBITDA margin reached 34%. As of December 31st, 2018, cash and short-term investments were $20.6 billion U.S. dollars. Excluding IG, cash and short-term investments were CNY 128.7 billion or $18.7 billion U.S. dollars. Free cash flow was CNY 5.9 billion. Free cash flow to Baidu Core was strong at CNY 5.5 billion or $801 million U.S. dollars. Total headcount of Baidu Core was approximately 33,700, up 1% year-over-year. Turning to first quarter guidance.
We expect total revenues to be between CNY 23.5 billion and CNY 24.7 billion, representing a 12%-18% increase year-over-year, or 18%-24% increase year-over-year excluding spin-off revenues for first quarter of 2018. For 2019 margins, please consider the large marketing campaign that we did around the Chinese New Year timeframe, including branding, red envelope giveaway, and so forth. These forecasts are our current and preliminary view, are subject to change. I'll now open the call to questions.
Thank you so much. The question and answer session of this earnings call will start now. In order to be fair to all callers who wish to ask questions, we will take one question at a time for each caller. If you have more than one question, please request to join the questions queue again after your first question has been addressed. To ask a question, you may just press star one on your telephone. All right, our first question comes from the line of Binnie Wong. Binnie, your line is now open.
Hi. Thank you, management, for taking my questions. My first question is basically on our investment cycle. In terms of a lot of investment we are doing in 2018, when we look forward in 2019, how should we expect in terms of our investment priorities into 2019? If we look at the growth coming from actually our new business initiatives, how do you rank in terms of the growth drivers? Any color on how you expect on the investment cycle and also the margin trend will be very helpful. Thank you.
Hi, Binnie. Good morning. As I mentioned in our call.
There are a few businesses that we'll be focused on going forward, that we also have been focused on in the last few quarters. I think the way to look at our margins and our investments are like this. We finished our three-year plan just in January, and our plan was to figure out a way to accelerate our revenue growth based on the new markets that we're going after. The cost driver, I think for 2019, will be a function of a few factors. I think number one is when we look at, for example, Search and Feed, our priority would be to grow our organic traffic. Although, as I mentioned before, for our TAC, as long as there's profit to be made, we'll continue going down that path. The priority, I think, will be with organic traffic.
That will be a function of investing in marketing and content cost, also it's a function of the number of apps that we decide to promote. As I mentioned earlier, in 2018, at the beginning of the year, we focused on Baidu App. As we got into the second half, we looked at Haokan, in the fourth quarter, we also added a trending. That caused our marketing dollars toward the end of 2018 to accelerate. I think going into 2019, you should see us focusing on investing at least in three apps and potentially more. Another business that we are very focused on is the DuerOS. I think for that, you can see it's a function of the number of products that we have, the amount of promotion we have to do for new products, also the number of units that we sell.
I think the last set of investment is in the cloud space. We're seeing cloud doing very well, as Robin mentioned. The cloud, it's a function of how we're growing and preparing to scale our business for the next year. It's also a function of the number of lighthouse projects that we have. With every growth plan, our focus is to also grow revenue. What we'll be looking at this year is to focus on, as we're expanding these things, are we getting very positive operating metrics? If so, then we should see revenue growth accelerate in future quarters. We'll be looking at the operating metric first, then we believe that in following quarters, the revenue growth should come. At the same time, just wanted to note that we're also very diligent in terms of content costs.
If you look at, for example, in 2018, our core business grew 20%, excluding divestitures. At the same time, our headcount only grew 1%. In 2019, our cost control policy in the company will be very similar, where there are areas where we're tightening. We're very focused on improving greater efficiency and so forth. Does that help answer your question?
Yes. That's very helpful. Just one last follow-up on the News Feed. How do you see the competition will be trending in 2019 on the competition on News Feed side? In terms of also any sharing ratio with the content creator, how should we see that? Thank you.
Binnie, the question you had was how do we see the News Feed revenue trending?
Competition, the competition dynamics on the News Feed competition on that front with other platforms. How do you see the 2019 in terms of strategy? How do we position in view of the competition here? Also, in terms of any revenue sharing with the content creators, as we talked about earlier in last quarter call. Just a follow-up on that, on News Feed, would be really helpful. Thank you.
Okay. This is Robin. Let me answer your question. I think it's very obvious that News Feed is a fast-growing market. Everyone in the Chinese internet landscape is trying to expand in this direction. Baidu obviously is one of the leaders in this space. By leveraging our strong technological capabilities, we have been able to grow with the News Feed at a very rapid rate. We expect this trend will continue. In terms of cost structure, it's basically a revenue-sharing structure for the content contributors in our feed system. The more we can drive our feed traffic, the better we can monetize, and the better the economics will be for the content contributors. At the end of the day, it's how many users you can reach and how better you can match content with users.
Yeah. Let me just add a little, Binnie, on this theme. As you can see, News Feed in the beginning was mainly social based, and it relies on your user coming on and acquiring fans and so forth. What you're seeing now is News Feed is getting to a place where there are many people that create content, especially they create in an organization rather than on an individual basis. That's why you see Baidu entering at this stage, and we're doing it with Baidu App, but also using the same methodology going to video, because now the limitation is not about the availability of content, because the same person will put the content on different sites. Where Baidu's strength is using our AI algorithm, the technology we built up to be able to recommend better than everyone else, so that the users are very sticky.
That's why we show you on time spent. To answer your question, I think our competition, our strength is the ability to use our AI to recommend better and to get a user to be more sticky. I think content has become a commodity. In terms of that, I think this year you'll see us probably going more video content because we're having a few more apps that we're pushing. For the non-video side, I think that you'll see probably a slow growth because we have built up that library of content from the past year, and just adding new content probably will not grow as fast for the non-video side.
Thank you. Very helpful. Thank you.
Thank you so much. Once again, as a reminder, we will take one question at a time for each caller. If you have more than one question, please request to join the question queue again after your first question has been addressed. Our next question comes from the line of Alicia Yap from Citigroup. Alicia, your line is now open.
Thank you. Good morning, Robin, Herman, and Sharon. Thanks for taking my questions. I have a question regarding the achievement for the Chinese New Year gala promotion. Any metrics that you could share with us in terms of the total numbers of users that have successfully bind their bank card to Baidu Wallet? What is the increase in, let's say, the total real name registration for the Baidu App after the gala? Any metrics in terms of increase on the usage for the DuerOS smart speaker from prior to the Chinese New Year to now post the Chinese New Year. Any metrics you could share would be helpful. Thank you.
Yeah. As you know that we operated a number of marketing campaigns around the Chinese New Year, and the highlight would be the Spring Festival gala. During the whole Chinese Spring Festival period, tens of millions of users participated in our red packet giveaway activities, and many of them start to realize that the Baidu App is different from the Baidu search from third-party browsers. That is, I think, the biggest achievement for us because before, people always go to a third-party browser and thought they are using Baidu App. Now we have the chance to show the users that the Baidu App offers a better, safer, and more powerful search and feed capability from our app, and the retention rate has been very satisfactory. Meanwhile, we also used this opportunity to promote our smart display, and that has also been very well received.
A lot of users placed order because of this marketing campaign, and the device will be shipped to the user in the coming weeks.
Operator, next question please.
Thank you so much. Our next question comes from the line of Edward Leung from Merrill Lynch. Eddie, your line is now open.
Good morning. Hey, Robin, I think you mentioned about omni-marketing in your opening remark. As we add more advertising opportunities into our platforms, including Mini Programs and short video on top of search and Baidu Feed, what's your vision on how your advertisers using these different solutions going forward? Specifically, how would we prepare our advertising system as well as the sales team for the increasingly complex solutions on our platform? Thank you.
Yeah, I think that's a great question. As you mentioned, we now have a lot of marketing channels for our advertisers, including Baidu Feed search, app opening ads, the or those offline outdoor screens at public areas. We are promoting OCPS so that advertisers just need to tell us what they care about and how do they measure success. We are able to use computer programs to distribute their ad messages. This has been a very good trend for us because it can leverage our technological capabilities and improve conversion for our advertisers. We devote a very meaningful amount of engineering resources to constantly improve the performance of this kind of ad deliveries.
Thank you.
Thank you so much. Our next question comes from the line of Juan Lin from 86Research. Juana, you may now ask your question.
Hi. Good morning, Robin, Herman, and Sharon. Congratulations on a solid set of results and thanks for taking my questions. I would like to ask about the healthcare advertisement. I'm wondering whether the cleanup and process of redesigning medical search has been finalized. In terms of the adjustment of structured content, has such adjustment already been fully applied to all relevant verticals? If so, does it mean that we should expect revenue to resurge, your monetization resurging from here? Thank you.
Hi, Juan. Good morning. Far we have done two fields, basically gynecology and also the male field. We're in the process of expanding that into other medical fields. I think we've seen the initial phase to be very successful, better than our original. I think the initial is better than our expectation, and as you guys saw very well, guidance revenue.
Operator, next question, please. Thank you so much. Our next question comes from the line of Gregory Zhao from Barclays. Your line is now open.
Hi, Robin, Herman, Sharon. Thanks for taking my question. My question is about the content cost. iQIYI earnings call, the management just talk about their expectation about long video content cost to gradually come down in 2019. Here I want to check the content cost, the trend of your newsfeed and short video content cost, and how shall we think about the content cost trend in 2019. Thank you.
Hi, Greg. Yeah. For iQIYI, Gong Yu mentioned on the call environment in which content cost towards the end of last year started to come down. It's going to take probably a so for it to attribute back in the P&L because it takes time for new content to produce. For our, in addition to the long form, I think this year, content cost is usually two types. One is on the non-video type, which we've been building significantly last year as a result of building up the content for Baidu App. You saw the Baijiahao content increased pretty significantly last year and this year, I think with regards to that piece, you'll see some incremental increases, but not too significant. On the other hand, where this year our focus is in addition to continue to grow Baidu, we're looking at also different type of video apps.
One is flash video, which means that the videos are usually less than one minute, and the other one is short video, which is called a few minutes defined, that kind of product. That one we're going to have to continue to ramp up the content for these apps in order for these apps to have more content and to grow more users. You should see us ramping that up.
Thank you so much. Our next question comes from the line of Grace Chen from Morgan Stanley. Grace, your line is now open.
Hi, thank you. Thank you for taking my question. My question is about Baidu's short video investments. We can see that Baidu's short video apps have achieved very good growth. It'd be great if the management can share with us your view about the short video competitive landscape, as we see more and short video apps entering the market. How Baidu positions itself in this market to differentiate from others. Also, can you share the size of investments in the short videos to have an understanding the impact on your financials? Thank you very much.
Grace, let me answer the first part of your question. I think video is a secular trend that basically impacts everyone. The whole world, the whole Internet is moving from text images to video. It's a very large sector. There are lots of things can be done, and I think the innovation has just begun. For Baidu, our competitive advantage is that, I think we have the best matching capability between users and the content. We can distribute the content more efficiently than everyone else, be it search, newsfeed, or short video feeds. I think we will continue to invest in the marketing and distribution of our short video apps. The meantime, I think, or at the end of day, the user experience we can deliver or the matching and distribution capability we have is better than everyone else.
That's why we should be able to make the money that we deserve.
Yeah, Grace, with regards to the financial model, you're going to probably see these video apps following the same trajectory that we saw for Baidu apps. In the beginning we're going to have to acquire content for these apps, and then more importantly, we're going to have to spend on promotions to grow the users. How much we spend on promotion really depends on the daily analysis that we have on the ROIs, whether each of the inventory spots is giving that good ROI. If we do see it, then we're going to continue to double down. If the ROIs are not good, users are not staying on the apps after they come in, then for that inventory channel, then we'll cut off. It's really a function of if we can grow the users and grow user stickiness.
Thank you. Next question comes from the line of James Lee from Mizuho Securities. James, your line is now open.
Yes. Thanks for taking my question. Herman, maybe you can help us maybe crystallize the operating income for the core business in 1Q a little bit here. Given the fact that you talk about your priorities are more on organic growth of apps and also you're going to focus on promotional cost, should we think about maybe your total cost base? How should we think about that relative to 4Q versus 1Q? For example, in 1Q 2018, your total cost base stepped down about 13% sequentially. Is that the right way to think about it? Thanks.
Hi, James. Yeah. Good question on 1Q. We gave you revenues. With regards to cost of sales and OPEX, the way I would look at it is that, in the first quarter, as Robin mentioned, we made a huge promotion around Chinese New Year, and a couple of days ago on the Yuan Xiao, which is the ending of the Chinese New Year, we also did another promotion on television. We have to consider that cost. The way I would look at it is when you look at cost of sales plus OPEX, we could be increasing on a sequential basis upwards to maybe CNY 1 billion.
Where we decide from that 0 to CNY 1 billion will really depend on several factors, which I think we're going to have to wait for a few more weeks to be more precise because there's some activities that we have to see for it to pan out. I would say on a sequential basis, you'll probably see a growth. It could be up to CNY 1 billion, it could be less than that.
Thank you so much. Our next question comes from the line of Karen Chen from Jefferies. Karen, your line is now open.
Thank you, Robin, Herman, and Sharon. Thanks for taking my question. Just wondering for fourth quarter 2018, what's the revenue contribution from mobile newsfeed? We know the very robust growth in the total online advertising customers, while pricing side is relatively suppressed. Are we seeing any pricing pressure potentially as a result of the overall industry supply and demand dynamic changes there? Thank you.
Hi, Karen. The way we look at our business today, we don't look at newsfeed versus a search. We actually look at the ROI of the app itself. Robin talked about how customers are buying online marketing, what package they're looking at not only on the search result, they're looking at the same time if the advertising can also work so that when the users just saw the advertising in the feed, and if they did a natural search and they actually see this. By being able to see that same ad in different ways is actually more effective. The customers are looking at it that way.
It's very hard for us to then be able to decouple how to allocate the revenue between search and between feed because there's value for that synergy. So the way we actually look at it is, how do we grow organic growth versus inorganic growth? With regards to pricing, we're seeing pricing come down, but I don't think it's because of competitive reasons. Our pricing, because we're performance-based, it's really a function of the industry mix that we have. If you look at Baidu's products, whether it's dynamic ads, whether it's CPX, whether it's action-oriented ads and so forth, we're industry leading. We're really the best in class. I think it's not a function of whether we're seeing better effectiveness elsewhere. It's a function of, for example, if you have more gaming revenues, for example, you're going to see higher CPMs.
If you have other type, for example, e-commerce compared to gaming, you're just going to see less CPM. A lot of it has to do with the industry mix, and that's why I mentioned on the call where the industries are increasing, where the industry sectors are decreasing for Q4, you guys get a flavor of how that's impacting our business.
Thank you so much. Your next question comes from the line of Piyush Mubayi from Goldman Sachs. Piyush, your line is now open.
Hello. Thank you for taking my question. I have a quick question, Robin, Herman, if you could just take us through what you think the organic growth rates are for the overall core business, excluding the near-term corrections that we're seeing because of either macro factors or the adjustments that you're making in specific verticals. I'm referring to the 21% core growth rate guidance that you've given for this last quarter, and what you think it would be on a normalized basis. Thank you.
I think we have entered a new stage for Chinese internet landscape. The population or the penetration dividend has gone. The future growth will be driven by technological innovation, at least for Baidu. For our core business, both search and feed, we continue to see a lot of room to grow and to improve. On the search side, I mentioned OCPX, that will automate ad delivering, and Herman also mentioned that we are moving third-party websites to hosted ads where we have more control on the content and have better visibility on the conversion. We are developing the smart link programs that will enable advertisers to deliver better user experiences. We also see strong demand for video content, not only from the feed front, but also from the search front.
We see video search as growing at a very fast pace, and we need to develop the technologies that can better understand video content so that users will be able to find relevant video content more easily.
Thank you so much. Your next question comes from Thomas Chong from Credit Suisse. Thomas, your line is now open.
Hi, good morning. Thanks, management, for taking my questions. I have a big picture about the advertising market. Can management comment about how we see the advertising sentiment changing before and after the Chinese New Year, if any? How should we think about the trend for our key advertising categories as we head into 2019? A quick follow-up on DuerOS and Apollo. Should we expect 2020 is the year that we should expect a meaningful ramp-up in terms of monetization for these two business? Thank you.
Well, I think it's a little bit early to talk about the advertising market trend after Chinese New Year, because Chinese New Year is not one day. It's like a month-long holiday. Typically, after the Lantern Festival, advertisers gradually come back, so it's only a couple of days. It's too early for us to tell whether it's different from 2018. Because of the heavy investment we are making this year, we do expect that monetization in 2020 will pick up.
Yeah.
Thank you.
Let me add a little bit on that.
Thank you.
First of all, when you mention how our advertising sentiment is before and after Chinese New Year, I think that's probably more relevant in terms of our brand advertising business. As you know, in brand advertising business, you usually have to master contract after the Chinese New Year. Our business for the majority is based on performance base, as I mentioned earlier. That way, it really depends on our technology, our ability to actually get marketing our customers' ROI. I think one point on that. Secondly, you mentioned, how do you see the marketing customer sectors growing? As I mentioned earlier, in 2018, the fourth quarter, the sectors that were strong for us, education, e-commerce, and retail in general, service. We think that that's going to continue to be strong sectors for us.
With regards to gaming, real estate, financial and so forth, I think it's a function of policy changes as I mentioned earlier. If the policies are loosening up, if there are more advertisers coming from these sectors and so forth, we believe we're going to get our share because our performance base, I think, is best in class.
Thank you. Next is Han Joon Kim from Deutsche Bank. Your line is now open.
Great. Thank you for the chance to ask a question. One thing that I was interested in was the latest kind of investments into H5 gaming. When I look at your Baidu App, I see kind of mini program games being more prominently featured there than before. I want to understand the strategic importance of gaming to you guys and how you think about positioning the interface to focus a little bit more on gaming recently. Just some explanations around that would be great. Thank you.
Yeah. The Baidu App is a super app that's a daily active user of well more than 100 million. That provides new users a chance to spare some time and relax, sometimes just to play a few games based on the mini program structure. We started to roll out the mini games during the Spring Festival, we obviously saw very good results. Tens of millions of users played this game. From day one, it has been a profitable business for us.
Thank you. Next question comes from the line of Ellie Jiang from Macquarie. Ellie, your line is open.
Thank you. Can you clarify what's cloud revenue implied in your first quarter guidance, and also what's your differentiated strategy in targeting the new cloud customers? On the literature side, in your prepared remarks, you mentioned you see great potential there. On the other hand, we noticed that iQIYI is also doing quite well with their literature product recently. How do you see the synergies as well as the competitions actually between you two in the literature space? Thank you.
How do we forward guidance on a particular of our business being the business in whole. I'll be able to talk more about our cloud as we exit Q1. With regards to how we differentiate, as Robin mentioned on his prepared remarks, talking about AI solution, really our competitive strength by Baidu going as powering solution. See whether we can provide AI solutions to the end parties. As to literature, our strength is in search, the search traffic and so forth. While iQIYI is building their library of content and so forth and growing, I think they're probably going to be more related to. Whereas for Baidu, we're looking at the total landscape of internet in China. There would be a portion of our overall content strategy, which couple that with the amount of traffic that we have in search.
I think we would to build a vertical for literature and looking at iQIYI having content and the content that Baidu have access to, plus the search traffic that we have to give an overall industry strategy.
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