Hello, and thank you for standing by for Baidu's second quarter 2018 earnings conference call. At this time, all participants are in a listen-only mode. After management's prepared remarks, there will be a question and answer session. Today's conference is being recorded. If you have any objections, you may disconnect at this time. I would now like to turn the meeting over to your host for today's conference, Sharon Ng, Baidu's Director of Investor Relations. Thank you, and please go ahead.
Hello, everyone, and welcome to Baidu's second quarter 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 the discussion today will contain forward-looking statements made under the Safe Harbor Provisions of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from our current expectations. Potential risks and uncertainties include, but are not limited to, those outlined in our public filings with the SEC, including our annual report on Form 20-F.
Baidu does not undertake any obligation to update any forward-looking statement, except as required under applicable law. Our earnings press release and this call include discussions of certain unaudited non-GAAP financial measures. Our press release contains a reconciliation of the unaudited non-GAAP measures to the unaudited most directly comparable GAAP measures and is available on our IR website at ir.baidu.com. As a reminder, this conference is being recorded. In addition, a webcast of this conference call will also be available on Baidu's IR website. I will now turn the call over to our CEO, Robin.
Hello, everybody, and thank you for joining our call today. We had another strong quarter in Q2, with our core business exhibiting robust revenue growth driven by AI-powered monetization capabilities and Baidu Feed continuing its strong traffic and revenue momentum. Our AI businesses are also gaining strong traction. Earlier this month, we held Baidu Create, our annual AI developer conference in Beijing, which drew over 7,300 developers and partners from around the world. Our goal for Baidu Create is to bring developers together to share ideas on how they can leverage Baidu's AI to grow their business. I will further elaborate on our announcements at Baidu Create and how we use AI to accelerate the growth of our business as we review our Q2 results. Let's begin the quarter with search and feed.
We continue to push the boundary of search experience by fulfilling 37% of search queries with top one results and 38% through Baijiahao accounts, and over one-sixth of our search page views returning high-quality videos. At Baidu Create, we announced the launch of Baidu's Smart Mini Program to take advantage of an emerging trend in China, where apps with lower frequency are connecting to super apps to bypass the ever-rising cost of app pre-installs. Baidu's Smart Mini Program is unique in that it allows app developers to quickly convert another platform's mini program into Baidu's. App developers have free access to Baidu's AI capabilities, and once Baidu's open-source mini program is set up, the app developer can also plug into any third-party super app in Baidu's network.
Baidu's Smart Mini Program offers a seamless native app experience to other apps, which will extend Baidu's long-tail content reach and derive better conversion. In June, average daily active users of Baidu app reached 148 million, up 17% year-over-year. Total user time spent on Baidu app grew approximately 30% in June year-over-year. Feed consumption continued to trend in a healthy manner, with video consumption up 270% year-over-year. We added over 200 MCNs in the second quarter. For example, People's Daily, a major state-owned news platform in China, joined our content network, Baijiahao, making over 2,000 media sources on its platform, representing over 38,000 Baijiahao accounts available to Baidu Feed users. We continue to leverage Baidu's strategic advantage to power our feed algorithms with Baidu's AI and massive long-tail user insight to provide users with more interesting and wider range of content.
On the monetization front, Baidu's AI has also been the strategic thrust behind our app innovation and app effectiveness, from augmented reality to video ads to performance-based ads. Dynamic ads have been a strong revenue driver, incorporating product and user data from our customers. This quarter, we expanded dynamic ads to advertisers in the education and financial services industry beyond e-commerce, travel, auto, and real estate. Optimized cost per click, or OCPC, continue to be an important component of revenue growth as we expand beyond game developers to financial services, real estate, and education. For mobile action ads, we expanded beyond enabling users to call and chat with the advertisers directly from the ads on Baidu to enabling the users to take advantage of an instant coupon or click to buy.
With strong intent data, Baidu is able to continuously provide our customers with this useful interest generation and purchase features, which have generally seen meaningful lift in click-through rates. We are also seeing good results from Moonrise, Baidu's development of deep reinforcement learning to improve ad performance. Using deep reinforcement learning, which is reward-based, linking actions to divide results, Moonrise can suggest better keywords, photos, and videos from Baidu's huge content library to advertisers and increase conversion and overall ad effectiveness. Baidu is an early adopter of AI. Together with massive user intent data and interest graph, we see great opportunities to help advertisers leverage Baidu's large traffic open platform advantages and highly effective performance-based ads. Turning to DuerOS. Our IoT operating system, DuerOS, is expanding quite rapidly. In June, DuerOS install base reached 90 million, nearly doubled in the last six months.
Voice queries on DuerOS in June surpassed 400 million times, again doubling over a 3-month period. To drive the adoption of DuerOS, we offer third-party toolkits as well as first-party and second-party smart devices. In June, we launched Xiaodu smart speaker, which sold out 10,000 units within the first 90 seconds it went on sale online. Xiaodu Video smart speaker, which was launched in April with AI Nemo, continues to sell well and has garnered overwhelmingly positive user reviews. We are seeing toddlers as young as 4-year-olds and senior citizens becoming an important customer base, reflecting the ease of use of conversational AI powered by DuerOS. In addition to retail, DuerOS is partnering with InterContinental Hotels Group to bring smart rooms to China, where hotel customers can control their rooms and learn about hotel information through DuerOS conversational AI.
Aside from hospitality industry, DuerOS is also making inroads in the auto industry, forming partnerships with the likes of BMW Group, Daimler AG, Ford Motor, Hyundai, Kia, Chery, BAIC, and FAW Group to allow car owners to activate AI input modalities such as voice, image, and facial recognition to enable closed-loop services, including ordering movie tickets and booking hotels. Incidentally, we are seeing fast adoption of voice input in China. Baidu Mobile Input saw average daily voice input grow almost 150% year-over-year in June and averaged 335 million times per day in the last week of July. Just like computers and smartphones, software will be a key determining factor for user experience of IoT devices, which means users will want better AI input modality, better search technology, and better content ecosystem. On Apollo, we are moving at China speed.
Earlier this month, we worked with King Long Motors to launch the first fully autonomous level 4 minibus, Apolong, a shuttle bus built without steering wheel. Neolix Technology also launched an L4 vehicle powered by Apollo, a mini cart for cargo deliveries this month. We are excited about the commercialization of Apollo powered vehicles, which is a testament to Apollo's comprehensive ecosystem from AI technologies to OEM software, to hardware integration, to tier 1 part suppliers, to IoV-enabled back-end infrastructure. China is the largest auto market in the world, with 28.9 million new vehicles sold last year, presenting a huge opportunity for Apollo to making driving easier and help provide environmental and traffic solutions. In March last year, I challenged our team to open source Baidu's autonomous driving platform and release a commercially viable vehicle.
Within 16 months, our team worked with OEM partners to release two level 4 vehicles off the assembly line, which is not an easy feat in the automotive industry, where manufacturing delays are common. Recently, I posed another tough challenge to our team: help Baidu users identify quality, reliable medical services. In China, there are currently 31,000 licensed hospitals, but no effective mechanism to identify those with unscrupulous services. In the past, Baidu focused on banning bad ads. As a major information source in China, I believe we should use AI and step up efforts to significantly improve the quality of medical content and weed out bad hospitals, even if they are licensed and operate within the realm of law. Having access to reliable medical services is a basic necessity to having a quality life.
Within a year, I challenged my team to come up with a solution to improve trust to online medical information on Baidu properties. Turning to iQIYI. iQIYI continues to perform well, with strong growth in membership and advertising revenue in Q2. Total subscribing members reached 67 million in Q2, adding record high of 29 million subscribing members in the past year. Forming a large membership base lays a solid foundation for iQIYI to promote its self-produced content. We see iQIYI's award-winning content production, coupled with Baidu's huge traffic and technology, as a powerful combination in online entertainment. Our shared synergies provide iQIYI with a unique advantage, particularly as the fastest growing OTT industry in China continues to scale and conversational AI receives broader adoption into Chinese households. In summary, we are pleased with the momentum that we have built moving toward an AI-first company.
We look forward to further updating you on our progress next quarter. 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 second quarter 2018 call. Before I begin Q2's review, let me make a few notes. All monetary transactions amounts in my discussion are in renminbi unless stated otherwise. Starting on January 1st, we adopted ASC 606, a new revenue accounting standard that nets value-added tax from the revenue and cost of revenue line. To increase comparability with 2018 numbers, 2017 revenue numbers have been adjusted net of value-added tax. We completed the spin-off of our Global DU business in addition to Baidu Deliveries and Baidu Games, and are in the process of spinning off Du Xiaoman, or DXM, our financial services business. For today's discussion on Baidu Core, we have excluded the spin-off and to-be spin-off businesses, including Du Xiaoman, to give more visibility on the performance of Baidu Core, not including the spin-off and plan to spin-off businesses.
With that, let's turn to Q2. We had another stellar quarter in the second quarter. Total revenues reached CNY 26 billion, up 32% year-over-year, and non-GAAP operating income reached CNY 6.5 billion, up 31% year-over-year. Revenue from Baidu Core, excluding spin-offs, reached CNY 19 billion, up 30% year-over-year, and non-GAAP operating profit of Baidu Core, excluding spin-offs, reached CNY 7.7 billion, with non-GAAP operating margin reaching 41%. In the second quarter, our sales and marketing expenses came in under budget. We're targeting non-GAAP operating margin in the third quarter to be several points lower than in the second quarter, assuming we are able to invest in the traffic acquisition as planned. Revenue from announced spin-offs was slightly above CNY 1 billion in the second quarter. We expect this portion of the revenue to decline in the future upon the completion of each divestiture.
For example, in July, we completed the divestiture of Global DU, and as a result, we no longer consolidate its revenue. We are providing this level of revenue detail to give investors more visibility to gauge on Baidu's revenues post the completion of the expected divestitures. Our strategy to transform Baidu into an AI first company to drive synergy and accelerate long-term growth while redirecting management attention and resources from non-core businesses to new businesses is seeing good traction. In the second quarter, feed plus AI businesses together made up almost 20% of Baidu Core revenue, excluding spin-offs. Together, feed plus AI businesses grew over 150% year-over-year. AI is powering search with better user experience and continuously increasing Baidu's ad effectiveness. AI is also powering the growth of feed in new AI businesses, which we believe will shift Baidu's revenue structure proportionally to higher growth areas over time.
By divesting non-core businesses, we expect the announced spin-offs together will generate approximately $1.8 billion in cash, which we plan to repurpose for better return on capital. In June, we announced a share repurchase program for up to $1 billion over the next 12 months. Program to date, we have given back to our shareholders approximately $187 million. Let me now go through the rest of the financial highlights. Online marketing revenues were CNY 21.1 billion, up 25% year-over-year. We had approximately 511,000 online marketing customers, up 9% year-over-year, and revenue per customer was approximately CNY 42,200, up 16% year-over-year. Other revenues were CNY 4.9 billion, up 75% year-over-year, mainly resulting from the robust growth in iQIYI's membership and other businesses. Revenue from iQIYI in the second quarter reached CNY 6.2 billion, up 51% year-over-year.
Cost of sales, excluding stock comp in the second quarter, was CNY 12 billion, up 28% year-over-year. Content cost in the second quarter was up 68% year-over-year to CNY 5.2 billion, mainly due to the increased content purchases by iQIYI and for Baijiahao, Baidu Feed's content network. SG&A expenses, excluding stock compensation in the second quarter, were CNY 4.2 billion, up 56% year-over-year, mainly due to the increase in channel and promotional marketing, partly offset by the cutback in Baidu Deliveries and O2O promotions. R&D expenses, excluding stock compensation in the second quarter, were CNY 3.3 billion, up 24% year-over-year, mainly due to an increase in personnel-related costs. Operating income in the second quarter was CNY 6.5 billion, up 31% year-over-year. Non-GAAP operating income of Baidu Core, excluding spin-offs, was CNY 7.7 billion, and non-GAAP operating margin for Baidu Core, excluding spin-offs, was 4.1%.
Income tax in the second quarter was CNY 1.1 billion compared to CNY 0.6 billion. Effective tax rate was 18% compared to 11% last year, which we benefited from the disposal of certain subsidiaries. Net income attributed to Baidu in the second quarter was CNY 6.4 billion and diluted EPS was CNY 18. Non-GAAP net income attributed to Baidu was CNY 7.8 billion, up 57% year-over-year, and non-GAAP diluted EPS was CNY 21. Adjusted EBITDA in the second quarter reached CNY 7.4 billion and adjusted EBITDA margin reached 29%. Adjusted EBITDA for Baidu Core reached CNY 8.6 billion and adjusted EBITDA margin was 43%. As of June 30th, 2018, cash and short-term investments was CNY 128.3 billion. For the second quarter, cash flow from operating activities was CNY 7.1 billion and cash capital expenditures were CNY 1.5 billion. Total headcounts as of June 30th was approximately 39,700, down 6% year-over-year.
As of June 30th, excluding iQ, cash and short-term investments was CNY 115.2 billion. For the second quarter, cash flow from operating activities was CNY 7 billion and capital expenditures were CNY 1.3 billion. Excluding iQ, total headcount as of June 30th was approximately 32,900, down 9% year-over-year. Turning to third quarter guidance, we expect total revenues to be between CNY 27.37 billion and CNY 28.77 billion, representing a 23%-30% increase year-over-year. Excluding the impact from the announced divestitures, including Global DU and Du Xiaoman, Baidu expects revenues to be between CNY 26.56 billion and CNY 27.92 billion, representing a 26%-33% increase year-over-year. This forecast is our current and preliminary view and is subject to change. I will now open the call to questions. Operator, please.
Thank you. Ladies and gentlemen, the question and answer session of this conference call will start in a moment. If you wish to ask a question, please press star one on your telephone keypad and wait for your name to be announced. If you wish to cancel your request, please press the pound or hash key. In order to be fair to all callers who wish to ask questions, we will take one question at a time from each caller. If you have more than one question, please request to join the question queue after the first question has been addressed. Your first question comes from the line of Eddie Leung of Merrill Lynch. Your line is now open.
Good morning. Thank you for taking my questions. Quickly, just wonder if you could share more color with us on the progress you have made on Baidu Feed in terms of both usage and monetization. How does that compare with our competitors? Just a quick follow-up on your guidance. We have known some scandals related to P2P financing and vaccines recently. Have we seen any impact on our revenue in the third quarter from these social events? Thanks.
Eddie, on the Baidu Feed progress, as I mentioned during the prepared remarks, things have been growing very quickly, and we have seen growth both in terms of DAUs as well as time spent per user, and the relevancy of those recommended news content or Baidu Feed content keep improving. We believe we have the best user experience now. Comparing to most of the other super apps, I think we are gaining share. Our Baidu Feed is designed to enrich people's lives, not really just help them to kill time. We want our users to learn something valuable every time they come to the Baidu app. That's why we think Baidu Feed is actually a part of our Baidu Core, and it's an integral part of the Search+Feed super app, and we do expect this kind of trend will continue.
We think our newsfeed already reaches the largest audience among all the comparable products in China. With more than 600 million monthly users for our search product, we still have a lot of room to grow in terms of the newsfeed product. On the P2P advertisers, we always had a very tight control and high bar for P2P advertisers. We haven't seen any meaningful impact on our revenue as of today, and probably going forward, we wouldn't see any meaningful impact either.
Good to hear that. Thank you.
The next question comes from the line of Alicia Yap of Citigroup. Your line is now open.
Hi. Good morning, Robin, Herman, and Sharon. Thanks for taking my questions, and congrats on the solid quarter. I actually have some follow-ups on the recent operating environments for the overall newsfeed and the advertising content censorship. Have you actually seen more step-up by the regulators on paying more closely attention to some of these ad content format and the content that carry the ads? Is this change of this regulatory environment temporary, or should we expect more normalized ad growth for the industry after that? Specifically, any impact for Baidu family on this step-up? Then just on the housekeeping question for the SG&A, there's quite a bit of the increase this quarter. Are there any one-time costs that are associated with the business divestiture, or is it mainly from the promotional channel cost increase? Thank you.
Yeah. We always held a very high standard on our content for Baidu Feed. We do not want to give users something that's illegal or something that's on the borderline. Again, we want to enrich our users' lives, and we want our users to learn something valuable. We haven't seen any negative impact over the past couple of quarters because our standards have always been higher. On the SG&A?
On the SG&A, yeah, the majority of the growth year-over-year has been related to promotional activities and also channel costs. There were over CNY 100 million that related to certain bad debts that we had to reserve for, I think that will be more of a one-off than a continuing item.
Okay. Great. Thank you.
Okay. Thank you.
Your next question comes from the line of Grace Chen of Morgan Stanley. Please ask.
Thank you. Thank you, Robin, Herman and Sharon, for taking my questions. My question is about, in the recent Baidu Create conference, Baidu announced the introduction of Smart Mini Program. Can you provide a bit more color about the progress of implementation, feedback from customers, and any performance metrics that you can share with us? Such as that which verticals have adopted the Smart Mini Program first, and what other verticals may present bigger potential. Can you elaborate a bit more about how the Smart Mini Program will fit in your overall strategy for search and feed business and, what would be the sustainable long-term growth rate of the search and feed business?
It would be great if you could give us some guidance in terms of the margin in the second half of the year, in particular, some guidance on the various cost items, such as traffic acquisition costs, content costs, and R&D. Thank you.
I guess the second one got confused. What's the first question? I didn't quite get it.
The second one was about search and feed. The third one was on margins. Grace, is that right? Your first question was on Smart Mini Program, and the progress there?
Yes. Basically, the first question, correct. The first question is about Smart Mini Program and in terms of the implementation right now and feedback, and in terms of which verticals that have adopted the Smart Mini Program. The second question is about the guidance for the margins in the second half, especially in terms of various cost items such as traffic acquisition costs, content costs, and R&D. Thank you.
Okay. On the Smart Mini Program, we've received overwhelmingly positive responses from the partners we have contacted with. Our latest version of Baidu app already supports the Mini Program. It will give users much better experience and will drive higher conversion in the future. Right now, some of the verticals are already including games and travel-related verticals. We are implementing other verticals, too. It will continue to evolve very quickly. We have promised to open-source this by the end of this year, which means that other large apps can just plug into the API and be ready to support all kinds of mini programs in the same ecosystem. We're seeing a very high level of interest. We are just busy implementing all kinds of features. We're already seeing a number of the exemplary partners online.
For example, train tickets, the conversion rate is much higher than before.
Hi, Grace. On your question on second half margins, as I mentioned in the prepared remarks, we think that we should see our margins dip several points from second quarter. We've been talking about this since the beginning of the year, that we intend to increase our investment in traffic acquisition. I think that's probably the main line item. In addition to that, we'll also continue to increase our investment in content acquisition so that our feed can continue to be able to acquire traffic and push long-tail content. I think those are the main items that we could potentially increase our budget, sales and marketing and also cost of revenues in the content line item.
Okay, thank you.
Welcome.
Your next question comes from the line of Thomas Chong of Credit Suisse. Your line is now open. Please ask.
Hi, management. Thanks for taking my questions. I've got questions about our AI initiatives in DuerOS and Apollo. Can management give us any additional color in terms of the monetization timeline, and when should we expect a revenue contribution in the coming quarters? My other question is about on the regulatory front. Should we expect there will be more regulations to come up in the search or on the news feed side? Thank you.
Yeah. On the AI initiatives, both DuerOS and Apollo are growing very quickly. We're seeing tremendous growth or adoption rate from the users who use our IoT devices, and we see a lot of OEM, strong interest to work with us. These two business lines are in its very early stage. We do not expect any meaningful revenue contribution in the coming quarters. Having said that, I would say that these two business lines are
The most advanced ones among its peers. If anyone starts to be able to generate meaningful revenue, we will be the first one to achieve that goal. Especially for Apollo, I think we enjoy an advantage that the Chinese government is very supportive of this kind of technological innovation and are willing to cooperate on the infrastructure level, which means that they would want to install sensors on the road, so that cars do not need to buy very expensive LIDAR or other type of sensors in order to drive autonomously. We are very excited about the future of these two new initiatives. On the regulatory environment for both search and newsfeed, we have been in the search business for a very long time, and we've seen changes or fluctuations from time to time, and we think we are able to cope with that going forward as usual.
Newsfeed, we've also been operating this for a little more than two years, and we are able to maintain a high standard and close dialogue with the regulators, and we do not see anything changing significantly going forward.
Got it. Thanks, Robin.
Your next question comes from the line of Juan Lin of 86Research. Please ask.
Hi. Good morning, Robin, Herman, Sharon. Congratulations on the strong set of results, and thank you for taking my question. My first question is on short video. I wonder whether the recent crackdown against short video apps that are not in compliance with content censorship has put some weight on the short video supply of our platform, and whether that will impact our short video strategy going forward. Also, I wonder, what is the current revenue contribution and the monetization progress for our video content? How does video app compare to newsfeed ad in terms of the level of monetization? Second question is on TAC. You mentioned that company will step up spending on traffic acquisition for the second half of the year.
Given that traffic acquisition prices remain pretty high, I wonder whether we're going to adjust our OEM traffic acquisition strategy and the measurement of ROI for traffic acquisition going forward. Thank you.
All right, Juan, I'll answer your short video question, and Herman will answer the TAC question. Short video is growing very, very quickly. We are new to this business, but we have seen tremendous growth over the past few quarters. Video content represents well over half of our total newsfeed content distribution volume. Short video is also very positive to our revenue generation, which means it actually makes money from day one, if you look at the monetization capability angle. In terms of regulations regarding to short video, I think it's the same standard with text and images, and we have a sophisticated system to identify unwanted content, and we are able to use AI, use machine learning to really filter out those unwanted content and send the most relevant content to our users.
On the question, Jen, on TAC. I think in terms of overall traffic acquisition cost, the way we look at it is, on TAC in the past, we look at trying to get absolute margins, a gross margin from TAC purchases, and we've changed that strategy since the beginning of the year. We believe that maximizing profit rather than maximizing margin would be a better strategy, and we've been doing that since the beginning of the year. To the extent that we think that there's incremental dollars to be had, we'll continue to acquire TAC. With that said, we're also looking at the ROIs coming from TAC versus app downloads and trying to grow a Baidu app. So far, we think that we're able to actually increase Baidu app spending app installs faster than TAC because we see that the ROI has been more positive.
I think in the last two quarters, you've seen us trying to increase our investments in traffic acquisition. TAC, we have not increased too significantly. However, under sales and marketing channel costs, you've seen that increase significantly because we've found ways to get pretty good ROI by doing such marketing investments.
Thank you, Robin. Thank you, Herman.
Thank you.
Your next question comes from the line of Jerry Liu of UBS. Your line is now open.
Hi, guys. Thank you. My question is on advertising. Wanted to ask about revenue growth in the next few quarters if we are to maintain roughly our current revenue growth rate. Do we see a lot of legs left in dynamic ads and OCPC and some of the initiatives today? When can we see Mini Programs start to kick in? Thank you.
Yeah. As you know, the Internet population in China is not growing as quickly as before. I think the total pie is not getting much larger, but that really means the technology will play a much more important role, both in terms of user experience and in terms of monetization. Regarding to ads, we still see a lot of room in terms of better monetization technology, including OCPC and including Mini Programs. Once the advertisers adopt Mini Programs, they should see a much better conversion because the user experience is more like a native app instead of just a webpage, and user data are connected, and the relevancy should be improved, too. Going forward over the next few quarters, I think a big revenue driver will be technology innovation on the monetization front.
Operator, next question, please.
Thank you. The next question is from Han Joon Kim of Deutsche Bank. Your line is now open.
Great. Congratulations on strong results, just had quick questions. I've noticed that the revenue mix from mobile actually decreased for the first time, I just wanted to get your perspective on how you see the PC and the mobile mix shifting and if this is just a one-off or some signs of change in the market. As a follow-up to your question or topic about number one kind of results having a better impact, does that mean that the number one keyword basically gets better pricing and so it dilutes the impact of number two and number five, or how does the blended eCPM rate kind of shifts when your number one results becomes much more dominant result out of all the results? Thank you.
This is for Joon, mobile.
Yeah. Hi, Han Joon. I think you're referring to our mobile revenue. When you look at year-over-year, our mobile revenue, I think it actually grew as a percentage of total. I think it's just a seasonal fluctuation between Q1 and Q2, that change was 1%, which I don't think is material. I don't think trying to read through a 1% variation quarter-over-quarter is too meaningful. I think overall, we're still seeing a faster growth from mobile side. I'll have Robin answer the top one results from our search.
Yeah. When we think about how to develop our product, we always consider the user needs first. We want to try to meet users' needs as quickly as possible and providing the right answer as the number one result achieves that. In the meantime, I don't think it will hurt monetization significantly because in a lot of cases, such kind of number one result has commercial values, too. Users are well-served in the meantime, and we can make some money out of it. For example, when people are looking for airline tickets, the first results could very well satisfy users' needs without them leaving our website. In the meantime, it's got clear commercial value.
When it comes of the ranking of search results, we always think of the user interest first. We think in the long run, users will come back more often and contribute more time to our app, eventually we will also be able to monetize the overall user base better.
Got it. Great. Makes sense. Thank you.
The next question is from Wendy Huang of Macquarie. Your line is now open.
Thank you. I just have three housekeeping questions. The first is to follow up on the PC mobile revenue mix. On the flip side, given that the PC brand exposure actually increased, does that imply the PC revenue growth actually in the quarter is more than 30%? Also what's the CPC trend for both PC and mobile behind that? Secondly, you disclosed about the Baidu app DAU and user time spent year-over-year change. I just wonder if you can also share the sequential change or maybe the Q1 data for the DAU and time spent. On the spin-off business, if my calculation is correct, I think the spin-off internet finance business and Global DU is about CNY 800 million to CNY 850 million revenue.
What is actually the margin of this spin-off business, and how should we take into consideration of the spin-off impact on the margin side in the Q3 as well? Thank you.
Let me answer your first question on the mobile revenue. Mobile revenue as a percentage of total was 76.6%. We were 1% less than last quarter, but when you compare to last year, we were at 73%. When you look at the last four quarters and so forth, mobile revenue was still growing. As I mentioned at the question before, I don't think a 1% variation is something to worry about. I think overall, we're seeing, if you look at the last four quarters, mobile revenue is actually trending up because proportionally traffic from mobile is also higher.
Yeah. On the DAU and time spent metrics, I think the trend for Q1 and Q2 was very consistent. As you know, Q1 is seasonally a weak quarter. Q2, if we compare to Q1, the sequential growth is very significant. It's better to compare Q1 with the year-over-year numbers and Q2 also year-over-year numbers. These numbers we have said in the last earnings call too, that both are growing and comparing to most of the super apps, we are growing faster than most of them.
The last question with regards to spin-off revenues and margins. I think that question is going to be hard to answer. It really depends on whether we are able to close this deal during the quarter or at the end of the quarter. In our press release, earnings release in the Excel part, we actually lay out what Baidu Core would be without the spin-off. We presented in our prepared remarks the amount excluding the spin-off. The difference you can see what we are estimating. For the announced spin-offs in Q3, we are anticipating possibly maybe CNY 800 million from the spin-off. That is assuming full quarter of our Du Xiaoman Financial. Should we close this deal beforehand, obviously we would only have a portion.
With regards to the profitability of the spin-off as a whole, we are seeing a profitability, that is pretty minor compared to all of Baidu. I think after the spin-off, we would probably lose between CNY 800 million to CNY 1 billion a quarter. With regards to profitability, we will lose some profitability, it will not be too significant.
Thank you.
The next question comes from the line of Alex Yao of J.P. Morgan. Please ask.
Thank you, management, for taking my question. I have a question on the core ads growth outlook. If my math is right, I think the core ads growth rates for third quarter revenue guidance is around high teens to mid-20s. Can you give a sense of what's driving this core ads growth rate, i.e. pay-click growth versus monetization growth? Is it fair to say majority of the pay-click growth is driven by the newly added inventory from Feeds? Secondly, is Du Xiaoman the last non-core asset that we are going to spin off? Thank you. I stop here.
I'll take that, Alex. When you say core business, I guess you're meaning search. Is that correct?
Yeah, I mean taking out the video, the iQIYI business, everything else left over.
Okay. Yeah. Our search plus Feed, I think overall, is growing pretty significantly. We don't really break out in terms of how much of that is traffic, how much of that is clicks. I think it's a mixture. When you're looking at search in itself, obviously you're seeing the effectiveness of us using different type of AI technologies coupled with our large pool of data to continue to increase the efficiency of search. That's helping drive our revenue. With Feed, I think you're seeing both. You're seeing not only additional traffic, you're seeing increase in user time spent, you're seeing us introducing some of the new search products, monetization products into Feed. You're also seeing different formats, for example, like AR, that's helping drive some of the display ads that we didn't have before. There are several dimensions that are driving Feed.
With regards to Du Xiaoman, what was the question again?
You guys have been spinning off or disposing non-core asset for quite a few quarters. Is Du Xiaoman the last non-core asset you are going to spin off?
Yeah. Normally for these business decisions, we will announce it publicly when we have made a decision internally. Thus far, Du Xiaoman is the last one that we have announced, and that's the one that we're in the process of spinning off. Thank you, Alex.
Thank you.
Your next question comes from the line of Piyush Mubayi of Goldman Sachs. Please ask your question.
Thank you for taking my question. My question surrounds DuerOS, which has now reached 90 million installed base. Is there any monetization that we could build into our forecast? That's the first question. Second, following up on Alex's question, it appears that your guidance suggests a slight slowing down into the third quarter on a year-on-year basis for the core, Herman. I think if you could just comment on that, or is it just because your range is wide enough and we're reading too much into that number? Thank you.
On the DuerOS, we are still focused on expanding the install base and improve user experiences. There's a clear path to revenue and profit because users will increasingly rely on voice-activated devices for all kinds of information, content, and services. Eventually we wouldn't worry about monetization, but for the next few quarters, we would not think that DuerOS will contribute a significant portion of our revenue.
Thank you, Robin.
Thank you, Piyush. On your question with regards to following up on Alex's question on Search plus feed, I think the reason why you're seeing on a year-over-year basis that we're slowing down from second quarter is because of the one-year lap from last year. If we recall, the growth rate of our advertising last year, 2017, I think first quarter, we were at a negative, second quarter, we were growing 7% year-over-year, and by third quarter, we significantly increased, and we're growing 22%. As you probably know, we had a medical situation back in 2016, and by the third quarter of last year, basically our revenue started growing over 20-some%. We have a higher base, obviously, coming into this year.
I think it's that one-year lap of going to be a more normalized growth rate, starting third quarter last year, that's causing us this quarter to be like this.
Thank you.
Okay. Thank you.
Yes, we'll take the final question from Tian Hou of TH Capital. Your line is now open. Please ask.
Yeah. Good morning, Herman, Robin, and Sharon. My question is related to your Apollo. Apollo has started to make it into a cars or minibus and in the level 4. I think it's a great accomplishment. I wonder from here to level 5, what are some milestones you guys going to do to accomplish that? How long it may take from here to level 5? That's my question.
Yeah. As you know, auto is a huge industry. It involves a lot of ecosystem partners, and we are working with many of them on level 3, level 4, and we are also working with the government to design better infrastructure or smarter roads for autonomous driving. That's why you see that the level 4 minibus actually launched before any passenger cars with level 3 technologies. They are going to be used in the designated areas at a slower speed, which will make sure that the safety is not an issue. The Apollo ecosystem is a very comprehensive one. We will be selling simulation software, we'll be selling HD maps, we will be selling ACU, which is Apollo Computing Unit, consisting of both hardware and software. We will have solutions for valet parking, and we have a broad spectrum of services offering to our partners.
As we move forward, we'll be able to monetize from both level 3 and level 4 and probably some other related areas.
Thank you, Robin.
Thank you, Tian.
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