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Edited Transcript of BIDU earnings conference call or presentation 28-Jul-17 12:00am GMT

Beijing Jul 28, 2017 (Thomson StreetEvents) -- Edited Transcript of Baidu Inc earnings conference call or presentation Friday, July 28, 2017 at 12:00:00am GMT

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Corporate Participants

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* Qi Lu

Baidu, Inc. - Vice Chairman, Group President and COO

* Sharon Ng

Baidu, Inc. - Director of Ir

* Xinzhe Li

Baidu, Inc. - CFO

* Yanhong Li

Baidu, Inc. - Co-Founder, Chairman and CEO

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Deutsche Bank AG, Research Division - MD and Head of Asian Telecommunications, Media and Technology Equity Research

* Alex C. Yao

JP Morgan Chase & Co, Research Division - Head of Asia Internet and New Media Research

* Alicia Yap

Citigroup Inc, Research Division - MD and Head of Pan-Asia Internet Research

* Chi Tsang

HSBC, Research Division - Head of Internet Research of Asia Pacific

* Eddie Leung

BofA Merrill Lynch, Research Division - MD in Equity Research and Analyst

* H. Chen

* Juan Lin

86Research Limited - Research Analyst

* Karen Chan

* Ming Xu

* Piyush Mubayi

Macquarie Research - Head of Asian Internet and Media

* Yue Wu

* Zoe Zhao

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Operator [1]

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Hello, and thank you for standing by for Baidu's Second Quarter 2017 Earnings Conference Call. (Operator Instructions) 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. Please go ahead.

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Sharon Ng, Baidu, Inc. - Director of Ir [2]

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Hello, everyone, and welcome to Baidu's Second Quarter 2017 Earnings Conference Call. Baidu's earnings release was distributed earlier today, and you can find a copy on our website as well as on newswire services.

Today, you will hear from Robin Li, Baidu's Chief Executive Officer; Qi Lu, Baidu's Chief Operating Officer; and Jennifer Li, Baidu's Chief Financial Officer. After their prepared remarks, Robin, Qi and Jennifer will answer your questions.

Before we continue, please note that the discussion today will contain forward-looking statements made under the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from our current expectations. Potential risks and uncertainties include, but are not limited to, those outlined in our public filings with the SEC, including our annual report on Form 20-F. Baidu does not undertake any obligation to update any forward-looking statements except as required under applicable law.

Our earnings press release and this call include discussions of certain unaudited non-GAAP financial measures. Our press release contains a reconciliation of the unaudited non-GAAP measures to the unaudited most directly comparable GAAP measures and is available on our IR website at ir.baidu.com.

As a reminder, this conference is being recorded. In addition, a webcast of this conference call will also be available on Baidu's IR website.

I will now turn the call over to Baidu's CEO, Robin Li.

Hello, everybody, and thank you for joining today's call. We delivered solid financial performance and made some significant announcements and developments in the second quarter. The arrival of the AI era creates new exciting opportunities for Baidu. With the work that we're doing with our core business in mobile and the leading AI capabilities that we are applying to autonomous driving, DuerOS, AI cloud and financial services, we have a broader mission than we set out to achieve 17 years ago, when the company was founded.

In May, we announced a new mission statement to make a complex world simpler through technology. In order to achieve our mission, we will execute on 2 strategic pillars: to strengthen our mobile foundation; and to lead in AI.

As we reflect on the first half of 2017, we are very pleased with our overall progress. This quarter, in strengthening our mobile foundation, we made significant improvement in our flagship Mobile Baidu app with version 9.0, which makes the overall Baidu Search experience more mobile native-app-like and is the best way to experience the dual search products of query based traditional search and feed, which we think of as "query-less search." We've seen strong user adoption for Mobile Baidu, with DAU growing the fastest among the top 10 apps in China from March to June, according to QuestMobile. Feed user adoption has been very strong. Feed daily active users surpassed 100 million this month and the key metrics of volume of content distributed and monthly time spent grew rapidly, reaching new highs.

Through voice search, we make it more natural for users to express queries. In search, the large majority of search landing pages now deliver a native-app-like experience, having more than doubled in proportion from the beginning of the year. We also dramatically increased the coverage of richer content such as video. Overall, we are laser-focused on user experience.

Our mission in the AI age is very clear, we are open and we are enabling. We attract the top human talent to our platform and forge ahead in the AI age. We held our first AI developer conference earlier this month and shared our principles of open platform and win-win ecosystem with our partners and developers. We've made significant progress in autonomous driving by officially launching project Apollo, the first open platform for autonomous driving, attracting over 50 strong partners.

In DuerOS, we continue to lead the industry in technology and with our large and growing ecosystem. In ABC cloud, we are seeing strong momentum in customer additions and revenue, and Baidu FSG, our FinTech platform, is healthy and gaining industry recognition, having signed a strategic alliance with the Agricultural Bank of China.

Each initiative is available to us because of our AI leadership and each represents substantial opportunity and has the potential to become a sizable core business for Baidu.

I'll now turn the call over to Qi to go through our business progress.

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Thank you, Robin. Let me now walk you through our operating highlights and some additional details.

On the current core business front, we are making sustained progress in our product, in particular Mobile Baidu, which is the mobile app that represents our flagship product, with the twin-engine user experience of search and feed. To us, feed is query-less search and it is a great way to extend our offering to users on mobile devices.

There are strong synergies between search and feed to drive further experience improvement, usage and engagement. Earlier this month, we launched Mobile Baidu version 9.0, a major update that delivers a much improved user experience across a number of key areas, such as faster load speed, smoother navigation, a cleaner interface and a more mobile native app-like experience for consuming content such as video, literature and music.

At the same time, we drove strong user adoption of Mobile Baidu in the second quarter. Mobile Baidu DAU grew the fastest among the top 10 mobile apps in China from March to June according to QuestMobile.

On search, we continue to make good progress in improving our overall search experience by making the experience much more mobile-native. For example, in Mobile Baidu, we shipped a new search UI and a new navigation framework which substantially increased the percentage of search result landing pages with a native app-like experience as a portion of the total search landing pages to 85% this month, from 40% at the beginning of the year, through intelligent filtering and advanced presentation technologies. Overall, we're focused on using AI as the fundamental driver to deliver sustained improvement of search, enabling a better and a more natural search experience via voice and images as inputs, and increasing the coverage of richer content such as video.

On feed, our product quality and user experience improves at a rapid pace, particularly as we leverage our strengths in AI technologies and our search data assets. Such improvements underpin the strong growth of overall daily usage. Our volume of aggregated content consumption and distribution as well as user time spent, are reaching historical highs this month. Our feed DAU surpassed 100 million this month, up from 83 million DAU in April, outpacing all industry peers.

On the monetization front, because our search plus feed twin-engine and the usage growth in feed, our value propositions to advertisers becomes richer, more diversified and overall, more compelling for both performance and brand advertising. As a result, our customer base is growing at a healthy pace. Over the quarter, we added nearly 20,000 online active customers sequentially across a range of industries, including education, auto, logistics and the local services.

In particular, we continue to receive good feedback from our advertisers, especially those who benefit from the comprehensive combination of direct response search ads and branded feed ads and other branded ad formats. This is because search and feed ads satisfy distinct advertising needs, and we see feed monetization as fundamentally incremental to search ad-spend of our core search product.

Advertisers recognize the value of our platform and we have seen strong momentum in feed monetization, with feed revenue doubling between March and June.

IQiyi plays an increasingly important role in strengthening our overall mobile foundation. Its rich content and strong user base are key pieces to Baidu's overall ecosystem. We have made a lot of progress in establishing operational synergies in data and content across iQiy and other Baidu products to spur long-term growth. In Q2, iQiyi continued its excellent performance and leads the online video industry across multiple key metrics.

In June, according to iResearch, iQiyi's PC and mobile app daily active users reached 75 million and 146 million, respectively, reaching new highs. Monthly time spent on PC and mobile continue to grow, with users spending 124 billion minutes on PC and 383 billion minutes on the mobile app, second only to time spent on Tencent's Weixin app.

Next, I'll talk about our progress on the second strategic pillar, leading in the AI era. Our focus is to accelerate the commercialization of AI technologies. Our best strategic path forward is to platformize our AI technologies, build vibrant ecosystems based on healthy business models and sustained win-win with developers and partners.

We held a very successful AI developer conference on July 5, where we clearly articulated our AI platform and ecosystem strategy blueprint. The foundation of our AI platform is Baidu Brain plus Baidu ABC Cloud, where Baidu Brain offers the most complete and leading AI technology suite to developers, coupled with Baidu ABC's growing set of AI-based industry solutions.

With nearly 5,000 developers and partners in attendance and wide press coverage, our AI platform and strategy have been positively received by the broad developer and partner community. The strong support from partners and developers is key to cementing Baidu's industry-leading position in AI.

At the conference, we officially launched Apollo 1.0 and unveiled Apollo's detailed technology road map. Apollo is the Android for the auto industry, more open and even more powerful. It enables our partners to go from 0 to 1, to quickly assemble their own autonomous vehicles and start their product R&D. The Apollo platform and its ecosystem is architected with a powerful set of win-win principles, with open capabilities and increasingly shared resources such as precious data resources. Our partners can access to Apollo's growing powerful capabilities. They can also contribute to Apollo. The key is the more a partner contributes, the even more outsized benefit the partner will receive from the Apollo ecosystem. As a result, the pace of innovation will continue to accelerate.

We have seen the industry buy in to our approach. Within the short span of just a few months, we have assembled the world's most powerful autonomous vehicle ecosystem, with over 50 strong partners, including 13 OEMs, 2 of them are world-leading big brands in Daimler and Ford; and world-leading Tier 1 provider such as Bosch and Continental, as well as leading AI technology providers such as NVIDIA, Intel and Microsoft.

Currently, project Apollo is the #1 on Github in monthly ranking. At the same time, Apollo creates compelling long-term economic opportunities for Baidu, as we will focus our business model on providing a series of high-value services, including HD maps, simulation engine, security as well as the connected car experience.

Also at the conference, we showcased the strong progress we are making with DuerOS. It is the natural language-based, human-computer interaction platform of the AI era. It is embeddable to every single device on earth and enables them to hear, to understand and to fulfill user's needs. It will become the future universal gateway to the digital world. DuerOS is leading China's market because it has developed a skill library of 10 major domains and over 100 subdomains.

Even more importantly, DuerOS has established the leading ecosystem where we have built close partnerships with over 100 branded major appliances, including Vivo, Xiaomi, HTC, Midea, Haier, TCL, Lenovo and many others and provide them with end-to-end solutions by working together with chipset providers such as MTK, ARM and Qualcomm, and content providers such as iQiyi and Himalaya. We've also announced the acquisition of KITT.AI, a Seattle based AI startup that provides industry-leading development tools for natural language understanding and voice-based hotwords.

In the AI era, the future of the cloud industry will be increasingly driven by integrating AI in the big data. We were among the first to spot that trend and seize the opportunity to pursue our ABC, AI, big data cloud strategy by delivering a growing suite of powerful industry vertical AI-based solutions to partners and developers, including marketing, media, IoT, video, et cetera. By fully leveraging Baidu's AI technology strengths and the vast data assets, our ABC business is growing very rapidly, securing a growing number of customers. For example, we are working with one of China's top mobile phone manufacturers to provide them with a 360-degree solution from marketing, to deep learning, to intelligent CDN.

One of the most promising areas for commercialization of AI technology is financial services. At the Baidu FSG, our focus is AI-enabled fin-tech, by leveraging Baidu's technology strengths and data assets to build a suite of leading AI-based FinTech capabilities. Our long-term objective is to build out a platform that enables Baidu and our partners to provide much more compelling financial services.

Towards this, while making very good progress in developing core capabilities and growing our businesses, last month, we announced a strategic partnership with the Agricultural Bank of China, one of China's largest banks, to collaborate on building an intelligent bank using AI. At the same time, in order to further drive our FSG business, we are beginning the process of working out a future operating structure that allows FSG to operate more independently, to expand into areas that may require domestic licenses and enable stronger, long-term growth. There's no specific timetable and structure determined at this point.

Overall, we are very pleased with our progress in the first half of the year. We look forward to continuing our momentum and strong execution on our...


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