Source: Seeking Alpha
Baidu, Inc. (NASDAQ:BIDU)
Q2 2014 Earnings Conference Call
July 24, 2014 8:00 p.m. ET
Sharon Ng – Senior Manager of IR
Robin Li – Chairman and CEO
Jennifer Li – CFO
Eddie Leung – BofA Merrill Lynch
Dick Wei – Credit Suisse
Alan Hellawell – Deutsche Bank
Alicia Yap – Barclays
Thomas Chong – Citigroup
Ella Ji – Oppenheimer
Wendy Huang – Standard Chartered
Piyush Mubayi – Goldman Sachs
Jiong Shao – Macquarie
Ming Zhao – 86Research
Cynthia Meng – Jefferies
Philip Wan – Morgan Stanley
Chi Tsang – HSBC
Natalie Wu – CICC
John Choi – Daiwa
George Askew – Stifel Nicolaus
Tian Hou – T.H. Capital
Hello, and thank you for standing by for Baidu’s Second Quarter 2014 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, Ms. Sharon Ng, Baidu’s Senior Manager of Investor Relations.
Sharon Ng – Senior Manager of IR
Hello everyone, and welcome to Baidu’s second quarter 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, and Jennifer Li, Baidu’s Chief Financial Officer. After their prepared remarks, Robin 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 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 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.
Robin Li – Chairman and CEO
Hello everyone. We had a great quarter and there are exciting things happening at Baidu, generating tremendous energy and having strong forward momentum.
In the mobile era, search can be even more powerful as it connects users not only to information but also to services. Search is one of the top two most used applications on mobile according to a CNIC [ph] report released this week.
This quarter, mobile monetization again progressed very well, with mobile revenue, which is largely comprised of mobile search revenue, accounting for 30% of our total revenue. The healthy mobile search monetization ramp is a testament to search as a proven business model with vast potential.
As a bit of a refresher, Baidu’s mission is to provide the best way and most equitable way for people to find what they’re looking for. Users come to Baidu to discover. In the mobile age, connecting people with what they’re looking for includes not only information, content and apps, but also services, a natural extension of our platform.
We hold leading positions in the key mobile entry points of search, maps and app distribution. We are making investments to facilitate the seamless connection of users to services in a closed loop, which allows us to have a better understanding of user behavior and conversion for merchants. Over the longer term these investments will increase the size of our addressable market.
In our core search business, we remain the clear, dominant, cross-channel search leader. Mobile search traffic, again, drove overall traffic growth. In the second quarter, for the first time in history, during some holidays and weekends, when people were out and about, mobile traffic exceeded the traffic of desktop search.
Our mobile search service grew to over 500 million monthly active users in June. In Q2, we continued to aggressively invest and innovate, to create a better experience for our users. We revamped our homepage, and our users who log in now get personalized pages with automatically refreshed content.
We continue to deliver ever-richer, more dynamic results directly on the search page by working with partners in verticals such as healthcare, e-commerce, education and travel. In the automotive vertical, for example, we partnered with Bitauto and Autohome to integrate customized auto vertical content.
We boosted our search response time, customized through technology improvement query prediction. Search response time on PC is 10 times faster now than the beginning of the year. In fact, the majority of our PC search response is now literally faster than the blink of an eye.
Baidu continues to be an online marketer’s preferred platform to capture leads on a large scale and generate and generate the best ROI. It’s been a little over a year since we implemented our integrated PC and mobile bidding system, and the feedback continues to be overwhelmingly positive.
Our customers are truly embracing the diverse range of ad formats adoption mobile has to offer, with over 90% of our customers choosing click to action mobile ad format that includes click to- call, click-to-chat, and click-to-download, which directly tie query to conversion. We continue to proactively drive the effort to further develop the mobile ecosystem by educating our customers and providing them with the right infrastructure and tools to optimize for mobile.
In search monetization, the number of paid clicks, CPMs and click-through rates are trending higher year on year in large part due to our investments in mobile and technologies like deep learning. For instance, we launched a personalized click-through rate prediction initiative on both PC and mobile search, to make search ads more relevant and useful for individuals. And we are already seeing increases to click-through rates.
City level bidding, which we launched at the beginning of the quarter is attracting new customers to our platform. And we’ve seen overall spend from customers who participate in city level bidding increase as well. Over the short course of three months, a quarter of our customers have already opted to participate in city level bidding. And we are very pleased with this positive early sign.
Mobile Baidu, our search-focused app, now boasts nearly 70 million daily active user, which put us among the most popular native apps in China. It continues to be our largest and fastest-growing single channel for mobile search.
We upgraded Mobile Baidu by adding more personalization features and refreshed content. With the new light apps that are being added, Mobile Baidu is a powerful, seamless way for our users to discover and connect with new information and services, by tying together multiple Baidu products, including Baidu Search, Mobile Map, the Nuomi group buying service, and Baidu Wallet.
For example, a Baidu movie ticketing purchase can originate and be fulfilled all within the Mobile Baidu app. Here, a user snaps a photo of a movie poster, opens a light app, chooses a nearby theater, the movie and seats, and then purchases the ticket with Baidu Wallet, all without leaving the Baidu Mobile app. We ran some movie ticket promotions in Q2 to highlight this feature and saw the movie tickets sold nearly triple in the span of a month between May 1st Labor Day holiday to Dragon Boat holiday in early June.
In LBS, our flagship Mobile Map continued to extend its leading position by gaining market share, with the monthly active user base surpassing 200 million in the second quarter. We are currently the only mobile map in China with turn-by-turn voice navigation for walking. We also added more real-time road and parking updates.
Our group buying platform Nuomi celebrated its fourth anniversary this quarter, and the platform continued to grow and scale up nicely, with GMV in mobile tripling and the number of users doubling since we consolidated the business in the fourth quarter last year. Our sales force reseller network is already providing additional feet on the ground to help Nuomi scale up.
As the number one native app distribution platform, we gained further traction with the combined Baidu and 91 Wireless platform distributing over 130 million apps on a daily basis.
The process of integrating and unifying the platforms has progressed smoothly. The revenue contribution from our app distribution platform continues to grow meaningfully, monetizing through both advertising and mobile games.
We have a rich gaming platform, and we partnered with six exclusive games in the second quarter.
Our personal cloud storage product continued its strong momentum, growing to nearly 200 million registered users in Q2, from 160 million registered users in Q1. Our personal cloud storage product delivers a great user experience and drives continued user adoption of the product.
Technology and big data are at the crux of our efforts here at Baidu. And we made some meaningful wins that reinforce Baidu’s renown as a world-class technology company. We are thrilled to have Andrew Ng, a pioneer in the field of artificial intelligence and the foremost researcher in deep learning, join us as our new Chief Scientist and lead Baidu’s overall research efforts. Andrew shares our vision that AI will transform the internet and truly change the world.
This quarter, we opened up a new R&D center in Sunnyvale, California, and we announced three new research labs, two of which focus on artificial intelligence, and the third, big data.
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