Baidu (BIDU) Q2 2016 Earnings Call

Baidu (BIDU) CEO Robin Li said revenue will be impacted over the next couple of quarters due to the Chinese government cracking down on certain parts of their business

“Baidu faced a challenging second quarter, with heightened regulation in the healthcare sector and on internet advertising and impacting operations. The implementation of new regulations and the stricter standards that we proactively imposed to make our platform more robust, will likely suppress revenue for the next two to three quarters. This period of uncertainty will pass.”

Users come first

“Our users come first. We can only run a truly sustainable business if we put our users above all else, by deeply understanding their needs and delivering great products to them that are underpinned by innovative technology. Baidu will rise to new heights, as long as we maintain the trust and loyalty of our users and continue to be at the forefront of innovation. This may mean doing the hard things, but the right things, for which there is no compromise.”

They’re betting artificial intelligence is the next large computing paradigm

“We’re now experiencing the dawn of a new era, a time when artificial intelligence is emerging as the lifeblood of all things.  Just as the rise of electricity transformed the world 100 years ago, we now work with partner to use AI to transform industry after industry. We have invested in AI over a number of years. And the accumulation of data and technology, positions Baidu particularly well to lead the new AI era, reaping benefits over the long term. Baidu is consistently recognized among the global leaders in AI. Recently MIT Technology Review named Baidu the number two smartest company globally in 2016. We’re very proud of our achievements and we’re just getting started. We’re even more excited by what good things we can achieve to improve people’s daily lives, to transform industries and to realize the true potential of this powerful technology.”

Using their strength in machine learning to get into other business verticals such as finance or transportation

“Machine learnings have enabled the automatic drafting of ad titles based on user profiling and user queries. Making what used to be a tedious, manual process for customers, much more intelligent, streamlined and targeted. Through machine learning, we’ve helped our customers automatically create and enhance their mobile landing pages, based on their PC websites and keywords. The technology also filters out low quality results and predicts click-through rates for sponsored links. Baidu Brain not only benefits our core-search business, it also opens up new opportunities in areas such as financial services, where we see great potential in education loans, online banking and online insurance. Our DU virtual assistant which marries voice recognition with services and autonomous driving which will transform the transportation industry.”

Their self-driving car has some level of support from the Chinese government

“We continue to make strides in the area of autonomous driving. In the past quarter we signed contracts to operate commercial autonomous cars in designated areas in Chinese cities, Wuhu and Beijing and we continue to be in discussions with partners and stakeholders in the industry. We recently showcased our autonomous car at the high profile 12th Five-Year Plan Technology and Innovation Achievements Exhibition and are particularly encouraged by the enthusiastic support received from the government at both local and national levels.”

A new law imposed by the government raised their online advertising business tax rate

“As it pertains to the internet advertising law, Baidu’s online advertising revenue which is majority of our revenue, will be subject to an additional business tax of 3 percentage points. We expect our current business tax rate to increase by roughly 3 percentage points, starting September 1.”

On why they’re getting into the financial technology space

“I think financial services is a very large industry and we do not expect it to take off this year, but we think we do have a unique advantage which is our solid foundation in artificial intelligence related technology and our insights and big data or our insight into our hundreds of millions of users every day.  So we’re at this stage exploring areas like credit loans, wealth management and we have partnerships with companies like Citic Bank, Allianz, in areas like commercial banking and insurance. And Baidu Wallet functions as a foundation for all of these endeavors because we need a strong user account, we need an account that users can deposit money, can borrow money, can pay, can trust us to do transactions.  So that’s the rationale behind Baidu Wallet. So it’s more about a strong user account than about payment to Baidu. It’s still too early to tell you in the next three years how much revenue we’re going to get but we think this is a very promising, large industry and Baidu is uniquely positioned to take advantage of some of that.”