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.”

Baidu (BIDU) Q1 2016 Earnings

Baidu (BIDU) CEO Robin Li said mobile is now more than half of the company’s revenue

“Mobile grew particularly well this quarter and hit a new milestone, contributing 60% of total revenue, off the back of improving search monetization capabilities driven by product and technology innovation.”

Getting into the financial services industry

“Nuomi and Takeout Delivery also continue to observe increased share of orders completed with Baidu Wallet. With our vast distribution platform, merchant network and unparalleled data and technology capabilities, Baidu is uniquely positioned to play a transformative role in financial services.  Baidu Wallet also gained strength with activated Baidu Wallet accounts growing in the quarter from 53 million at end of 2015 to 65 million at the end of Q1 2016.”

One of the reasons for the recent success of Baidu wallet is because it’s integrated into the Baidu platform as the default

“I think the Baidu Wallet user base continue to grow and we do take advantage of the consumption scenarios that happens on the Baidu platform and the majority of the transactions on Baidu Nuomi and a growing part of other services are using the Baidu Wallet. So, the Baidu Wallet is really built on top of the Baidu consumption scenario and help us build the data, the closed-loop services for our customers.”

Baidu (BIDU) CEO Robin Li believes the car is the next large computing platform and is planning a car by 2020

“Deep learning will be one of Baidu’s key technology advantages, as we move forward in autonomous driving. We believe that automobile is the next major computing platform and that advances and innovation will happen quickly, especially here in China, where the problems that autonomous driving addresses are so pronounced. We are aggressively beefing up our R&D efforts in this area, both here in China and at our U.S. R&D center in Silicon Valley.  Baidu’s returns in high definition mapping and in deep learning-powered computer vision will prove to be decisive advantages and we are on track now to deploy autonomous vehicles powered by Baidu technology in 2018, with production at scale by 2020.”

Baidu (BIDU) CEO Robin Li believes the company is the leading Chinese artificial intelligence company

“We have invested in AI for many, many years. We believe we are leading in this sector not only in China, but around the world. This enables us to do disruptive things like autonomous driving. And it’s kind of early for us to talk about this model because right now our focus is to solve those technical problems; the first to make that autonomous driving fully autonomous.”

 

Baidu 4Q15 Earnings Call Notes

Robin Li – Co-Founder, Chairman and Chief Executive Officer

Service and domestic consumption are growing faster in China

“Even as China’s overall gross slows, service and domestic consumption are growing faster. This growth in service is outpacing overall GDP in 2015. Providing an additional tailwind is the Chinese government’s Internet Plus initiative, which is pushing traditional industries to work more closely with Internet companies, bringing structural change to those sectors.”

Baidu largely services these growing sectors

“Baidu largely services these growing sectors. With our top revenue verticals by broad classification including retail ecommerce, local services, healthcare, financial services and education. We are confident in our outlook for Baidu and China’s growing sectors. Baidu plays a vital role as the platform to connect users and merchants in these verticals. ”

Investing in autonomous driving

“We see a very bright future for autonomous driving, especially here in China where we face severe pollution, frequent traffic jams and high mortality rates from traffic accidents. Baidu believes, we can transform transportation as we know it. We’ll keep you updated with new divestments from this exciting area.”

Search algorithm is pretty much all machine learning today

“Our machine learning is a fundamental technology to (40:20). Five years ago, search was pretty much based on statistical tactics. These days, the search algorithm itself is pretty much machine learning. So far, a lot of our existing products and services including the algorithmic search, pay search, the query side based on voice, based on images, those are all very heavily driven by machine learning, especially deep learning technologies. And I’m actually very proud of our speech recognition capability.”

Self driving car can probably become a commercial product within five years

I think self-driving car can become a commercial product probably within the next five years. So that is very dependent on our machine learning and artificial intelligence capabilities.”

Baidu 3Q13 Earnings Call Notes

This post is part of a series of posts called “Company Notes.” These posts contain quotes and exhibits from earnings calls, conference presentations, analyst days and SEC filings.

Again I think for all of the countries or markets you mentioned, China, US, Korea, mobile search is in its early stage. So we are exploring all kinds of different things to better serve our users’ needs.

“Yeah, I think the video games both on desktop and mobile in terms of time spent and video views are growing very, very quickly. Right now it’s not a very profitable business yet, but the traditional, you know, advertising industry is shifting the TV commercial budget to video and we think eventually this will become a very material part of the overall online advertising business. So our focus right now is still to continue to build the best user experience for video both on desktop and mobile. And there’s no doubt that eventually this will become a profitable business for us.”

“One trend we have seen is that mobile users in China increasingly are expecting an end-to-end solution instead of just fact finding. So users are not satisfied enough to just find information or find a link to some website on their mobile phones. They expect to be able to [be served]. For example, when a user search for a movie title, we should be able to let him or her to buy the movie ticket at a theater nearby without leaving the mobile search app. So this is the so-called end-to-end solution, and we’re doing this more and more. We see this as a trend in China.

Whereas for other markets which I’m not very familiar with, so I will just, you know, take some anecdotal things to compare. So in the US, people probably are more used to do this kind of thing through a vertical app or a map service, but in China, I think more of our users prefer to start from the Baidu search box or the Baidu search app.

Also because China’s nature as a developing market, the offline businesses, the traditional business are not very savvy in terms of internet, especially mobile. So we need to do more than the internet players in the developed markets. This also presents, you know, additional opportunity for Baidu. If we do more, we should be able to make more of this kind of services.”