Baidu Announces Second Quarter 2019 Results

BEIJING, Aug. 20, 2019 /PRNewswire/ -- Baidu, Inc. (NASDAQ: BIDU) ("Baidu" or the "Company"), the leading Chinese language Internet search provider, today announced its unaudited financial results for the second quarter ended June 30, 2019^[1].

"Our focus on strengthening Baidu's mobile ecosystem through knowledge-based content, BJH accounts, smart mini programs and managed pages on Baidu's platform is translating into better user experience, stronger traffic growth, and, we believe, ultimately higher conversion for our customers. In June, Baidu App DAUs reached 188 million, up 27% year over year, in-app search queries grew over 20% year over year and smart mini program MAUs reached 270 million, up 49% sequentially," said Robin Li, Baidu co-founder and CEO. "On Baidu's AI businesses, DuerOS voice assistant continues to experience strong momentum with installed base surpassing 400 million devices, up 4.5 fold year over year, and monthly voice queries surpassing 3.6 billion, up 7.5 fold year over year, in June. As mobile internet penetration in China slows, we are excited about the huge opportunity to provide content and service providers a cross-platform distribution channel beyond mobile, into smart homes and automobiles."

"Baidu delivered a solid second quarter with revenues reaching RMB 26.3 billion, growing 9% sequentially, and Baidu Core revenues growing 12% sequentially, despite the weak macro environment, our self-directed healthcare initiative, industry-specific policy changes and large influx of ad inventory." said Herman Yu, Baidu CFO. "With Baidu traffic growing robustly and our mobile ecosystem continuing to expand, we are in a good position to focus on capitalizing monetization and ROI improvement opportunities to deliver shareholder value."

Second Quarter 2019 Financial Highlights

Other Highlights

Corporate

• Forbes named Baidu one of the "50 Most Innovative Companies" in China, recognizing Baidu Apollo for its leadership and innovation in autonomous driving, in its July 2019 China edition. Forbes also recognized iQIYI in the same issue for its leadership and innovation in online entertainment in China.
• Baidu Create, Baidu's annual AI developer conference, was held in July 2019 in Beijing, where Baidu announced the synchronized v5.0 releases of Baidu Brain, DuerOS and Apollo. The Company also announced the development of Baidu Honghu, an energy-efficient AI chipset to power voice interactions in smart devices for homes and autos.
• Over 240 million Baidu users have used Baidu Maps voice features as of June 2019, up more than 2.5 fold from last year.
• In the second quarter of 2019, Baidu returned $291 million to its shareholders, increasing its accumulated return to US$778 million, under the 2018 Share Repurchase Program. In May 2019, Baidu's Board approved an additional US$1 billion repurchase under the 2019 Share Repurchase Program.

Mobile Ecosystem

• Baidu App daily active users ("DAUs") in June 2019 reached 188 million, growing 27% year over year. In-app search is providing better user experience through native-app like experiences with newsfeed, smart mini programs and managed pages.
• Baidu Smart Mini Program monthly active users ("MAUs") reached 270 million in June 2019, up 49% in three months, continuing the strong momentum since its launch a year ago. Smart Mini Program allows Baidu to connect users to a broad range of services and information with native-app like experience.
• Baijiahao ("BJH accounts"), Baidu's feed content network, grew to 2.2 million publisher accounts in June 2019, enabling influencers and media firms to not only share their information on Baidu's newsfeed and short video apps but also make their information fully searchable.
• Baidu continues to improve the user experience on its platform with Baidu AI, to identify and filter out low-quality, offensive and inappropriate ads and other content. In the first half of 2019, Baidu's AI filtered over one billion misleading, low-quality ad materials and tens of billions of offensive, inappropriate images, texts, videos and web links.  

DuerOS

• DuerOS is a leading voice assistant for the Chinese language with installed base surpassing 400 million, up 4.5 fold year over year, and monthly voice queries surpassing 3.6 billion, up 7.5 fold year over year in June. 
• DuerOS skills store has released over 2,400 skills in wide-ranging genres, including Xueersi (education), YY (live streaming), Meituan (local services) and China Construction Bank (financial services), and the DuerOS developer community has expanded to over 33,000 members.
• Baidu released DuerOS v5.0, enabling capabilities of full-duplex continued conversation, routines, home feed, home communication system and DLNA casting, which enables video streaming from Xiaodu smart speaker to TV through voice command.
• Baidu recently released the following first-party DuerOS smart devices: 1) Xiaodu Smart Speaker Metal (MSRP $28) with enhanced infrared-enabled voice control; 2) Xiaodu Smart Speaker Play (MSRP $18, for kids); and 3) Xiaodu Smart Display 1C 4G (MSRP $100), supporting both Wi-Fi and cellular connectivity with a rechargeable lithium battery.
• Both Canalys and Strategy Analytics, leading global technology market analytics firms, ranked Xiaodu smart speakers first in smart speaker shipments in China and third globally for the first quarter of 2019.
• Geely Auto signed a strategic partnership with Baidu to pre-install DuerOS powered infotainment in Geely cars.

Apollo

• In June 2019, First Automotive Works (FAW) began production of autonomous passenger vehicles powered by Apollo for the robotaxi pilot program in Changsha, Hunan province.
• Baidu jointly published with BMW, Daimler, Volkswagen, Aptiv, Continental, Intel and other top-tier industry players the first autonomous-driving safety report in the world, Safety First for Automated Driving Report, in July 2019.
• Apollo's test fleet reached over 2 million test kilometers on the road in June 2019, spanning across 13 cities, including Beijing, Changsha, Xiong'an and Xiamen.
• As of July 2019, Baidu received almost half of the 204 autonomous driving pilot licenses granted in China, five times that of the next industry player. Baidu was also the only company in China to receive T4 licenses, the highest level of autonomous driving test license issued by the Beijing Municipal Commission of Transport, which permits autonomous vehicles to operate in complex driving conditions, including urban roads, tunnels, school zones and other scenarios.

Cloud & AI Platform

• Both Canalys and Synergy Research ranked Baidu Cloud as a Top 3 China-based PaaS and IaaS public cloud service provider in their China Public Cloud reports for the first quarter of 2019.
• Baidu's AI Open Platform saw strong adoption in the first six months of 2019, with its developer base growing 37% to 1.3 million developer accounts. Through Baidu's AI Open Platform on Baidu Cloud, developers can leverage Baidu's comprehensive AI capabilities, such as speech recognition, natural language processing and computer vision, to build their products and solutions.
• Developer downloads on PaddlePaddle, Baidu's open-sourced deep learning platform, increased 45% sequentially in the second quarter of 2019. Baidu provides advanced, easy-to-use model training toolkits for PaddlePaddle, such as EasyDL and AI studio, to help developers build deep learning models at scale.

iQIYI

• iQIYI subscribers reached 100.5 million in June 2019, increasing 50% year over year, further strengthening its foundation to offer blockbuster original entertainment content.

Second Quarter 2019 Results

Total revenues reached RMB 26.3 billion ($3.84 billion), increasing 1% year over year, or 6% year over year, excluding the impact of announced divestures^[2], and increasing 9% quarter over quarter. Online marketing revenues were RMB19.2 billion ($2.80 billion), decreasing 9% year over year and increasing 9% quarter over quarter. Other revenues were RMB 7.1 billion ($1.03 billion), increasing 44% year over year, driven mainly by robust growth in iQIYI membership services, cloud and smart devices.

Revenue from Baidu Core reached RMB 19.5 billion ($2.85 billion), decreasing 2% year over year, or increasing 3% year over year, excluding the impact of announced divestures^[2], and increasing 12% quarter over quarter. Baidu Core's marketing services experienced softness in top sectors, including healthcare, online games, financial services, and auto/logistics sectors. Revenue from iQIYI reached RMB 7.1 billion ($1.04 billion), up 15% year over year. iQIYI membership services grew 38% year over year, while online advertising revenue fell 16% year over year.

Content costs were RMB 5.8 billion ($847 million), increasing 12% year over year, mainly due to increased investment in iQIYI content and, to a much lesser extent, in content for BJH accounts, Baidu's feed publisher network.

Traffic acquisition cost was RMB 3.4 billion ($499 million), increasing 27% year over year, as a result of higher TAC costs and expansion into offline digitalized screens and other areas.

Bandwidth costs were RMB 2.0 billion ($298 million), increasing 32% year over year, mainly due to increasing demand from feed, video and cloud services.

Other cost of revenues, which includes depreciation, operational costs, sales taxes and surcharges, and share-based compensation, was RMB 4.8 billion ($703 million), increasing 89% year over year, mainly due to higher cost of goods sold for smart home devices and higher depreciation expense.

Selling, general and administrative expenses were RMB 5.2 billion ($764 million), increasing 16% year over year, primarily due to increased investment in channel and promotional marketing, as well as the increase in personnel related expenses.

Research and development expenses were RMB 4.7 billion ($690 million), increasing 17% year over year, primarily due to the increase in personnel related expenses.

Operating income was RMB 233 million ($34 million), and operating margin was 1%. Operating income for Baidu Core was RMB 2.1 billion ($307 million), and Baidu Core operating margin was 11%. Non-GAAP operating income was RMB 2.0 billion ($285 million), and non-GAAP operating margin was 7%. Non-GAAP operating income for Baidu Core was RMB 3.5 billion ($508 million), and non-GAAP Baidu Core operating margin was 18%.

Total other income was RMB 1.2 billion ($180 million), increasing 69% year over year, mainly due to increased income from equity method investments and foreign exchange gains from RMB depreciation.

Income tax expense was RMB 416 million ($61 million), compared to RMB 1.1 billion in the second quarter of 2018. Effective tax rate was 28%, compared to 18% in the second quarter of 2018, primarily due to the lower pre-tax income from Baidu Core and iQIYI not being able to recognize tax benefit from its losses in the current period.

Net income attributable to Baidu was RMB 2.4 billion ($351 million), and net margin was 9%. Diluted earnings per ADS amounted to RMB 7 ($0.96). Net income attributable to Baidu Core was RMB 3.7 billion ($543 million), and Baidu Core net margin was 19%. Non-GAAP net income attributable to Baidu was RMB 3.6 billion ($529 million), and non-GAAP net margin was 14%. Non-GAAP diluted earnings per ADS amounted to RMB 10 ($1.47). Non-GAAP net income attributable to Baidu Core was RMB 4.7 billion ($690 million), and non-GAAP net margin for Baidu Core was 24%.

Adjusted EBITDA was RMB 3.4 billion ($489 million) and adjusted EBITDA margin was 13%. Adjusted EBITDA to Baidu Core was RMB 4.8 billion ($694 million) and Baidu Core adjusted EBITDA margin was 24%. 

As of June 30, 2019, cash, cash equivalents, restricted cash and short-term investments were RMB 137.3 billion ($20.00 billion), and excluding iQIYI, cash, cash equivalents, restricted cash and short-term investments were RMB 120.9 billion ($17.61 billion). Free cash flow was RMB 5.6 billion ($817 million). Excluding iQIYI, free cash flow was RMB 4.9 billion ($710 million).

Financial Guidance

For the third quarter of 2019, Baidu expects revenues to be between RMB 26.9 billion ($3.84 billion^[3]) and RMB 28.5 billion ($4.07 billion), representing -5% to 1% increase year over year, or -1% to 5% increase year over year, excluding revenues from announced divestures, and 2% to 8% increase quarter over quarter. Previously announced divestures, which were consummated in 2018, generated approximately RMB 1.0 billion revenue in the third quarter of 2018. This forecast reflects Baidu's current and preliminary view, which is subject to substantial uncertainty.

Conference Call Information

Baidu's management will hold an earnings conference call at 9:15 PM on August 19, 2019, U.S. Eastern Time (9:15 AM on August 20, 2019, Beijing/Hong Kong Time). Dial-in details for the earnings conference call are as follows:

A replay of the conference call may be accessed by phone at the following number until August 27, 2019:

Additionally, a live and archived webcast of this conference call will be available at http://ir.baidu.com.

About Baidu

Baidu, Inc. is the leading Chinese language Internet search provider. Baidu aims to make a complex world simpler through technology. Baidu's ADSs trade on the NASDAQ Global Select Market under the symbol "BIDU." Currently, ten ADSs represent one Class A ordinary share.

Contacts

Investors Relations, Baidu, Inc.
Tel: +86-10-5992-8888
Email: ir@baidu.com

Safe Harbor Statement

This announcement contains forward-looking statements. These statements are made under the "safe harbor" provisions of the U.S. Private Securities Litigation Reform Act of 1995. These forward-looking statements can be identified by terminology such as "will," "expects," "anticipates," "future," "intends," "plans," "believes," "estimates," "confident" and similar statements. Among other things, the outlook for the third quarter of 2019, quotations from management in this announcement, as well as Baidu's and other parties' strategic and operational plans, contain forward-looking statements. Baidu may also make written or oral forward-looking statements in its periodic reports to the U.S. Securities and Exchange Commission, in its annual report to shareholders, in press releases and other written materials and in oral statements made by its officers, directors or employees to third parties. Statements that are not historical facts, including but not limited to statements about Baidu's beliefs and expectations, are forward-looking statements. Forward-looking statements involve inherent risks and uncertainties. A number of factors could cause actual results to differ materially from those contained in any forward-looking statement, including but not limited to the following: Baidu's growth strategies; its future business development, including development of new products and services; its ability to attract and retain users and customers; competition in the Chinese Internet search and feed market; competition for online marketing customers; changes in the Company's revenues and certain cost or expense items as a percentage of its revenues; the outcome of ongoing, or any future, litigation or arbitration, including those relating to intellectual property rights; the expected growth of the Chinese-language Internet search and feed market and the number of Internet and broadband users in China; Chinese governmental policies relating to the Internet and Internet search providers, and general economic conditions in China and elsewhere. Further information regarding these and other risks is included in the Company's annual report on Form 20-F and other documents filed with the Securities and Exchange Commission. Baidu does not undertake any obligation to update any forward-looking statement, except as required under applicable law. All information provided in this press release and in the attachments is as of the date of the press release, and Baidu undertakes no duty to update such information, except as required under applicable law.

Non-GAAP Financial Measures

To supplement Baidu's consolidated financial results presented in accordance with GAAP, Baidu uses the following non-GAAP financial measures: non-GAAP operating income (loss), non-GAAP operating margin, non-GAAP net income (loss) attributable to Baidu, non-GAAP net margin, non-GAAP diluted earnings per ADS, adjusted EBITDA, adjusted EBITDA margin and free cash flow. The presentation of these non-GAAP financial measures is not intended to be considered in isolation or as a substitute for the financial information prepared and presented in accordance with GAAP.

Baidu believes that these non-GAAP financial measures provide meaningful supplemental information regarding its performance and liquidity by excluding certain items that may not be indicative of its recurring core business operating results, such as operating performance excluding not only non-cash charges, but also other items that are infrequent or unusual in nature. The Company believes that both management and investors benefit from referring to these non-GAAP financial measures in assessing its performance and when planning and forecasting future periods. These non-GAAP financial measures also facilitate management's internal comparisons to Baidu's historical performance and liquidity. The Company believes these non-GAAP financial measures are useful to investors in allowing for greater transparency with respect to supplemental information used by management in its financial and operational decision making. A limitation of using these non-GAAP financial measures is that these non-GAAP measures exclude certain items that have been and will continue to be for the foreseeable future a significant component in the Company's results of operations. These non-GAAP financial measures presented here may not be comparable to similarly titled measures presented by other companies. Other companies may calculate similarly titled measures differently, limiting their usefulness as comparative measures to the Company's data.

Non-GAAP operating income represents operating income excluding share-based compensation expenses and amortization of intangible assets resulting from business combinations.

Non-GAAP net income attributable to Baidu represents net income attributable to Baidu excluding share-based compensation expenses, amortization of intangible assets resulting from business combinations, disposal gain or loss, impairment of long-term investments, fair value change of long-term investments, adjusted for related income tax effects. Baidu's share of equity method investments for these non-GAAP reconciling items, amortization of intangible assets not on the investees' books, accretion of their redeemable noncontrolling interests, and the gain or loss associated with the issuance of shares by the investees at a price higher or lower than the carrying value per shares, adjusted for related income tax effects, are also excluded.

Non-GAAP diluted earnings per ADS represents diluted earnings per ADS calculated based on non-GAAP net income attributable to Baidu, adjusted for accretion for the redeemable noncontrolling interests. Adjusted EBITDA represents operating income excluding depreciation, amortization of intangible assets resulting from business combinations, and share-based compensation expenses. Free cash flow represents net cash provided by operating activities less capital expenditures.

For more information on non-GAAP financial measures, please see the tables captioned "Reconciliations of non-GAAP financial measures to the nearest comparable GAAP measures."

[1] Unless otherwise noted, all translations from RMB to U.S. dollars are made at a rate of RMB6.8650 to US$1.00, the effective noon buying rate as of June 28, 2019, in The City of New York for cable transfers of RMB as certified for customs purposes by the Federal Reserve Bank of New York. Translations are provided for the convenience of the reader.

[2] Excluding revenues from divested businesses Global DU and Du Xiaoman (financial services), which were approximately RMB1.0 billion for the three months ended June 30, 2018.

[3] The translations from RMB to U.S. dollars for the expected revenues in the third quarter of 2019 are made at a rate of RMB7.0 to US$1.0, the rounded noon buying rate as of August 8, 2019, in The City of New York for cable transfers of RMB as certified for customs purposes by the Federal Reserve Bank of New York. We make no representation that any Renminbi or U.S. dollar amounts could have been, or could be, converted into U.S. dollars or Renminbi, as the case may be, at this rate, or any particular rate, or at all.