Baidu delivered a solid second quarter in 2019 with revenues reaching RMB 26.3 billion, growing 9% QoQ, and Baidu Core revenues growing 12% QoQ. 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% QoQ according to its official financial results.
Baidu’s 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 ultimately higher conversion for customers.
On Baidu’s AI businesses, DuerOS voice assistant continues to experience strong momentum with installed base surpassing 400 million devices in Q2 2019, up 4.5 fold year over year, and monthly voice queries surpassing 3.6 billion, up 7.5 fold year over year, in June 2019.
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. Baidu also announced the development of BaiduHonghu, 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 repurchases under the 2019 Share Repurchase Program.
Baidu’s 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% QoQ, 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. Check out top mini programs in H1 2019; WeChat vs. Alipay vs. Baidu.
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.
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.
Check out top mobile apps in H1 in China.
Baidu voice assistant: DuerOS
DuerOS installed base surpassed 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). 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:
- Xiaodu Smart Speaker Metal (MSRP $28) with enhanced infrared-enabled voice control;
- Xiaodu Smart Speaker Play (MSRP $18, for kids);
- 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.
Self-driving car: 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.
Baidu 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 Cloudreports 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.
Online Video Platform: 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.
Baidu’s Financial Performance in Q2 2019
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, 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.
Shares of China’s Baidu pop over 8% after earnings beat. 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, 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 costs of revenues, which includes depreciation, operational costs, sales taxes and surcharges, and share-based compensation, were 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 the 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. The 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 the 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 Coreadjusted 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).