Baidu, Inc.

Hello and thank you for standing by for Baidu's third quarter 2020 earnings conference call. At this time, all participants are in listen-only mode. After management-preferred remarks, there will be a question and answer session. 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, Jian Lin, Baidu's Director of Investor Relations.

Hello, everyone, and welcome to Baidu's third quarter 2020 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. On the call today, we have Robin Li, our chief executive officer, Herman Yu, our chief financial officer, and Dou Shen, our executive vice president in charge of Baidu's mobile ecosystem group, our search and seek business. After our prepared remarks, We will hold a Q&A session. Please note that the discussion today will contain forward-looking statements laid under the safe harbor provisions of the U.S. Public Security Delegation 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 sightings with ISAC teams, including our annual reports. 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. We have made minor adjustments to our non-GAAP measures and retroactively applied these changes for comparison purposes. Our press release contains a reconciliation of the unaudited non-GAAP measures to be annotated most directly comparable gap measures. And it's 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 our CEO, Robin.

Hello, everyone. We delivered solid results in the third quarter with Baidu's total revenues reaching RMB $28.2 billion. up 1% from last year. Baidu core revenue reached RMB 21.4 billion, up 13% sequentially, which is an acceleration from the 8% sequential growth for the third quarter last year. China saw a second wave of COVID-19 cases in July and was quick to contain the pandemic, giving us confidence that China has standard operating procedures in place to promptly deal with the new COVID outbreaks. Many of the advertising verticals that saw negative growth in prior quarters have turned around, including healthcare, education, auto, lifestyle, and software. As the Chinese economy continues to recovery, we are in a good position to further benefit from such improvement in the business environment. Over the last few years, we have focused on strengthening Baidu's mobile ecosystem by increasing logging users, aggregating content and services on Baidu's platform, and adding social engagement to our platform. Such strengthening of our mobile ecosystem has not only improved the search user experience, it has also allowed users to do more on Baidu, from information research to social interaction to closed-loop purchases. In September, MAUs on Baidu app reached 544 million, up 12% year-over-year. In-app search queries continue to grow in teams, and daily users' lobbying on Baidu app reached 70%. That's up from 53% year-ago. A thriving mobile ecosystem sets a strong foundation for Baidu to diversify beyond advertising into non-advertising services. such as membership and online games. Live streaming is also proving to be a good fit for Baidu users. Non-advertising consumer season revenue for Baidu Core reached RMB 1.4 billion, or US $211 million. That's up 2.6 times from two years ago. And paid membership reached 31.5 million in the third quarter. To accelerate our efforts in growing non-advertising businesses, we announced today our intention to acquire YY Live, a leading video-based live streaming platform in China. Adding YY Live to our business portfolio will allow Baidu to gain immediate operational experience and know-how on building a large live video community. We are excited about the opportunities ahead by merging Baidu's large traffic and vibrant mobile ecosystem with YY's expertise in video programming, creator network management, and social media community development. Together with YY's team, we hope to explore the next generation of live video and venture beyond entertainment into every facet of our lives in the years to come. On online marketing services, we have added live streaming and purchase functions to our platform and are enabling users to seamlessly move from information to social to purchase on our platform. We've seen users search and follow relevant information, interact with merchants, and seamlessly complete a purchase of third-party goods and services on Baidu. By providing a platform from information to social to purchase, We are enlarging the TAM for our online admins, from interest generation to purchase conversion to loyalty marketing and advocacy, which allow merchants to perform user lifetime value management. Baidu's in-app revenue, which accounts for more than half of our mobile ecosystem revenue, continues to experience double-digit growth. It's further upside from non-advertising revenue. Baidu's new AI businesses are also experiencing double-digit growth, with Baidu Cloud growing 41% year-over-year in the third quarter. Let's begin Q3's discussion with our mobile ecosystem. In September, Baidu App EAU reached $206 million, up 9% year-over-year. Let me go over our progress in video, verticals, and communities, and monetization. First on video, as a leading internet platform for content and services Baidu is attracting a tremendous amount of creators to offer knowledge and information-centric live videos and short videos. For example, the number of topical sessions such as Wonder Planet and Who to Support live streamed in the third quarter was up eight-fold from the prior quarter. And second on vertical and community, Through our AI building blocks and industry-specific offerings, we are seeing verticals developing successfully on Baidu. For instance, the B2B sector. We added enhanced commerce capabilities to our hosted marketing cloud platforms, such as verified merchant information and a large catalog of SKUs to form a B2B marketplace that we call iPyGo. Our B2B community enables Baidu customers who in the past only purchased traffic to now list their commercial machineries interact with potential consumers and consume it, the transaction on our platform. The rising recognition of our B2B marketplace on our marketing cloud platform has resulted in paid merchant membership surpassing 100,000 in the third quarter. Baidu Health continue to solidify its market position as the top healthcare platform in China. Baidu's development of high-quality content and communities is spurring telehealth, with online doctor consultation increasing 60% from a year ago. Healthcare-related GMV in the third quarter was up 26-fold from last year. In the future, Baidu Health has the potential to offer prescription drugs and healthcare products, leveraging our dominant traffic in providing healthcare-related information and the large scale of social engagement developing on our platform. On the institution side, our partnership with over 80 top hospitals nationwide puts us in a good position to enable the digital transformation of hospitals and help them stay connected with patients. This, in turn, will make it more convenient for users to access hospital services and their own health information. Third, on monetization. Starting with marketing services, Baidu app continued to demonstrate strength with in-app advertising revenue growing double digits year on year, driven by strong in-app search traffic, coupled with in-app search CTM growth. further validating the value of Baidu's open platform in-app search strategy. Revenue from managed page reached 32% of Baidu Core's online marketing revenue in the third quarter. As more site owners learn about the benefit of combining Baidu's traffic with our hosted marketing cloud platform. A leading Chinese EV manufacturer switched to managed page and when combined with Baidu's monetization products, saw its marketing ROI improved significantly. Leads increased by 80% and cost per lead dropped 40% from a year ago. With more users viewing videos on Baidu, rich media ads are beginning to see traction. In September, revenue generated from video ads on mobile search results grew 83% from three months prior. Video ads are suitable for advertisers across many industries, including healthcare, local services, financial services, software, and machinery. And with continued adoption, video ads stand to be another driver of CPM growth in the future. In addition to growing buy-to-add revenue, we have substantial upside from growing non-advertising According to Quest Mobile, Baidu is one of the three internet companies in China that have a reach of over 1 billion internet devices per month. Non-advertising revenue as a percentage of our total consumer-facing business is much lower than our peers. As we further develop our mobile ecosystem to enable information, social, and purchase, we stand to benefit from the many opportunities that will arise from a deeper connection with our users. Moving to cloud and AI services, Baidu Cloud is providing a one-stop shop for cloud computing and differentiating with AI solutions to enable intelligent industries. For example, Baidu has partnered with Postal Savings Bank of China, a top retail bank in China with 40,000 branches, to provide Baidu AI paths to help improve credit risk management with Baidu's AI capabilities. Using AI to improve risk management for loan provision is particularly meaningful as Postal Savings has one of the largest consumer base of individuals and small enterprises in China. Baidu is also partnering with the Economic and Technological Development Zone of Huiyang, a primary data center hub in China, to provide AI tasks. This strategic partnership will allow the 400-plus companies based in the Economic Development Zone access to Baidu's AI path and leverage our leading AI capabilities such as deep learning, blockchain, and augmented visual recognition to make production improvement and efficiency gains. The 400-plus companies span across many industries, including manufacturing, electronics, auto, healthcare, and pharmaceutical industries. Baidu's cloud infrastructure is differentiated by a comprehensive end-to-end stack from AI chips to open platform to deep learning framework to PaaS and SaaS solutions. A key component of Baidu's AI is our large open platform developer community. By opening up Baidu's AI to the world, we learn how AI is used and enlist developers to help Baidu improve our AI models, which in turn helped Baidu develop unique AI solutions. Baidu's AI open platform offers over 270 AI capabilities, which is tapped a trillion times per day at peak by a developer community of over two million. Turning to Apollo, in August, Apollo won an RMB 460 million projects to help Guangzhou improve traffic efficiency, safety, and air pollution by adopting Baidu's V2X solution, which supports autonomous driving and other capabilities. This may be the largest smart transportation project yet in China, which reflects the public sector's willingness to use technology to improve the well-being of city life. Baidu's recently opened ApolloGo robot taxi services to the public in Beijing, the third city following the operations in Changsha and Cangzhou. Passengers may call a robot taxi from Baidu Maps or ApolloGo app. And on DuoOS, according to market research firm IDC Strategy Analytics and Canalys, Xiaodu smart display was ranked number one in shipments globally and Xiaodu Smart Speakers was ranked the number one in shipments in China for the second quarter of 2020. In September, we introduced the Xiaodu Smart Earphones, which allow users to search, make calls and navigate dual OS skills through a voice assistant, as well as hear instant language translation. Initial feedback on Xiaodu Smart Earphones with retails for approximately US $35 a pair have been quite positive. With that, let me turn the call over to Herman to go through our financial highlights.