Baidu, Inc.

Hello and thank you for standing by for Baidu's fourth quarter and 2021 earnings conference call. At this time, all participants are in the listen-only mode. After management's prepared 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. And I'd like to turn the meeting over to your host for today's conference, Juan Lin, Baidu's Director of Investors Relations.

Hello, everyone, and welcome to Baidu's fourth quarter and fiscal year 2021 earnings conference call. Baidu's earnings release was distributed earlier today, and you can find a copy on our website as well as on mutualized services. On the call today, we have Robin Li, our co-founder and CEO, Rong Luo, our CFO, Dou Shen, our EVP in charge of Baidu mobile ecosystem, and Zhenyu Li, our SVP in charge of Baidu intelligent driving. After our prepared remarks, we will hold a Q&A session. Please note that the discussion today will contain forward-looking statements made under the safe harbor provisions of the US Private Securities Litigation 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. For detailed discussions of these risks and uncertainties, please refer to our latest annual report and other documents filed with the ICC and Hong Kong Exchange. 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. Our press release contains a reconciliation of the unaudited non-GAAP measures to the unaudited most directly comparable GAAP measures. and is 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 be available on Baidu's IR website. I will now turn the call over to our CEO, Robin.

Hello, everyone. We delivered a solid result in 2021. Revenues from Baidu Core were up 21% year over year in 2021. driven by a 71% increase in non-ad revenue, which accounted for 22% of Baidu Core revenue, up from 16% in 2020. Within the non-ad business, our cloud revenues consistently showed outstanding growth throughout the year, and in our estimates, outgrow the cloud market in China. Furthermore, Apollo Go scaled up its operation, and delivered key milestones to drive the long-term commercialization of our autonomous ride hailing services. Today, I'll review our operation by walking through our AI cloud, intelligent driving, dual OS, and mobile ecosystem business in 2021. And after that, I'll discuss our priorities in 2022. Starting with AI Cloud, we achieved strong revenue growth in 2021. The growth rate of Baidu AI Cloud has accelerated from 2020 on, and we believe it has been meaningfully higher than its peers. We made great strides in several industries, notably transportation, manufacturing, public service sector, and energy and utilities. Total revenues from this industry has more than doubled in the year, driving our cloud business growth. I'll share with you some of our latest developments in the above verticals. In the energy and utilities sector, StateGrade has been utilizing our AI cloud since 2020 to perform early detection of malfunctioning equipment and estimate utility demand to ensure a consistent electricity supply. By now, we have covered almost 90% of its branches nationwide. In the manufacturing industry, Baidu AI Cloud has expanded into Chongqing, a major manufacturing hub in China, enabling automated workflow processes and helping to improve operational efficiency. In Chongqing, We serve Liangjiang New Area, which hosts thousands of enterprises, including some top automakers and electronic companies. More broadly, we observe an increasing adoption of AI in China. According to IDC, PedoPedo, Baidu's open source deep learning platform, continues to gain market share. Our internal data show that by the end of last year, PedoPedo developer community has grown to 4.1 million and served 157,000 businesses. In the same timeframe, developers have created 476,000 models based on the platform. Meanwhile, in ACE Smart Transportation, we continue to expand our footprint geographically. By year end last year, Baidu ACE has been adopted by 35 cities up from 14 a year ago, based on contract amounts over RMB 10 million. 94% of cities that had purchased our solutions in 2020 expanded their collaboration with us in 2021. Revenues from smart transportation have been growing rapidly and more than doubled in 2021, versus the prior year. Next, in intelligent driving. ApolloGo continued to take big steps toward scalable operation of its autonomous ride-hailing services. We believe that large-scale operation allows us to identify the problems that are not visible during testing stage, and also push the level four autonomous driving technology advancement. In the fourth quarter last year, ApolloGo provided 213,000 rides and once again almost doubled its rides quarter over quarter, reaffirming our leadership position in the global autonomous ride-hailing market. ApolloGo is now available in eight cities, Beijing, Shanghai, Guangzhou, Shenzhen, Chongqing, Changsha, Changzhou, and Yangquan. Meanwhile, we have begun to charge fees for the autonomous ride-hailing service on open road since November 25, 2021 in Beijing, and February 18, 2022 in Chongqing, and February 27, 2022 in Yangquan. Baidu has been working hard to improve the safety performance and maximize the efficiency of autonomous driving by synergizing our ACE Smart Transportation solution, autonomous vehicles, maps, and cloud services. Our Beijing project is a case in point. About one year ago, we built ACE Smart Transportation and introduced ApolloGo in Yizhong region of Beijing. Currently, almost 100 vehicles are providing autonomous ride-hailing services in Yizhong on a daily basis, and we have started charging passengers. At the same time, our ACE smart transportation solution has expanded its coverage almost tenfold in terms of intersections in Yizhong area over the past year, providing extra support for Apollo Gold. We believe that the Beijing project serves as a showcase for other cities to follow and replicate. As intelligent and connected vehicles are taking the center stage of auto sales, Baidu's autonomous driving solutions have won increasing acceptance among automakers. We believe that we will gain further traction as more automakers recognize that partnering Baidu is better than investing extensively in developing their in-house solutions. Recently, we received a nomination letter from BYD, one of China's largest automotive and technology companies, intending to adopt AIC, in particular AMP and AVP, for multiple popular models in dual OS. XiaoDu, again, was ranked number one in smart display globally and number one in smart speaker in China, based on the first nine months shipment data last year, according to Strategy Analytics, Canalys, and IDC. XiaoDu revenues continues to grow rapidly. At the same time, we are pleased to note that our services revenue already surpassed 10% of Xiaodu revenue last year. Finally, in mobile ecosystem, solid user growth demonstrated continuous expansion of our mobile ecosystem. In December, Baidu APP's MAU accelerated year-over-year growth rate to 14%, reaching 622 million daily logged in users on Baidu apps already surpassed 80%. Users are not only coming to Baidu to search information, but increasingly to enjoy diversified formats of content and closed-loop services accessible within Baidu app. Through search of our building blocks, users now can enjoy a full service cycle from information search to fact checking to interaction with industry participants and to purchasing products and services without leaving Baidu app. In services, our instant replies to search queries cover over 40,000 industry participants from 19 verticals in the fourth quarter. Total daily instant replies increased about 60% from September to December. In particular, Daily telehealth consultations on Baidu Health grow to 2.4 million in the fourth quarter 2021. That's up 62% from last year. Monthly orders for local services such as moving services and home repair services within Baidu app multiplied fivefold year over year in December. E-commerce GMV Facilitated by Baidu, though still small, grew about fivefold in the fourth quarter compared to the first quarter of last year. Furthermore, in 2021, we further diversified the formats of video content offerings within Baidu app. In 2021, we introduced a fully immersive video experience that combines horizontal and vertical short videos in an endless flow. This and other enhancements have significantly improved short video viewership and driven up ad conversion within Baidu app. In monetization, managed page continued to make progress. Revenue from managed page grow by 52% in 2021 and reached 40% of Baidu core advertising. While Baidu core ad revenues increased by 12% in 2021, macro weakness and COVID-19 resurgence have impacted the ad industry in late 2021. In the fourth quarter, our ad revenue declined by 2% quarter-on-quarter with year-over-year growth slowing down to 1%. Going into 2022, China is determined to promote technological innovation and upgrade the traditional industry. Such strategic goals were promoted during China's 14th five-year plan and re-emphasized by the General Office of State Council in early January of this year. In addition, the Beijing municipal government recently released its 2021 work report, emphasizing the target to accelerate the construction of a holistic transportation system containing intelligent vehicles smart transportation, cloud and map, as well as leading the development of high-level autonomous driving nationally in 2022. Navigating in this favorable operating environment, Baidu will continue to leverage our world-class AI capabilities to grow our non-admin, which is a clear growth engine for our overall revenue. For the coming year, we have set the four the following operational priorities. For AI Cloud, we aim to sustain above industry-level revenue growth. We will continue to bring our innovation in AI to various traditional industries and the public service sector, enabling our customers to improve efficiency and boost productivity. We believe we will be able to make further breakthroughs in more verticals. For intelligent driving, we will further scale up the Apollo goal operation to provide rides to more passengers. We will steadily work towards the goals of removing the safety drivers and providing fully autonomous ride-hailing services in China. We will continue to expand our partnership with more automakers in ASD, in particular, ANP and AVP, to enable them to be better positioned in the evolving auto industry. As a result, we expect to further drive up our pipeline. Jidoo plans to take orders in the second half of 2022 after launching its first concept production car in Beijing Auto Show April of this year and aim to deliver mass production in 2023. For Xiaodu, we will seek quality revenue growth and margin improvement. Xiaodu has already completed two rounds of financing. And for mobile ecosystem, we will continue to leverage AI to improve the user experience in search and feed, and further build closed-loop services within Baidu app to fulfill user needs. In addition, we focus on a healthy and sustainable business model in order to consistently generate strong cash flow to power our investments in new AI businesses. With that, let me turn the call over to Rong to go through our financial highlights.