This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.
spk08: Hello everyone and welcome to Baidu's first quarter 2022 earnings conference call. Baidu's earnings release was distributed earlier today and you can find a copy on our website as well as our newsletter services. On the call today, we have Yubin Li, our co-founder and CEO, Yong Luo, our CFO, Dao Shen, our EVP in charge of Baidu AI Cloud Group, ACG, and Zhen Yuli, our IT team 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 U.S. Public Security Planification 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 IDC and Hong Kong Exchange. FIDO does not undertake any obligation to update any full written statement except as required under applicable law. Our earliest press release and recall includes discussions of certain annotated non-GAAP financial measures. Our press release contains a reconciliation of the annotated non-GAAP measures to the annotated most directly comparable GAAP measures and is available on our IR website at ir.fidu.com. As a reminder, this conference is being recorded. In addition, a webcast of this conference call will be available on Baidu's AI website. I will now turn the call over to our CEO, Robin.
spk02: Hello, everyone. We delivered solid first quarter results, driven by the continued strength of our new AI business. More specifically, revenues from Baidu AI Cloud increased by 45% year-over-year. We've achieved new wins for Apollo Self-Driving, or AIC, from automakers during the quarter, validating our confidence in the auto solution monetization roadmap. Apollo Gold made groundbreaking headway. We won the first permit in China for driverless ride-hailing services on open roads in April, further fortifying our unquestionable leadership in the robot taxi market. Like many other companies in China, since mid-March, our bins have been negatively impacted by measures to stem the spread of COVID-19. Specifically, the recovery of our ad bins and the implementation of some cloud projects have been delayed. In the near term, the challenges related to the virus continue to cause uncertainty to the macro environment and pressure our business operation. Looking beyond the near-term turbulence, we believe both China's economy and Baidu's business will remain promising for the mid- to long-term. We expect our ad business to recuperate when overall economic buoyancy returns. In the meantime, to enable our long-term growth, we will continue to invest proactively and prudently in our new AI businesses, including Baidu AI Cloud, Ologo, and AIC. Most notably, our new AI businesses are well aligned with China's priorities in tech innovation, green transition, and digital economy. The themes have been repeatedly emphasized by top officials at national events including the recent meeting convened by Chinese People's Political Consultative Conference, boosting the application of AI in China, and with that, the long-term growth prospects of Baidu. We see great opportunities to use technology to accelerate the development of the real economy. Organizations in various sectors, such as energy and utilities, manufacturing, finance, and the public sector have come to realize that not only do they need to digitize what they do, they can also use all kinds of AI technology to enhance their competitiveness through cost reduction and efficiency improvement. So the demand for digitization and AI come at the same time. That presents a unique opportunity for us to deliver Baidu AI Cloud solutions in a seamless way. In addition, Baidu ACE Smart Transportation supports our contribution to the growing economy. According to China Academy of Transportation Science of the Ministry of Transport, Baidu ACE projects have helped Baoding City reduce its carbon dioxide output by 24.4 thousand tons annually, which is equivalent to planting more than 240,000 trees. As more and more cities adopt Baidu ACE Smart Transportation, we believe we will make increasing contributions to reduce carbon emissions with AI technologies and fulfill our commitment to the environment and society. Now, let's review the first quarter operational highlights. Fido AI Cloud maintained its fast growth momentum, benefiting from digital and intelligent transformation of China's traditional industry and the public service sector, as well as our cutting-edge AI technology. Over the past quarter, we have achieved rapid revenue growth with an emphasis on the quality of growth. With the integration of AI and cloud, we have built a wide range of AI-powered applications and tools that can generate more replicable and scalable AI solutions in industries such as the public service sector, energy and utilities, healthcare, as well as transportation. By doing so, we are working hard to shorten our project implementation time, and we believe we will be able to also improve our margins over the long term. One example is how we bring AI to the public service sector. Last year, we talked about how we used AI to build a smart city together with the Lijiang Municipality, helping improve the city's safety, efficiency, convenience, and environmental quality. By serving larger cities such as Lijiang, Baidu AI Cloud has standardized a set of AI solutions that many other cities or districts can adopt and adapt. This year, Guangdong, one of the seven districts of Kunming City, began adopting our AI solutions to keep the region safe and clean. Compared to the Lijiang project, we managed to reduce the development time of our Smart City project by 50%. Another example is in the energy and utilities sector. We empowered Quanzhou Water Company to deploy our AI solutions for predicting water consumption and automatically adjusting water supply. By serving Quanzhou, we have established a set of AI solutions for the water industry, quickly driving our business scaling. In March, we won a project from the water company of the Baiyun District of Guangzhou, one of the largest cities in China. On top of offering similar solutions to Quanzhou, we also built additional AI solutions to help customers improve wastewater treatment and flood control in the region. Given the expanded work scope of Baiyun District of Guangzhou, this contract amount will be multiple the size of the Quanzhou project. Turning to ACE Smart Transportation. By the end of the first quarter, Baidu ACE has been adopted by 41 cities up from 16 cities a year ago and 35 cities a quarter ago, based on the contract amount of over RMB 10 million. Leveraging our AI capabilities to synergize a vast amount of real-time data from multiple sources by the ACE has helped increase traffic management efficiency. According to a senior official from the Beijing high-level automated driving demonstration area, the traffic flow at the intersection has improved by 28% thanks to our ACE Smart Transportation solution in the Yizhuang region. Going forward, we continue to aim at above industry growth for our AI cloud systems and target long-term quality revenue and sustainable growth despite the near-term headwinds caused by the COVID-19 control measures. Moving to intelligent driving, we continue to grow our field pipeline with Auto OEM for the provision of our ASD solutions. In particular, for Apollo Navigation Pilot, or AMP, according to our internal estimates, The total projected cumulative sales of auto solutions, including ASD and dual OS for auto, surpassed RMB 10 billion. After winning a partnership with BYD at the beginning of the year in April, we received a nomination letter from Dongfeng Motors, which is the top three domestic automakers. Dongfeng intends to adopt are AMP, AVP, and HDMAP in one of its popular auto models. With smart driving and smart connectivity gaining popularity, and considering in-house development is costly and time consuming, automakers are increasingly interested in adopting our intelligent driving solution to capture this new trend. As a result, we expect our AISD pipeline to keep growing in the future. ApolloGo achieved a major new milestone with the award of the first driverless driving permit in China on public roads. On April 28, 2022, the Beijing High-Level Automated Driving Demonstration Area took the lead nationally when its specified the criteria and granted permits for providing driverless ride-hailing services on open roads in the Yizhong region of Beijing. ApolloGo became the first company to receive the permits. We believe this approval indicates a regulatory openness to taking a further step towards a fully driverless mobility future, allowing ApolloGo to further scale up In 2018, we became the first company to launch road testing for autonomous driving in Yuzhong. In the fourth quarter of 2020, we won the project to build ACE Smart Transportation and introduced our autonomous ride-hailing services in the densely-magneted areas of Beijing. By doing so, we have taken a more holistic approach to intelligent mobility, which synergized our ACE Smart Transportation solutions, autonomous vehicles, maps, and cloud services. This approach has allowed us to better overcome the complexity and high density of urban traffic in Beijing. Last year, ApolloGo was authorized to conduct driverless testing on open roads and provide paid autonomous ride-hailing services. This April, we were allowed to provide driverless ride-hailing services on open roads to passengers without a safety driver behind the steering wheel. This rapid development reflects the government's recognition of our proprietary technologies and operational capabilities. In the future, we plan to replicate the Yizhong case to other cities. Most recently, we were authorized to conduct driverless testing on open roads in Chongqing, following the permit for ApolloGo to charge passengers on open roads three months ago. We are happy to note that ApolloGo continues to hold a leading position in the global autonomous ride-hailing market. During the first quarter, we provided 196,000 rides, up over 11 times from a year ago. The number of rides dropped by 8% quarter on quarter, mainly due to the COVID-19 physical measures since the beginning of this year and weak seasonality. In terms of geographic coverage, ApolloGo further advanced into 10 cities in China. While expanding our services, Baidu has worked hard to meet the technical challenges of China's complex traffic environment. It is important to note that by serving passengers on a daily basis and on a much wider scale, we have detected problems that have been unnoticeable during the testing phase, further speeding up the development of our autonomous driving technology. Looking ahead, we are confident in maintaining our absolute market leadership in Intelligent Driving as demonstrated by the ongoing growth of AFBDO's pipeline and scaling of the ApolloGo operation. Now, briefly updating you on DuoOS. XiaoDuo retains the top rankings in Smart Display and Smart Speaker Shipments that we have cited in previous quarters, and revenues continued to grow rapidly. Moving to mobile ecosystem, FIDO app users and traffic growth remained solid. In March, MAU increased by 13% year-over-year to 632 million, and daily logged-in users continued to trend up, reaching 83%. Both in-app search queries and daily content distributed by feed achieve double-digit year-over-year growth. Baidu's smart mini program MAU reached 500 million marks, up 22% from a year ago. While our mobile ecosystem continues to thrive, we persist in our efforts to innovate and improve user experience. Daily short videos distributed by Baidu app, including both search and feed, enjoyed accelerated year-over-year growth to over 25% in March, enabled by the fully immersive video experience we introduced at the end of last year. In Services, over 100,000 industry participants signed up for our Instant Replies feature in March. up from about 44,000 in December. Total daily instant replies increased by almost six times year-over-year in March, up about 20% from last December. As China's mobile Internet matures, apps and mobile platforms are eager to acquire traffic at affordable costs. We have observed that many virtual leaders In particular, local service providers such as Made From Online and Maoyan choose to deepen their collaboration with Baidu apps by tailor-making their offers to our users. This has resulted in notable increases in user engagement and transactions for their smart gaming programs on Baidu. In e-commerce, GMV, facilitated by Baidu Search, Those too small grow about 14 times year-over-year in the forest. The above-mentioned innovations and steps forward are the latest in our transformation from information search to delivering closed-loop user experiences, which enables us to strengthen our mobile ecosystem around search. Going forward, we will continue to work hard on maintaining stable margins for the mobile ecosystem and fund our investments in the new AI benefits despite the near-term advent. With that, let me turn the call over to Dong to go through our financial highlights.
spk11: Thank you, Robin. Now, let me go through the details of our first quarter financial results. Baidu's Q1 revenue was INB 28.4 billion or US dollar 4.5 billion at 1% year-over-year. Baidu Core's Q1 revenue reached INB 21.4 billion or US dollar 3.4 billion at 4% year-over-year. Now advertising for Baidu Core reached INB 5.7 billion at 35% year-over-year. and accounting for 27% of vital cost revenue, up from 21% a year. AI cloud revenue with IMD 3.9 balance, up 45% year-over-year. Cloud contributed almost 70% of the non-AI revenue, and remains a key revenue growth engine. Our ads have been facilitated from a multi-cloud strategy adopted by many of our customers. in particular the customers in the Internet industry. Our business for enterprises and the public sector is the driving force for club revenue, again, achieving revenue growth in key sectors, such as energy and utilities, the public service sector, and transportation. Revenue from Xiaodu remains solid in the quarter. Baidu Core's ad revenue was RMB 15.7 billion. decreasing 4% year-over-year. The performance of our athletes is highly correlated with the macro, heavily impacted by COVID-19-related control measures. In fact, many of our top industries, such as travel, fundraising, real assets, and healthcare, have suffered from reduced offline activities. On the flip side, when people are safe at home due to the COVID-19 resilience, they tend to spend more time on our platform. In particular, they tend to buy the app to check reliable information about the COVID-19 situation, which has positively contributed to our news and traffic goals. As Robin said, we expect our app to recover once the macro environment improves thanks to our widely diversified customer space that covers many industries in the Chinese economy. IT revenue was RMB 7.3 billion, decreasing 9% year-over-year. IT average daily number of total subscribed members reached 101 million for the quarter. And membership revenue was up 4% year-over-year, mainly due to a refined membership strategy and improved monetization capabilities. Cost of revenue was RMB 15.5 billion, up 4% year-over-year. primarily due to an increase in cost of goods sold, chart acquisition costs, bandwidth costs, and other costs related to new AI business, offset by a decrease in content costs. Operating expenses for IMB 10.3 billion, decreasing 1% year-over-year, primarily due to a decrease in channel spending, promotional marketing, and back-to-back expenses. Non-GAAP operating income was $94 billion, or US$630 million. And non-GAAP operating margin was 14%, one-fourth. Non-GAAP operating income for VitalCore was $93.9 billion, or US$581 million. And non-GAAP operating margin for VitalCore was 17%, one-seventh. Adjusted EBITDA was IMD 5.5 billion, August dollar $867 million. And Adjusted EBITDA margin was 19%, one nine. Adjusted EBITDA for Baidu Call was IMD 5.1 billion, August dollar $805 million. And Adjusted EBITDA margin for Baidu Call was 24%. Cash and shorting investments for Baidu Call at the March 31st was RMB 185.8 billion or USD 29.3 billion. Free cash flow for Baidu, excluding ITE, was RMB 1.1 billion or USD 175 million. Baidu Core had approximately 38,000 employees as of March 31, 2022. Operator with that, let's now open the call to questions.
spk06: Ladies and gentlemen, we will now begin the question and answer session. If you wish to ask questions, please press star 1 on your telephone and wait for your name to be announced. If you wish to cancel your request, please press the power or hash key. Participants are requested to restrict one question at each time. Our first question comes from the line of Alicia Yap, City Group. Please ask a question.
spk10: Hi, thank you, management. Thanks for taking my questions. Congratulations on the solid set of results in the tough environment. My question is on the outlook. So I wonder, can management give us some color? What should we expect for your revenue trend in the second quarter and also the rest of the year? So in particular, when do you expect the inflection point for your advertising business to happen given most of the offline spending is color rated with the macro. And then secondly, notice that your first quarter operating margin came in stronger and better than the market expected. Could you give us some color how we should think about the margin outlook for the second quarter and also the rest of the second half? Lastly, if I may just, in light of the latest BACRO environment, wondering if there's any change of Baidu long-term strategy and the growth outlook. Thank you.
spk11: Thank you, Alicia. This is Julius, and let me take your first questions about their convenience. I think as Robin has mentioned, it is very much starting from mid-March. has been negatively impacted by the rapid development of Omicron, which is different from the previous variants. Omicron has spread faster and affected many cities, including top cities in China like Shanghai and Beijing. Such impact has already lasted over two months and is still ongoing in China. And this is lasting much longer than any previous round of resurgence. So the COVID situation is more severe than early March. For many of our customers, the BINC activities have been significantly disrupted, and our app business has been negatively impacted. Also, we had to reduce the BINC travel because of the COVID-19 registrations. This also caused a negative impact to our 2D and 2GB. because we have to postpone some of the deployments of our AI cloud projects. So taking into consideration all of these factors, we think compared to the first quarter, the second quarter will be more challenging for us as well as for the industry. relatively limited visibility for the second half of this year at this stage. But this should largely depend on how the pandemic develops. And on the other hand, we are also happy to see that recently the Chinese government has released clear signals to support the economic development and the digital economy at a top level. So we will continue to closely monitor the development of the virus and the macro conditions. And here, I would like to emphasize that Baidu's own advertising is widely diversified and covers many industries in the Chinese economy. And we believe once there is a reform of the Chinese economy, our advertising business will definitely benefit from such recovery. And given the current macroeconomic uncertainties, so we will be more disciplined with our spending and investment. For example, we will be more prudent in spending on sales and marketing. With that said, on one side, we continue to see a lot of growth potentials in the AI-enabled new businesses, so we are determined to continue investing in these areas. such as AI cloud and intelligent driving. And this business has been developing so fast during the past quarter. And on the other side, for the mobile ecosystem, the overall mobile internet market is trying to mature. So we will balance our investment and the growth in this area, and we will be more disciplined with our investments here.
spk02: So on your long-term strategy question, despite the near-term challenges by this long-term vision where our green system remains unchanged, we believe that our mobile ecosystem provides a unique value proposition to our users and app customers. AI will reach the bar again and again for information access in the years to come. We will also continue to innovate and provides search users with closed-loop services within BaiduAd. As you see, our non-Ad revenue now accounted for 27% of Baidu Core. That is up from 21% a year ago. And within non-Ad, we believe our new AI businesses like Baidu AI Cloud and Intelligent Driving well geared with China's goal in technology, innovation, digital economy, and brain transition. These businesses have made enormous progress over the past quarter and are well positioned to capture the total addressable market. By the way, iCloud continues to drive the digital and intelligent transformation of China's traditional industry and the public service sector. So you see that our cloud revenues from enterprises and the public sector consistently outgrow that of our peers. Intelligent and connected vehicles are becoming the new attraction in auto sales. Many automakers have come to realize that adopting Baidu's solution is better than investing heavily in developing their in-house solution. And ApolloGo already holds a leading position in the global autonomous flight-hailing market. And we just launched the first permit in China for driverless flight-hailing services in Beijing. And in May, we were allowed to conduct driverless testing in Chongqing. So you can see our vision and strategy. We are an AI company with a strong internet foundation. There's a lot of synergy between all of our businesses and our technology innovation. So with that, we are very confident in Baidu's long-term growth potential.
spk10: Thank you.
spk06: Thank you. The next question comes from Lincoln Kong, GS. He's asked a question.
spk01: Thank you, management, for taking my question. So my first question is that we saw that earlier, you know, the media reported the Chinese People's Political Consultative Conference had a meeting in Beijing last week, and Robin, you are one of the attendees from the internet companies. So we are quite curious to learn what's the takeaway from the meeting, and have you made any proposal in the meeting? And my second question is about the mobile. So we noticed that the user growth was pretty strong for the Baidu app. So can you help us understand, you know, the underlying drivers of your user growth for the mobile ecosystem? And how should we think about the user growth potential going forward?
spk02: Yeah, regarding to the CPPCC meeting, many senior government officials attended that meeting It was mainly focusing on supporting the healthy and sustainable development of the digital economy. All the attendees of the conference could clearly feel the government's support and openness for technology innovation, and their willingness and determination to promote the development of China's digital economy. Very notably, investment in R&D highly appreciated and encouraged. I basically talked about two points. One, I called out the importance of using AI to improve the efficiency for China's massive infrastructure, be it in transportation, utility, energy, or telecommunications. Today, China already has a very comprehensive infrastructure in this area, but they have not yet been powered by AI or simply saying they're not smart enough. Take the transportation industry as an example. Most of China's traffic lights are not powered by real-time data from multiple sources, and AI-powered B2X has not yet become fully available here. Given the current transportation network, many local governments have to implement strict restrictions on purchasing and using vehicles, restraining domestic consumption because of this. AI-enabled traffic lights and B2X will help improve efficiency and reduce accidents. So according to our estimate, intelligent transportation system could help improve traffic efficiency by 15 to 30 percent. This is not just an estimate. We actually have proven this in a number of cities in China. So if we apply this kind of efficiency gain to the entire transportation system, that's 2.4 to 4.8% of additional annual GDP for this city. So I believe that intelligent transformation could significantly lift productivity, efficiency, and competitiveness for this district, and also for the entire nation. In my prepared remarks, I also shared some examples of how the AI cloud helps our customers to run their complex workloads in many industries. And secondly, I also called for further regulatory support for tech innovation. For example, a more comprehensive industry regulation for autonomous driving on open roads and in complex road conditions. Autonomous driving technology is reshaping the auto industry. To a certain extent, China leads in autonomous and fully driverless technologies, while the adoption of autonomous driving vehicles in China will increase the efficiency by reducing traffic jams and accidents. But before that, we need to make necessary adjustments to the current transportation law and consider the profound changes that autonomous driving and even fully driverless cars can bring to China's transportation system. So to be more specific, we need to set up regulatory standards for fully driverless vehicles to be issued license plates, get on open roads, and remove safety drivers and charge passengers. Also, we need guidelines on how to identify responsibilities when accidents happen. These proposals have been well received by the officials who attended the meeting.
spk11: I would take your question about your mobile ecosystem. I think that's what we just talked about in the remarks. In March, by the end of the year, and by this program, it will reach the 500 million mark. Our platform is widely recognized as a go-to place for high quality information and knowledge. Let me show one example. Actually, the control measures against the COVID-19 are resilient. has made many students study online from home. We have seen that they come to BibleHack to search for authoritative and reliable class-related information and knowledge. Lately, we have been seeing a significant increase of such . The daily search query for identification related keywords on mobile has increased about 30% through year over year. And so far what we see is that's the number in the second quarter. And more importantly, I think we as a company will also continue to innovate in search and continue to improve the user experiences. In the first place we will continue to use AI to improve our search experiences. driving a consistent increase in the daily searches per user. I think search is a technology driven with a high entry barrier and technology is in our corporate DNA. In the second place, we continue to improve the closed-loop experience, the closed-loop services for our search users. And we provide the users with the services and connect them to the industry participants for professional advice through our building blocks. I think, for example, the e-commerce journey facilitated by Baidu Search grew by about 14 times one floor year-over-year in a quarter. Also, we also see the monthly orders for local services within Baidu app increased by over 200% year-over-year in March. Now the users not only come in to buy the after-search information, but increasingly they also want to enjoy the close facilities over here. In the third place, we also made a promising progress in adopting the short videos into our search results. And we are working very hard to capture opportunity, the addiction to these new product features. We also work on enriching our video content portfolio by using AI to cost-effectively generate the video content. Looking ahead, we will work hard to continue improving the user experiences and maintain a healthy user growth. Thank you so much, Lincoln.
spk01: Thank you, Robbie. Thank you, Judith.
spk06: Thank you. The next question comes from Gary Yu, Morgan Stanley. Please answer the question.
spk04: Hi. Thank you, management, for the opportunity. And congratulations on a very resilient set of results. I have some follow-up questions regarding the AI cloud business. The first one is on the outlook for the coming quarters. This is particularly because some of your peers have indicated some slowdown in cloud revenue growth. So I just wanted to see you know, how we should expect Baidu AI cloud growth going forward. The second question is also related to that, which is, you know, is there an update on the strategy and progress in terms of building standardized solutions? Because I think this is important to improve your AI cloud margin going forward. So I just wanted to see what's the progress there and how should we look at margin going forward. Thank you.
spk02: Gary, let me answer your questions, though, starting from home. Baidu AI Cloud grew 45% year-over-year to RMB 3.9 billion in Q1, and it contributed almost 70% of our core total non-ad revenue. Baidu AI Cloud basically includes two parts. One is the personal cloud. The other is the cloud for enterprise and the public sector. The rapid growth in cloud has been driven by the enterprise and public service sector, for example, energy, utilities, smart transportation, smart cities, and more. Last quarter, revenues from this portion grow much faster than the overall AI cloud revenue. We are confident that revenues from enterprise and public service sector will continue to drive the growth of by the AI cloud in the coming quarters. As I mentioned earlier, we did notice that since mid-March, this new round of COVID-19 divided quickly across many cities in China, and as a result, we had to reduce travel and postpone the deployment of AI cloud projects. That being said, we think such impact is just temporary. Looking beyond COVID impact, we are confident about the unique positioning of our AI cloud. The integration of cloud and AI enables our customers from many industries to make significant productivity and efficiency gains through AI. The market potential is huge, and we are just at the beginning of capturing this huge opportunities arising from the transformation in China's traditional industries and the public service sector. In terms of margin, Baidu AI Cloud is still loss-making at the operational level, but we do have positive gross margin and profit, gross profit. For our personal cloud, although its revenue growth has been slower than the enterprise and public sector, it should continue to generate decent margins going forward. And for the cloud business, for enterprise and public sector, the growth driver for our overall AI cloud revenue, this part of the business also enjoys positive growth margins. A few quarters ago, we have already set as our priority the health of the business to make sure that we grow revenue both at speed and with quality. We proactively identified key industries other than the Internet sector to explore the opportunities in AI PaaS and SaaS. And at the same time as we accumulate more experience in each industry, we try our best to standardize our products and solutions to further scale our business. You know, traffic lights at an intersection in the city of Bao Ding is not much different from a traffic light in the city of Guangzhou, so we can at least standardize the product or solutions industry by industry first. And in the longer term, I do think we can build a strong foundation to solve problems in different industries using more standardized solutions or technologies. Recent developments in AI, especially in large models, be it in language models or vision, have given us new hope to solve all kinds of problems using one large standard deep learning platform. Going forward, if we look beyond the COVID impact for the cloud business, we continue to aim at high revenue growth and remain focused on quality, and sustainable revenue growth. Margin should gradually improve from there.
spk11: Thank you, Derek.
spk06: Thank you. Next question comes from James Lee Mizuho. Please ask a question.
spk03: Great, thanks for taking my questions here. Congratulations on ApolloGo, on achieving the breakthrough of driverless operations here. Two questions relating to that. First is, how do you expect the driverless technology to improve the curve of cost efficiency? Is that pretty consistent with what you guys laid out at the analyst day last year, or are you ahead of schedule here? Second, can you also elaborate your plans on scaling up the driverless autonomous ride-hailing services? Thanks.
spk02: Yeah, as I mentioned earlier, scaling up operations allows us to improve the level 4 autonomous technology faster and facilitates our goal of ultimately providing fully driverless ride-hailing services. in a much wider region. The number of rides provided by ApolloGo has been growing exponentially. Also, such scalable operation makes us the largest autonomous ride-hailing service provider in the world. In Q1 alone, we provided almost 200,000 rides. With the data gathered from such large-scale operation in real-life driving scenarios, we gain a lot of operational experience. To be more specific, serving passengers every day has allowed us to identify problems that are not visible during the testing phase. I'm highly confident that serving passengers in real world will not only speed up our operation expansion, but also accelerate technology advancement. And I think our strong driverless technologies and capabilities will allow us to receive more regulatory grain rise. This is very important for us to further accelerate our operation. Our priorities remain unchanged. Scaling up our operation, improving our autonomous driving technology, and reducing the cost and expenses are top priorities. Baidu is proud to be the first company to receive permits to offer ride-hailing services on open roads in China's capital without a city driver behind the steering wheel. That means a lot to us because first on the regulation front is the first time that the the government allows the removal of a safety driver from the driver's seat on public roads, in particular in an area of 60 square kilometers in Beijing. It's a highly complex driving environment. This marks a regulatory breakthrough in China's autonomous ride-hailing industry, reflecting the government's open attitude toward a fully driverless operation in the future. And secondly, it demonstrates our strong driverless technology and capabilities as we are the first to be granted the permits and we started to use them right away. On the cost side, labor cost is one of the largest cost items, but one of the most critical steps to limit costs in autonomous ride hailing is to remove the safety driver in the car and have a remote safety driver managing multiple vehicles simultaneously. This will build a strong foundation to allow us to eventually remove safety staff from the cars and achieve fully driverless ride hailing. With the newly granted permits, we are much closer to achieving that goal. Once we are authorized to remove safety staff on the passenger seat completely, our cost per mile will be reduced significantly. Scaling up also helps to reduce the manufacturing cost per vehicle. And right now we are on the way to make our sixth generation In the future, we aim to further expand our fleet of driverless ride-hailing vehicles on open roads to more cities. We believe we will achieve the goal to provide safer, cheaper, and more convenient mobility service to the public. To answer your question, despite all the disruptions caused by COVID-19 starting, you know, March of this year, I think we are on track to achieve our goal of, you know, fully private robot taxi service.
spk03: Thanks so much.
spk06: Thank you. The next question comes from Tianhou, EH Capital. Please ask a question.
spk07: Good evening, Robin, Rong, and Jen. Congratulations on the good side results. My question is related to Apollo self-driving business. So you mentioned that there were more wins following your partnership with BIB this year. Could you please share some of the outlook for the backlog numbers for 2022? Last quarter earnings, you mentioned the backlog is about $8 billion. So I just want to get some updates on that. The second one is related to the trends. Could you please elaborate the cooperation with Dongfeng, particularly in how does the revenue model work? That's the question. Thank you.
spk11: Thank you again. Let me take this question. I think intelligent and connected vehicles are becoming more and more popular among consumers, and therefore also become a new attraction in auto sales today. Our Apollo Self-Driving business, which we call AST for short, derived from our work leading level for autonomous driving technologies. So many automakers come to us trying to use our auto solutions. In order to capture the big trend of the vehicle intelligence, especially the larger automakers like UID and Dongfeng Motor, They start to use our AAC solutions, in particular AMP solutions. We call Apollo Navigation Pilot, which is our high value solution for intelligent driving. We believe working with these big automakers can also allow us to refine our product experiences and strengthen our competitive advantages in this market. with the increasing adoption of the smart units in China, I believe by this strong autonomous driving capability can also put us in a very strong position to win more business in this area. According to our internal estimates, the total projected accumulated sales of our auto solutions recently surpassed RMB 10 billion. Just for your reference, The same number, the same metric we talked about in the last portion was about RMB 8 billion. And the growth was driven primarily by the pipeline sales from the larger automakers. This amount has been growing very fast over the past two to three years, and the contribution from AAP products has been expanding very quickly. Again, I would like to make it clear that these numbers are the preliminary estimates, which include the contract size and nomination letters we received from the customers. Our estimates are also based on the assumption of the timing of the new models, the pricing of them, and the future sales volume of them. In general, we are happy to see that ASD business is pretty much on track to deliver more milestones in the future. Thank you so much, Dan.
spk06: Thank you. Thank you. The next question comes from Natalie Wu, Hightone International. Please ask the question.
spk09: Hi, good evening. Thank you for taking my question. Congratulations on a very solid quarter. So my question is regarding the recent executive reshuffle. Regarding the news of your... executive reshuffle took place recently, maybe for your MEG and cloud business. So just wondering, may I ask the major reasons behind it? What kind of the strategic or operational change will it bring to the cloud and MEG and mobile business? Thank you.
spk02: Yeah, we do management reshuffle from time to time. I believe our executive reshuffle program helps expand the capability of individuals to excel within Baidu. It demonstrates that we have already established a strong and agile team which is able to make adjustments in the market environment. Many large companies have used this kind of program to develop leaders for their organizations and drive strategy execution, in particular in a dynamic world. In fact, Baidu developed coaches and promotes talents internally. Shen Dou, Wang Haifeng, and Jackson He have all risen to senior positions within Baidu. Zhou joined us in 2012, I believe, and demonstrated his capabilities in virus management roles in Baidu. He made a significant contribution to strengthening our mobile ecosystem. Baidu AI Cloud is already the revenue growth engine for us as we are benefiting from the digital and intelligent transformation of China's traditional industry. and the public service sector. I trusted those capabilities to head the business and keep our momentum at full speed. We believe having a dedicated senior executive to lead the business will allow us to better capture the huge market potential. And as for our iPhone R CTO, he will be able to spend more time our long-term technology vision and drive synergies between AI and all of our businesses. Jackson joined us in 2019. In the past few years, he served in various financial management roles in the mobile business and was highly involved in its daily operations. He already built a deep understanding of our mobile business. Our mobile ecosystem is a cash call for Baidu and will continue generating strong profits. I believe Jackson is highly capable of helping us execute our strategy given his strong financial management and operational background. In short, with this strong homegrown team, we believe Baidu is fully capable to execute a spin strategy in all areas going forward.
spk06: Thank you. The last question comes from Miranda Chuang, Bank of America Securities. Please ask the question.
spk05: Thank you for taking my question and congratulations on the results. My question is about Zidoo. So we saw the news that Zidoo is about to launch a new car model soon. Can management ask more additional color or how is the car model different from other EV startups and traditional OEMs cars? And what's the Zidoo's pipeline for this year and next year? Given the disruption to the supply chain from the COVID, Are you still on track with the previous plan to take orders in second half this year and start mass production next year? Thank you.
spk02: Yeah, Miranda. GDU plans to introduce its first model for mass production in early next month. The market that GDU targets is family passenger vehicles. with the price above RMB $200,000. We believe it is a very big and promising market in which GDU has a lot of room for growth. We are all very excited about the features that GDU will have installed and the value GDU can offer to consumers when it becomes available. For GDU, the key point is not being electric but being intelligent. We believe Baidu is the best in intelligent driving technology, which Jidoo will leverage in the upcoming models. So Jidoo's key selling point for upcoming models will be more on the software side, as well as the seamless integration of hardware and software. This model will be equipped with Baidu's leading autonomous driving solutions, like AMP, AVP, SOS are advanced infotainment systems like DuoOS for auto. And the team has filed many patents during the development stage. A G2 car will be much more like an auto robot than any other car on the market. On the pipeline side, Jidoo plans to introduce its first concept production car on June 8th and take orders for its first model in the second half of this year and deliver the vehicles starting in 2023. Despite the COVID stuff, despite the majority of the team based in Shanghai, I think we are pretty much still on track. So this is in line with our expectations when we started this business. We're also very happy to see that G2 plans to launch a second model at the end of this year, then to start taking orders in 2023 and deliver the vehicles in 2024. So we believe G2 equipped with our industry-leading intelligent driving capabilities will be well-positioned in the EV market. Thank you.
spk06: Thank you. Ladies and gentlemen, that does conclude our conference for today. Thank you for participating. You may now disconnect.
Disclaimer