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spk04: Thank you for standing by and welcome to the Baidu Second Quarter 2022 Earnings Conference Call. All participants are in a listen-only mode. There will be a presentation followed by a question and answer session. If you wish to ask a question, you will need to press the star key followed by the number one on your telephone keypad. I would now like to hand the conference over to Ms. Wan Li, Head of Investor Relations for Baidu. Please go ahead.
spk12: Hello everyone, and welcome to Baidu's second 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 Robin Li, our co-founder and CEO, Rong Luo, our CFO, Zhou Shen, our EVP in charge of Baidu AI Cloud Group, 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 U.S. Private Security Mitigation 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. The detailed discussions of these risks and uncertainties please refer to our latest annual report and other documents filed to the SEC and Hong Kong Exchange. Baidu does not undertake any obligation to update any forward-looking statements, except as required under applicable law. Our earnings press release and this call include discussions of certain analytical and gap financial measures. Our press release is a reconciliation of the analytical and gap measures to the analytical most directly comparable gap 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.
spk11: Hello, everyone. Baidu Corp earned RMB $23.2 billion in revenues and $5.1 billion in non-GAAP operating profits in the second quarter. The resurgence of COVID-19 led to an unfavorable macro environment in the quarter. However, Baidu AI Cloud and intelligent driving business maintained their rapid growth momentum as they aligned well with the government's repeated calls for technology innovation. Specially, Q2 revenues from Baidu AI Cloud increased by 31% year-over-year, outgrowing many of our peers contributing 18% of Baidu Core's revenues in the quarter. That's up from 14% in the same period last year. Further, the operating margin for Baidu AI Cloud improved on both the year-over-year and quarter-over-quarter basis. Apollo Go completed 287,000 rides in Q2, increasing by almost 500% year-over-year. On July 20th, Apollo Gold's accumulated price reached $1 million. And in July, we unveiled Apollo RT-6, the sixth generation Apollo robot taxi vehicle, bringing the cost of robot taxi to the price range of mass market electric vehicles for the first time in China and globally. We aim to put a sizable amount of RG6 vehicles into operation in the year 2024. While by report, ad revenue decreased by 10% over the year, in second quarter, due to a challenging macro environment, our mobile ecosystem continued to generate strong cash flow as we focused on operational excellence and efficiency. Since early June, we have seen signs of recovery as the control measures were gradually lifted. For example, the year-over-year decline of our ad revenues narrowed in June and July. In particular, ad revenues from retail customers resumed year-over-year growth during the 6-18 shopping festival. Project implementation for Baidu AI Cloud has also been improving thanks to the gradual removal of some major travel restrictions. While the recovery is likely to be at a gradual pace, and there could still be some uncertainties about the development of COVID-19, our long-term goals, strategies, and capabilities for shareholder value creation remain intact. At Baidu, we have used a discipline of long-term thinking, which we believe is a strong asset in this fast-evolving, innovative, and highly competitive venture development. Cost optimization and operational efficiency are always top of mind for us. Our mobile ecosystem business should continue to generate strong cash flow to fuel and fund our investments in Baidu AI Cloud and intelligent driving over the long term. Now, let's review the second quarter operational highlights. Revenues from Baidu AI Cloud grew by 31% year over year in the quarter, once again, outstripping our peers, despite the macro challenges brought by COVID-19 resurgence. Our growth was driven by the strong performance in cloud business, business enterprises, and the public sector. Notably, we managed to improve our operating margins both on a year-over-year and quarter-over-quarter basis in Q2, as we focused on healthier and more sustainable cloud revenue growth. We aim to achieve profitability as we scale up further. By the way, our cloud continues to benefit from the growth opportunity in China's digital and intelligent transformation. We believe this transformation is still at the early stage and organizations are eager to leverage technologies to improve efficiency and productivity. Over the past years, we have made tremendous advances in AI technologies. made our AI capabilities widely available to enterprises and developers through our open platform, gained valuable industry expertise, saw significant improvements in productivity in areas like manufacturing, transportation, energy and utilities, and the public sector. By the way, AI Cloud's differentiating strengths are our AI capabilities and deep understanding of industry-specific pain points to help our customers to accelerate their transformation. In short, our competitiveness enables us to take full advantage of the talent offered by this new secular trend. Revenues from ACE Smart Transportation increased by about 40% in Q2. During the second quarter, we run several new projects for highways and in urban roads, both from our new and existing customers. By the end of the second quarter, Baidu ACE Smart Transportation has been adopted by 61 cities, up from 20 cities a year ago and 41 cities a quarter ago, based on the contract amount over RMB $20 million. Going forward, we will continue to focus on key industries and enable cross-industry replications for similar use cases by utilizing AI innovation. By doing so, we believe we will be able to reduce the operating losses and achieve profitability over time. In the meanwhile, we will continue to focus on quality and sustainable revenue growth and aim to continue outgrowing our peers. Moving to intelligent driving, ApolloGo continues to take a big step toward scaling up operations, strengthening its lead position as the world's first autonomous ride-hailing service provider. In Q2, ApolloGo provided 287,000 rides to the public, up from almost 500% year-over-year and 50% quarter-over-quarter. On July 20, 2022, ApolloGo's accumulated rides reached 1 million. In the Yidong region of Beijing, according to our estimates, ApolloGo has obtained a 10% market share for ride-hailing services with pick-up and drop-off both in Yidong. ApolloGo already becomes an important supplement for daily commuting after we launched the services less than two years ago. Now, more than 100 ApolloGo vehicles are serving the Yuzhong residents on a daily basis, and each vehicle on average completes more than 20 rides per day. In July, ApolloGo branched out to Hefei and Chengdu and is now operating in more than 10 cities, charging fees in seven cities across China. We believe large scale operation allows us to improve our level four autonomous driving technology further. With data generated from everyday operation, we can identify problems that are not visible during the testing phase. The number of corner cases incurred during operation has far exceeded the ones found by vehicles in testing. In addition, Apollo Gold has made some exciting progress since our last earnings call, marked by receiving the green light to provide fully driverless light heating services and launching of the sixth generation Volvo taxi vehicle, RP6. Earlier this month, we obtained the regulatory permits in Chongqing and Wuhan to provide fully driverless light heating services on open roads. We were also authorized to collect fees on those services. We are proud to be the first and only company in China now to offer fully driverless driving services to the public on open roads entirely without human drivers in the car. Such achievements validate our superior level 4 autonomous driving technology and endorse our strategy of utilizing large-scale operations to boost further technological advancement. On July 21 at Baidu World, we unveiled Apollo RT-6, the sixth generation Apollo Global Taxi vehicle with a targeted mass production cost of RMB $250,000. This is significantly lower than the mass production cost of the fifth generation vehicle and is in the price range of mass market electric vehicles. RT6 is designed to offer large-scale, fully driverless ride-hailing services and launched at a time that both our technological and operational capabilities are ready. We believe that China's smart EV value chain has already been well established. Some of the auto parts and components for Level 4 autonomous driving solutions are already being produced in China at a much lower price than a few years ago. Moreover, RT6 is a passenger-centric vehicle, so we have removed some components specially designed for drivers. For example, RT6 has a detachable steering wheel, which could unlock space for extra seats luggages, desks, and even some entertainment equipment in reaching the in-car experience for the passengers. Such achievements have set a strong foundation for ApolloGo to significantly reduce the two largest cost items for its operation, labor cost and the robot taxi vehicle cost. This is a critical step for ApolloGo to build a revolutionary business model and accelerate its expansion. Over the long term, we aim to make ApolloGo an alternative mobility option for millions of people, creating tremendous economic and social value. By doing Apollo's auto solutions, including ASD and your OS for auto, continue to gain popularity among automakers. As an increasing number of auto OEMs have publicly committed their brand to autonomous and connected vehicles, we are pleased to see that many have chosen to form alliances with Baidu to expedite their timelines and plans. The total projected accumulated sales of our auto solutions have grown to RMB 10.3 billion per our internal estimate. Moving to the mobile ecosystem, the user base of our mobile ecosystem continued to grow steadily. We once again delivered strong margins in the second quarter despite the negative impact on our absence caused by macro weakness. On the user side, Baidu App's MAU increased by 8% year-over-year to 628 million in June. Daily search queries and content distributed through Baidu App grow double-digit year-over-year in Q2. Our innovations and efforts in delivering a closed-loop experience have made Baidu App increasingly valuable to users. In addition to searching for information and knowledge, people come to BaiduApp to look for ways to fulfill their needs. We have enabled them to order services, purchase products, and interact with industry experts and others without leaving BaiduApp. Here are some metrics to share. 84% of our DAU in June were locked-in users. That's up from 76% a year ago. People have discovered that their user experience within Baidu apps continues to improve once they are logged in. Quarterly GMV facilitated by Baidu Search, those too small, grow by about 127% year-over-year. In particular, during the 6-18 shopping festival, GMV increased by about 260% year-over-year. In June, about 130,000 industry experts actively signed up for our instant replies feature, up from about 100,000 in March. Total daily instant replies increased by about 190% year over year, up about 30% from March. Another highlight is our progress in short videos. Currently, about 85% of the content distributed between Baidu app feeds on short videos. During the quarter, we expanded the fully immersive video experience in the search result page to all the users. This feature is now available on both search and feed, helping guide short video consumption on Baidu app. In Q2, short videos distributed through search and feed increased by double digits year over year. In addition, we are also using AI to expand our content portfolio. We give content creators AI tools which they can use to produce video content more efficiently. AI-generated content works particularly well for launching content and breaking news. While using our closed-loop experience, more and more users are leaving their footprint within our mobile ecosystem. increasing our capability to understand user needs and enabling strong conversion optimization at each step of their journey. Together with our continuous efforts to optimize the advertising technologies, this has helped us to significantly improve the ad conversion rate for our customers. Looking ahead, here are some key takeaways I'd like to give you. First, Operationally, we have used strong new growth engines for Baidu Core, which we believe will boost Baidu Core's revenue growth in the coming years. Baidu AI Cloud, with its uniqueness in AI capabilities, continues to outgrow most of our peers. ApolloGo continues to solidify its position as the largest autonomous ride-hailing service provider in the world. ApolloGo has entered a new chapter with fully-fabulous ride-hailing open roads. While the launch of our purpose-built RT6 robot taxi vehicles for ride-hailing has really low cost, ApolloGo is set to accelerate its operation, further differentiating from our peers in both technology and operation. And the second takeaway financially, the mobile ecosystem will continue to generate strong cash flow to fund our investments in cloud and intelligent driving. On a separate note, we are also excited about ITE's continuous efforts in improving operational efficiency. ITE once again generated operating profits in Q2 the second consecutive quarter to report positive operating profits on both GAAP and non-GAAP financial measures. Furthermore, ICHE generated positive net operating cash flow in the quarter for the first time. Before I turn the call to Rong, I'd like to highlight that we will be added to the Hansen Index from September 5th. We believe with the inclusion of Hansen Index, one of the best known indices in Asia, the Hong Kong shares of Baidu will receive more sunflowers. Overall, I'm very proud of the team's strong execution in the quarter and remain excited about our future. With that, let me turn the call over to Rong to go through our financial highlights. Thank you, Robin. Now, let me walk you through the details of our second quarter to results. Total revenue was RMB 29.6 billion, decreasing 5% year over year. Revenue from BaiduCore was RMB 23.2 billion, decreasing 4% year-over-year. BaiduCore online marketing revenue was RMB 17.1 billion, decreasing 10% year-over-year. BaiduCore non-online marketing revenue was RMB 6.1 billion, up 22% year-over-year, driven by cloud and other AI-powered businesses. Baidu AI Cloud increased by 31% year-over-year to RMB 4.3 billion. Revenue for IT was RMB 6.7 billion, decreasing 13% year-over-year. Cost of revenues was RMB 15.2 billion, decreasing 5% year-over-year, primarily due to the decrease in quantum causes, partially offset by the increase in personnel related expenses. and other causes related to new AI businesses. Operating expenses were RMB 11.1 billion, decreasing 8% year-over-year, primarily due to an increase in channel spending and promotional marketing expenses. Operating income was RMB 3.4 billion. By-law core operating income was RMB 3.2 billion, and by-law core operating margin was 14%, one-fourth. Non-GAAP operating income was RMB 5.5 billion, Now again, Baidu Core operating income was RMB 5.1 billion. And now again, Baidu Core operating margin was 22%. Total other income net was RMB 151 million, compared to a total other loss of RMB 2.4 billion last year, which included a fair value loss of RMB 3.1 billion from long-term investments. In the second quarter of 2022, we recognized a fair value gain of IMB 536 million, a significant portion of long-term investments, including but not limited to investments in equity securities of public and private companies, private equity funds, and digital assets. It's subject to quarterly fair value adjustments, which may contribute to a net income volatility in future periods. Income tax expenses was IMB 25 million, decreasing 99% year-over-year, primarily due to a reversal of certain tax expenses accrued for 2021 based on the 2021 tax return fired in the second quarter of 2022, and an increase in deduction on certain expenses that were considered not deductible in the second quarter of 2021. Net income attributable to Baidu was RMB 3.6 billion, And diluted earnings per ADS was IMB 9.97. Net income attributable to Baidu Core was IMB 3.7 billion. Non-GAAP net income attributable to Baidu was IMB 5.5 billion. Non-GAAP diluted earnings per ADS were IMB 15.79. Non-GAAP net income attributable to Baidu Core was IMB 5.4 billion. And non-GAAP net margin for Baidu Core was 24%. Adjusted EBITDA was RMB 7.1 billion and adjusted EBITDA margin was 24%. Adjusted EBITDA for Baidu Core was RMB 6.6 billion and adjusted EBITDA margin for Baidu Core was 28%. As of June 30, 2022, cash, cash equivalents, restricted cash and shorting investments were RMB 189.4 billion and cash, cash equivalents, Restricted cash and short-term investments, excluding ITE, were RMB 184.5 billion. Free cash flow was RMB 5.5 billion. And free cash flow, excluding ITE, was RMB 5.5 billion. Baidu Corp had approximately 36,000 employees as of June 13, 2022. With that, I'll pray that let's now open the call to questions.
spk04: Thank you. If you wish to ask a question, please press star then 1 on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star then 2. If you are on a speakerphone, please pick up the handset to ask your question. Your first question will come from Alex Yao of JP Morgan. Please go ahead.
spk10: Hi, management. Good evening. Thank you for taking the question. I know you guys mentioned that you are seeing a sign of recovery in the advertising businesses since June. Could a management issue more comment on the recovery in terms of advertiser categories? Looking into the second half of 2022, how do you expect the advertising to develop? And in the medium to longer term, if they look beyond the neutral impact upon COVID, How do you foresee advertising business to develop in the medium to long term? Thank you.
spk11: Hi, Alex. This is Robin. As you know, by the quarter, ad revenues decreased about 10% year over year last quarter because of the challenging macro environment. In April and May, our ad revenues experienced a significant year over year decrease because COVID-19 impacted some of China's major cities, especially Shanghai, and to a lesser extent, Beijing. In June, our ad revenue started to recover when the situation gradually improved, and July was better than June. In terms of ad verticals, some of the ad verticals got hit really hard in April and May. That includes the retail sector, travel, local services, and healthcare. Ad spending from this vertical has been picking up quickly since June. Looking into the second half of the year, we're still facing macro uncertainties. It is hard for us to predict the development of COVID at this stage. For example, the resurgence in some of the hot travel destinations like Sanya caused the early ending of the summer travel peak season. Our search ad is highly correlated with China's GDP growth and the performance of China's SMEs. We believe our ad revenue should recover when macro improves. We have also seen some opportunities for our mobile ecosystem around e-commerce and short videos. For example, integrating e-commerce and short videos with our search and feed. In fact, more and more short videos are available in our search results. This should help us to improve the user experience. I'd say in the mid to long term, our enriched content in key verticals and our capabilities in facilitating transactions within Baidu apps, as well as our closed loop experience for users, will help us to create more user insights for our customers. This insight will help us drive app conversion and generates advertiser value, supporting the long-term growth of our online advertising business.
spk05: The next question, please.
spk04: The next question comes from Kenneth Fong of Credit Suisse. Please go ahead.
spk07: Hi, good evening. Thank you for taking my questions. Congratulations on another quarter with a strong cloud revenue growth. Can you help us understand the underlying drivers that help by do AI cloud to outperform your peers? What's your outlook for the cloud business for the second half of the year? And I'm wondering if you can also help us understand your strategy as well as timeline for the cloud business to reach break-even. Thank you.
spk11: Thank you, Kenneth, for your question. This is Joe. I will address the revenue part and leave the second part to Long. As Robin just mentioned, Baidu AI Cloud continued to grow pretty well in Q2 despite the challenging microenvironment. The revenue was up 31% year-over-year, and the AI Cloud now contributed to almost 20% of the total Baidu core revenue. We believe what differentiates Baidu AI Cloud from our peers is that we have been dedicated to integrate cloud computing with AI so that our AI capabilities can help our customers to improve efficiency. To be more specific, as a cloud vendor, we have strong AI capabilities, while on the other side, as an AI solution provider, we have strong cloud computing capabilities. So also, as Robin mentioned, the enterprises and the public sector are the main growth drivers for cloud computing. So we believe that in China, the traditional enterprises and the public sector are still at the early stage of digital and intelligent transformation. So clearly, this transformation means organizations, no matter big or small, they want to use AI to improve their efficiency and their competitiveness, which will further drive the demand for high-performance computing. As a result, the combined revenues from manufacturing, energy, utilities, and the public sector almost doubled in Q2. In smart transportation, we continue to leverage our leading AI technologies and the deep understanding of autonomous driving to grow our business. So we see smart transportation has already become one of the largest vehicles for Baidu AI Cloud. So with that, we are confident that revenues from enterprises and the public sector will continue to drive the growth of Baidu AI Cloud in the future. Also, since early June, we have seen some gradual improvement in project implementation. But for sure, there are still some uncertainties around COVID-19 in the near term. However, we believe the strong need and the trend for AI in China remain unchanged. And with that, we aim to continue growing faster than our peers. Yeah. Hi, Kenny. So I will answer a question about margins. But the AI cloud continues to generate the positive growth margins in the second quarter, same as what we did in the first quarter. On top of that, we managed to improve our operating margin thanks to our strategy to focus on quality and sustainable revenue growth. So we have two parts in our AI cloud. The first part is the personal cloud. The personal cloud contributes a small portion of the overall cloud revenue. It should continue to generate fixed operating profits. and its revenue is growing a little bit slower than overall cloud. The second part, which is the majority part, is enterprise and public-sided cloud, which continue to generate positive growth profit in the second quarter. It improved operating margins both on a year-over-year and quarter-over-quarter basis. This was because we practically focused on high-quality revenue growth, and gradually, we reduced the unhealthy projects. I think in the future, we will work very hard to narrow the loss margins. Within enterprise and public sector cloud, the AC smart transportation, which Justice mentioned by Joe just now, already enjoys a very high growth margin because of the higher portion of the software and AI components. We think AC smart transportation may achieve break-even earlier than any other verticals in the coming quarters. and because we have focusing on to provide more standardized solutions and products for the key use cases. For example, the urban roads, highways, and . Secondly, I think we are also working very hard to replicate the similar scenarios and use cases across different industries. Cross-industry replication require the AI technology to find all the connections across many different scenarios. And we believe that our AI technology, such as the large models, will help us to achieve that goal. Overall, we will continue to focus on quality and sustainable revenue growth to improve margins and reach profitability in the next few years. Thank you so much, Kenny.
spk07: Thank you.
spk03: The next question comes from Lincoln Collin of Goldman Sachs.
spk04: Please go ahead.
spk01: Thank you, management. So my question is about the robotaxi. So we're quite impressed that RTX 6 is targeting a cost of 250,000 IB per car. And that's significantly lower than the previous generation of the Robotaxi models. So can our management help us understand what's the main driver for this cost reduction and what's our outlook for the future cost trend? And how should we think about Robotaxi economic mechanism under this cost and any timeline as in when to expect major commercial contribution from the Robotaxi business? Thanks.
spk11: Hi, Lincoln. This is Robin. I think there are three drivers for the cost reduction. First, it's our deep knowledge in the autonomous driving technology and operation. Over the past nine years, Caidu has viewed strong level four technology and gained industry know-how on the auto industry and how to operate L4 ride-hailing services. Also, we have become the largest autonomous ride-hailing service provider in the world. So we fully understand the autonomous ride-hailing market and understand our passengers' needs. We know where we can simplify our in-car features and where we should allocate more resources. For example, RV6 is a passenger-centric vehicle, not a driver-centric vehicle. So on one hand, we have reduced some in-car features designed for the driver to reduce the cost. Like I mentioned during the prepared remark, RC6 can remove the steering wheel and exclude some other accessories such as white screen, white display screen for drivers. On the other hand, we put more effort on safety performance and the passenger experience to make R16 passenger-centric. For example, we have used safety redundancy in seven parts of R16, setting an industry standard. This includes redundancy for computing unit, sensors, steering system, braking system, communication system, power supply and auto architecture. Also, RD6 is designed for more in-car space and better in-car clearance. I also want to highlight that about 60% of RD6 bombs are for intelligent features like L4 and autonomous driving capabilities. The second driver is scale. We plan to leverage third-party automakers to produce RD6 for us, so RD6 will not retrofit on a passenger vehicle. This is a key differentiator of RD6. We will pay for the bomb of RD6 instead of the retail price like what we did in the past. Once I am able to move away from retrofitting vehicles to use third-party automakers to produce RD6, That's because we have the capability to offer large-scale robot taxi operations supported by our leading autonomous driving technology and operational capabilities. And I think the third driver is the development of the value chain for China's intelligent EV industry. RG6 was launched at a time when China's intelligent EV industry is well built up with many new EV companies and auto parts producers in the market. In particular, many autonomous driving related auto parts are now being produced locally, so intelligent EVs are becoming more affordable than before. And for the autonomous driving related auto parts, it costs It's also much lower than before. For example, LiDAR. LiDAR is the most important component for autonomous driving solutions. It was charged hundreds of thousands of US dollars in the beginning, but now it only costs like $1,000. So in the future, we believe the bomb for our Robotaxi will continue to decrease because China's intelligent EV industry will continue to develop and Apollo Go will continue to scale. Our approach is a gradual approach. We will continue to roll out regions in different cities, therefore scale up our Robotaxi service. As we gain scale, as we improve continuously on technology, I think that the cost for operating such a service will continue to drop and we certainly have the first mover advantage and the barrier to entry for this will become higher and higher.
spk04: The next question comes from Alicia Yap of Citigroup. Please go ahead.
spk13: Thank you. Good evening, management. Thanks for taking my questions. I have a follow-up question on Apollo Gold. So congratulations on some of the solid achievement recently. Can management provide some update on regulatory environment for autonomous driving and robot taxi in China and how Baidu will capture these trends? And then can management also provide updates on Baidu's goal and strategy for these fully driverless operations? Thank you.
spk11: Thank you. This is James. Just as Robin said, Baidu is already the largest autonomous dedicated service provider in the world. In COVID-2, our goal has completed 287,000 rides, and the accumulated rides surpassed 1 million now. This number is much higher than last year. Our strategy is to leverage large-scale operations to improve level 4 technology and grow even faster and larger. This is very important in China because the road and traffic conditions are worried communicated here. And the data generated from larger scale operations will help us to improve our level 4 technology and overcome the problem. Today, our goal is already available in more than 10 cities, including all the tier 1 cities in China. Our operating areas cover many places, including subway stations, office buildings, and the hospitals in each city. On the other hand, we're also defending Orchid in each city. With the launch of Orchid at a target mass production cost of $250,000, we will be able to further grow Orchid at a faster speed. In the future, we will continue to improve our level 4 technology and grow our operations. Also, we will try to push and make our influence on China's regulation for autonomous driving. For technology, we started out of autonomous driving services on open roads in Wuhan on May 10. In less than three months, We were allowed to provide fully driverless ride-hailing services on the open road. The quick progress is for our leading technologies and capabilities. For operations in the Yizhuang region of Beijing, as Robin mentioned, we have already acquired about 10% of our share of ride-hailing services in the region. On average, each road taxi vehicle commits more than 20 rides a day. As a pioneer in the industry, FIDO has worked closely with regulators to set up regulations and industry standards. Recently, the Chinese Ministry for Transport issued a draft of guidelines for self-driving vehicle transportation safety services. The guidelines aim to push the commercial operations of autonomous ride-hailing services in China. This is the first regulation on autonomous ride-hailing services at the central government level globally. It must be China's effort in promoting high-level autonomous driving. We are proud to be the first and only company in China to offer fully driverless ride-hailing services in early August. Baidu was allowed to provide fully grabless red-heading services and classes in Chongqing and Wuhan, two of China's major cities in the Midwest. In the future, we will continue to scale up our operations and try to push fully in grabless red-heading to more cities. Thank you.
spk03: Thank you. The next question comes from Eddie Long of Bank of America, Merrill Lynch.
spk04: Please go ahead.
spk09: Good evening, guys. Thank you for taking my question. I have a question about your autonomous driving solution for OEMs. So you mentioned that the contractor value after the second quarter was just over $10 billion. It doesn't seem to be increasing much from the last quarterly result. Could you tell a little bit about the reason behind that? And then could you also remind us some of the automakers that have been working with you guys in using your autonomous driving solutions? Thank you.
spk11: Hi, Eddie. Let me answer your questions. I think as Robin mentioned, the remarks, yes, the total projected cumulative sales of our solutions has been IMB 10.3 billion, probably estimates. I think what we'll talk about are numbers we need to keep in mind. The smart EV is a trend that is irreversible. For cars, we believe that over the long term, electrification is just a part of the play. and intelligence is a game changer. So in the future, EV without intelligent driving capabilities will not be competitive. And many automakers, like some leading domestic or even international automakers, they are interested in using our solutions for their models to capture this kind of new market opportunity. Based on our conversations with them, we understand that automakers like our AI capabilities, our insights of the automaker's driving, and our strong branding. And we're talking with many of the automakers, both locally and globally, and some are very large names in the industry. I want to emphasize that each automaker has its own schedule for signing up the contracts with the suppliers. This could result in a different pace of our dialogue. This is absolutely normal in the auto industry. And as of today, we have partnered with many automakers, including some leading names like BRD, Dongfeng Motor, and so on. And in addition to our in-car infotainment solutions, more and more customers are now adopting our Apollo self-driving products, including the AMP products, Apollo Navigation Pilot for highways or urban roads, the automatic value parking AVP products, and HD maps products. I think in the future we will continue to expand our partnership to work with more automakers. More and more models equipped with our auto solutions are set to be launched into the market in the coming few years. The auto solutions should start generating meaningful revenues. Thank you so much, Eddie.
spk04: The next question comes from Gary Yu of Morgan Stanley. Please go ahead.
spk08: Hi. Thank you for the opportunity to ask questions, and congratulations on the solid results. My question is about margin and cost control and optimization. We saw that you achieved another strong quarter of results with margin better than expected. Could you please elaborate the efforts you took for such encouraging result, and what is the margin outlook for the second half of the year? Thank you.
spk11: Yeah, thanks so much, Gary. I have a question. I think despite the very challenging macro environment in Q2, by the cost non-operating margin was 22%, which is up 5% to points quarter over quarter. Over the past few months, I think we have made a lot of efforts to improve our operational efficiencies. For example, the Baidu Cross SG&A was done by 12% year-over-year in the second quarter. I think other businesses are at different stages of development, so we have different strategies of investment for each business. For the mobile ecosystem, which is a relatively mature business, our goal is to keep its profits and margins solid. so that our mobile ecosystem can continue to generate the very strong cash flow to support our investments in the new AI initiatives. I think for our new AI businesses, we will be focused on AI cloud and intelligent driving. Both of them grew very fast in the past few quarters, which you can see there. So we will continue to make necessary investments as needed. A strong state just now will remain focused on healthy and sustainable revenue growth and will aim to continue improving our operating margins in the future. Thank you so much, Gary.
spk10: Thank you.
spk03: The next question comes from James Lee of Mizuho. Please go ahead.
spk06: Great. Thanks for taking my questions. My question is regarding GDU, and congratulations, by the way, on your launch in June. And at the same time, you guys also launched RT6. I'm just curious about maybe the positioning of GDU and RT6. Can you guys talk about the customer segmentation strategy of the two autonomous driving vehicles? Just curious how much overlap in demand between the two. Thanks.
spk11: Yeah, this is Robin. The position for G2 and RK6 are very different. Before I talk about G2, let me first talk about our strategy for intelligent driving. Our goal is to provide large-scale, fully driverless ride-hailing services on open roads. This is powered by our L4 autonomous driving technology, and at the same time, We use some of our L4 capabilities to put them into assisted driving features to support automakers' intelligent driving needs. And GDU is just a perfect example of such automakers. So if you look at our BIMS portfolio for intelligent driving, we have RT6. RT6 represents Baidu's best autonomous driving technology. RG6 is for large-scale, fully driverless ride-hailing services on open roads. That is not a consumer-facing vehicle. I mean, it's not selling to the consumer. CEDAW's RoboOne is a consumer-facing product. We put our Level 4 technology into Level 3 or Level 2+, if you will, Jidoo Robo 1 will be equipped with AMP 3.0, our most advanced autonomous driving solution. AMP 3.0 can handle end-to-end intelligent driving and parking on urban roads and highways. Also, our Smart Cabin will be installed in the car. It allows Jidoo to provide voice interaction inside and outside the car. We believe these new features will help us to expand our BIM. For the timeline, we could see everything is well on track. We could see the first mass-produced RoboOne finished very soon. This car will demonstrate GDU's capability from design to mass production. Jidoo plans to take orders for RoboOne later this year and deliver the vehicles starting 2023. And Jidoo has a second model. Jidoo plans to launch at the end of this year, then start taking orders in 2023 and deliver in 2024 for our second model.
spk03: Yeah, that's it. Great. Thank you.
spk04: Our last question will come from of UBS. Please go ahead.
spk02: Thank you. Good evening, management. Thank you for taking my questions. First, I'm wondering if management can share some updates on your capital allocation. could management talk a bit more on the implementation of your share buyback program and how do you balance the investments into new businesses versus doing more buybacks or dividend? And second, as we recently saw the development between the U.S. and Chinese regulators regarding the audit inspections of ADRs, could management also share your thoughts on this progress? And given some of your peers have started the process to convert into due primary listing, I was wondering would Baidu also consider such a U.S.-Hong Kong due primary listing status? Thank you.
spk11: Yeah, thank you for your questions. Let me hear your questions. I think as of today, we have returned about US dollar 2.9 billion to shareholders under the 2020 share repurchase program. The program authorized US dollar 4.5 billion cap, which means we still have around US dollar 1.6 billion left in the program. Baidu will continue to buy back our shares from open markets since we quite strongly believe in our long-term developments. If you look into our balance sheets, as of Q2, our cash equivalents, with 3D cash, and shorting investments, with US dollar 28.3 billion, and we also have the other US dollar 11.1 billion in our long-term investments. If you look into our bids today, some of them were mentioned in our previous remarks. I think for mobile as a system, It continues to generate wide heritage profits and margins. For Baidu AI Cloud, the revenue has been growing very fast, faster than our peers in this industry. For UploadGo, it's already the largest autonomous right-handed service provider in the world. So everything is pretty much on track. So we believe that we are on the right direction and we will continue to invest in ourselves. And about the second question about the delisting and the primary in Hong Kong, I think the most recent statement of the protocol side between the PCAOB and the Chinese authorities marks the very important first step towards opening access for the PCAOB to inspect and investigate completely the rest of the public accounting funds in China. We think this is a very important milestone for both countries and China-based issuers with their ADR trading in the US. Also, we can feel that the two governments are practically seeking solutions. For Baidu, we already have the Hong Kong secondary listing, and we have some major shareholders who converted their Baidu ADR into ordinary shares in Hong Kong. Also, we're also very glad to be including in the Hansa Index. It will take effect on September 5th. We believe with the inclusion to the Hansa Index, our Hong Kong shares will receive more fund flow. For the dual primary listing, as far as what we understand, the process of switching from the secondary to primary listing in Hong Kong should be straightforward. and we don't see any kind of hurdles for us to achieve that. But I think what's even more important for us is to remain focused on these fundamentals and drive long-term shareholder values. Also, Baidu will continue to comply with applicable laws in both China and the United States and try to maintain listing both in Nasdaq and Hong Kong Exchange. Thank you so much.
spk04: Thank you. That will conclude today's question and answer session. That does conclude our conference for today. We thank you for participating and you may now disconnect.
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