Baidu, Inc.

Hello, and thank you for standing by for Baidu's second quarter 2025 earnings conference call. At this time, all participants are in 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. I now like to turn the meeting over to your host for today's conference, Joanne Lin. Baidu's Director of Investor Relations.

Hello, everyone, and welcome to Baidu's second quarter 2025 earnings conference call. Baidu's earnings release was distributed earlier today, and you can find a copy on our website, as well as our newswire services. On the call today, we have Robin Li, our co-founder and CEO, Chris Rongluo, our EVP in charge of Baidu Mobile Ecosystem Group, MEG, Doshin, our EVP in charge of Baidu AI Cloud Group, ACG, and Henry Haijianhe, our CFO. 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. Credit Security 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 filings with SEC and Hong Kong Stock Exchange. Baidu does not undertake any obligation to update any forwarding statements 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. In Q2, Baidu Core's total revenue was RMB 26.3 billion. Our AI cloud wins continued to gain momentum, growing 27% year-over-year to RMB 6.5 billion. Notably, Baidu Core's non-online marketing revenue exceeded RMB 10 billion for the first time. That's up 34% year-over-year. These performances helped offset the near-term headwinds in our online marketing business. This year marks Baidu's 20th anniversary as a public company. Over the past two decades, we've remained grounded in our belief in technology and innovation. technological advancement is unfolding at an unprecedented pace. We've embraced the megatrend with open minds, experimenting boldly, adapting quickly, and engaging deeply with AI frontiers. Amid rapid evolution, we've identified and doubled down on a few directions we believe hold the greatest long-term value. and are deepening our efforts with increasing clarity and confidence. Foundation model development remains a key focus area, where we are actively exploring the frontier of foundation model research and pushing the boundaries of AI capabilities. With an application-driven approach, we steer earnings iteration toward areas with real-world application value, such as the fundamental AI transformation of Baidu Search, and our industry-leading digital human technology. Take digital human as a prime example, which represents one of the best applications of our Ernie models. This quarter, powered by Ernie, our digital human technology reached new levels of realism and capabilities, matching or even exceeding human performance in certain scenarios. A standout case was a live stream featuring the digital human of Luo Yonghao, a top influencer in China. The seven-hour live stream generated tens of millions in GMV, fully powered by Ernie series models. Ernie 4.5 Turbo generated the complete script, including dialogue, tone, and action cues. closely mirroring the real person's communication style. Our multi-model capabilities delivered industry-leading visual realism with nuanced facial expressions, gestures, and body movements that responded naturally to conversation flow in real time, achieving next-level performance that sets new standards in digital human technology. Beyond this flagship case, Digital humans are empowering our broader merchant base with performance that already surpasses human life-straining hosts in many scenarios. Going forward, we will continue accelerating foundation model integration, strategically focusing our efforts on areas with application value where we can maintain our most competitive capabilities. Beyond the model capabilities, our unique four-layer end-to-end AI architecture has become a core competitive advantage and represents a key focus in our AI cloud bins, where our full-stack AI capabilities are driving healthy growth. As the infrastructure layer, we achieved a critical system engineering breakthrough this quarter, by completing the large-scale, stable deployment of pre-fill, decode, separation architecture. This breakthrough significantly improves inference concurrency and resource utilization while substantially reducing inference costs. The achievement was made possible by the end-to-end optimization enabled by our unique four-layer AI architecture, spanning infrastructure framework, models, and applications, which allows us to coordinate improvements across all layers. At the same time, each layer remains open, giving customers flexible choices between Baidu's proprietary and third-party options. As a result, we are continuously improving the cost effectiveness of our AI Cloud products and solutions reinforcing our position as China's top-tier cloud provider in the AI era. Meanwhile, our industry-leading math platform, QianFan, continues to evolve to better support enterprise clients in building models and facilitating AI application development. QianFan features a comprehensive model library covering nearly all mainstream foundation models on the market. This quarter, we further expanded the library with a range of new models, including our newly open-sourced early 4.5 series, additional third-party multi-model models, and other leading options, enabling greater flexibility across enterprise use cases. Leveraging our breakthrough in cloud infrastructure, Qianfan delivers enhanced stability, higher concurrency, and lower inference costs when running models. meeting our superior price performance. On the toolchain front, Qianfan's toolchains are among the most comprehensive, with industry-leading reinforcement learning and post-training tools for model development. In Q2, Qianfan was further enhanced to support a wider range of AI tools and functions that can be called via MCP or APIs. including Baidu's proprietary capabilities such as Baidu AI Search, Baidu Wiki, Baidu Maps, as well as selected third-party capabilities like payment services. This enhancement helps simplify AI application development and continue to solidify Xi'an Fund's leadership as one of China's top mass platforms. Apollo's driving remains one of the most promising areas we've long invested in, which represents a critical frontier in physical world AI. Following the successful validation of Urban's model at the end of last year, ApolloGo is now scaling rapidly. In Q2, ApolloGo provided over 2.2 million fully driverless rides to the public. that's up 148% year-over-year, marking our strongest quarterly growth in two years. Also, ApolloGo's global expansion has gained solid momentum, highlighted by two strategic partnerships with leading global ride-hailing platforms. In July, we announced a multi-year strategic partnership with Uber, Under this partnership, thousands of ApolloGo's fully autonomous vehicles will be deployed on the Uber platform across multiple international markets, with initial rollouts planned for Asia and the Middle East. This milestone was followed by our partnership with Lyft in August, which will also bring thousands of our fully autonomous vehicles to key European markets through the Lyft platform. starting with Germany and the United Kingdom and sailing across Europe over time. Our expansion into international markets is built on a strong foundation. In China, we have already achieved positive unit economics in markets where wide fares are much lower than those in major overseas markets. That's why these global partnerships are both logical and strategic. positioning us to capture greater value in higher fair markets while scaling efficiently. Our partners' global market presence, leveraging our partners' local market presence, we can accelerate market entry across different continents and achieve faster deployment while maintaining a cost-efficient asset-light business model. In markets we've already entered, We continue to make encouraging progress in Hong Kong, one of the world's most complex right-hand drive cities. We recently expanded our testing coverage to include Tung Chung and Southern District, advancing our open-road testing into more complex urban scenarios across both commercial and residential areas. Also, we further strengthened our presence in the Middle East In Dubai and Abu Dhabi, we started open road testing in designated areas in August. Notably, ApolloGo leads the world in right-hand drive robot taxi markets. This is a space where hardly any companies of our kind have entered, and we've made by far the most progress. The rapid progress we're making in Hong Kong really shows our global leadership. It's proof of how adaptable our technology is and how mature our operations have become across all kinds of environments. Our experience there provides us valuable insights for entering other right-hand drive markets, strengthening our confidence in scaling Apollo Go globally. With solid progress quarter by quarter, we are more confident than ever in ApolloGo's international potential. As China's largest autonomous ride-hailing service provider and a global leader in this space, ApolloGo combines industry-leading technology, extensive operational experience, and extraordinary safety records to bring safe, comfortable, and affordable autonomous ride-hailing services to more markets worldwide than anyone else. In our mobile ecosystem, transforming our products with AI remains a strategic priority, especially our legacy consumer-facing product, Baidu Search. Baidu is at the forefront of applying AI to transform Search globally. Rather than simply inserting AI summaries into search results, we are fundamentally revolutionizing the search experience by completely replacing static textual hyperlinks with intelligent, structured, and multimodal first AI-generated responses. These responses start with relevant multimodal content right at the top. making complex information more accessible to a broader user base and therefore creating a more intuitive experience. In Q2, our AI transformation continued to accelerate, with AI-generated content reaching over 50% of mobile search result pages by the end of June, up from 35% in April. By July, 64% of mobile search result pages contained AI-generated content presented in a structured and multi-model first format, marking the broader rollout of our innovative AI search experience. This AI transformation reached over 90% of Baidu app's monthly active users in July. with over 60% of such search result pages starting with rich media elements such as images or videos. As we advance our AI transformation, the expanding content ecosystem across Baidu provides meaningful support. Leveraging ongoing progress in general AI and multi-model capabilities, Baidu's AI-generated content has grown significantly in both scale and quality, providing more high-quality content for search results. AI-generated multimodal content, in particular, has seen rapid expansion. For example, daily AIGC video generation reached millions of units starting from May, and daily AIGC video distribution within Baidu app has grown rapidly. We're delighted to see sustained improvements in user metrics. In June, Baidu Apps MAU reached 735 million, representing a 5% year-over-year growth. The daily average time spent per user in Q2 increased by 4% year-over-year. Building on Search's ability to satisfy user intent, we are expanding its boundaries from providing smart answers to completing tasks and connecting real-world services. For instance, our agents engage users in multi-round conversations, connect them with relevant service providers when needed, and facilitate end-to-end task completion across multiple verticals. We believe this represents a meaningful expansion of what search can achieve, enabling users to seamlessly move from information to action. Now, let me review the key highlights of each bin sector this quarter. AI cloud revenue reached RMB 6.5 billion in Q2, up 27% year-over-year, with non-GAAP operating profit achieving year-over-year growth. The growth was primarily driven by the growing demand for our highly cost-effective end-to-end AI products and solutions. Within the enterprise cloud, which contributes the vast majority of AI cloud revenue, subscription-based revenue grow at a solid pace, signaling a healthier and more sustainable revenue structure. On the infrastructure layer, we continuously enhanced our resource management capabilities, achieving higher and higher infrastructure utilization. Through ongoing end-to-end optimization across our four layer AI architecture, combined with increasingly refined and efficient GPU resource management capabilities, our large scale key clusters have achieved over 90% utilization rates recently for key tasks. Our enhanced capabilities allow us to deliver better performance at lower costs and provide more competitive pricing for enterprise customers, establishing a virtuous circle where our growing customer base and diversified workloads further improve resource utilization, reinforcing our sustainable revenue model. In Q2, our customer portfolio continued to improve. Existing clients deepened the collaboration and increased spending, while mid-tier enterprise clients demonstrated strong growth momentum. Additionally, this quarter marked several strategic partnerships with prominent companies across key verticals, including a leading lifestyle platform and a top-tier gaming company in China. In the embodied AI industry, we have partnered with 20 companies cumulatively, including Shenzhen Institute of Artificial Intelligence and Robotics for Society. In autonomous driving, we established a partnership with Black Sesame Technologies on AI cloud infrastructure. These partnerships reflect the strong recognition of Baidu AI Cloud and affirm our competitive positioning in China's AI Cloud market. Building on our full-stack AI capabilities, we are not only serving enterprise clients, but also driving internal productivity and mass market AI adoption at the application layer. Internally, we've widely adopted CodeMate, our AI coding assistant for developers. CodeMate's capabilities continue to improve, enabling more agentic and efficient development workflow. In July, AI contributed to generating over 45% of our new code, with our developers providing oversight and approval. This has significantly boosted our engineering productivity and meaningfully enhanced our internal R&D efficiency. Externally, MiaoDA extends its AI development capabilities to the broader community. Following MiaoDA's official launch last quarter, we're now delivering true no-code capabilities that enable users to create applications from mini games to utility tools and websites through simple natural language conversations with AI, no programming expertise required. As of July, users have created around 200,000 applications on MiaoDAO, all built completely without writing a single line of code. We are continuously enhancing low-code capabilities as we work toward our mission to democratize AI and empower everyone to innovate. Moving to intelligent driving, in Q2, ApolloGo provided over 2.2 million fully driverless rides to the public, up 148% year over year. As of August, cumulative rides provided to the public have surpassed 14 million, underscoring the scale and the maturity of our fully driverless operations. As of June, ApolloGo's global footprint spans 16 cities. To date, our fleets have accumulated over 200 million autonomous kilometers with an outstanding safety record, which is a testament to the ability and safety of our autonomous driving technology. Beyond global partnerships like Uber and Lyft, we are accelerating the rollout of asset-light bins models domestically. This quarter, we established new partnerships with HelloRide and T3 Mobility, expanding our collaborative network with leading mobility service providers. Additionally, building on the partnership announced last quarter, ApolloGo's fully autonomous vehicle rental service officially went live on the Car, Inc. app, offering users a new access point to our ApolloGo fleet. These partnerships enable us to rapidly scale our services while leveraging partners' operational expertise and existing customer bases, creating an efficient path to broader market penetration. Going forward, we are confident to further accelerate our global expansion and capture significant value across multiple markets worldwide. For mobile ecosystem, we continue accelerating AI transformation of search in Q2. In today's highly competitive mobile internet market, where new products and technologies are emerging and evolving faster than ever, user needs and behaviors are constantly shifting. making it essential for us to keep upgrading at a rapid pace. While our AI transformation is progressing rapidly, it is still in the early stages, with considerable room for optimization before reaching its full potential. And we are not yet at the stage for large-scale monetization. Against this backdrop, we began prudent Small-scale monetization testing in Q2 with user experience remaining our top priority. Early results have been satisfying. For example, some queries that were previously difficult to monetize are now showing potential. Agents maintained strong performance in driving better conversion efficiency. further validating our effectiveness. In Q2, revenue generated by our agents for advertisers rose 50% quarter over quarter, contributing 13% of Baidu Core's online marketing revenue. That's up from 9% in Q1. In parallel, DigitalHuman gained traction innovative monetization avenue for our advertising business, particularly through AI-powered live streaming. We've seen steady growth in digital human adoption over recent quarters. Beyond serving live streaming hosts for merchants, they were being adopted at growing scale in healthcare, legal services, education, and automotive sectors. More advertisers recognize their value in boosting conversion performance through real-time user interaction and round-the-clock availability, leading to increased ad budget allocation toward digital humans. In Q2, revenue generated by digital humans increased by 55% quarter-over-quarter, contributing 3% of Baidu Core's online marketing revenue. To sum up, as we look ahead, Baidu will stay anchored in our long-term vision and move forward with greater focus and resolve as we continue to translate AI innovations into real-world value. Before we move to Q&A, I'd like to take a moment to welcome Henry, Mr. Hai-Jian He, who recently joined us as Chief Financial Officer. With that, let me turn the call over to Henry to go through the financial results.