Baidu, Inc. Q4 FY2022 Earnings Call

Hello, everyone, and welcome to Baidu's fourth quarter and fiscal year 2022 earnings conference call. Baidu's earnings release was distributed earlier today, and you can find a copy on our website as well as on newswire services. On the call today, we have Robin Li, our Co-founder and CEO; Rong Luo, our CFO; Dou Shen, our EVP in charge of Baidu AI Cloud Group, ACG; and Zhenyu Li, our SVP in charge of Baidu Intelligent Driving. After our prepared remarks, we will hold a Q&A session. Please note that the discussion today will contain forward-looking statements made under the safe harbor provisions of the US Private Securities Litigation Reform Act of 1995. Forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from our current expectations. For detailed discussions of these risks and uncertainties, please refer to our updated annual report and other documents filed with the SEC and Hong Kong Stock 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 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 Q4 2022, Baidu core revenues were impacted by a challenging environment caused by a rapid increase in COVID-19 cases and its impact on the broader economy. However, we managed to improve our operating profit and margin year-over-year in the quarter. Beyond that, Baidu demonstrated its value as a trusted platform for users seeking accurate and authoritative information during critical moments like the peak time of the COVID-19 pandemic. As restrictions in China were relaxed and many people got infected, they were most keen to monitor the progress of the epidemic in their local areas. We quickly mobilized our resources and launched COVID-19 indices based on Baidu search queries, providing real-time updates and forecasts for better transparency. Also, we partnered with reputable hospitals and medical experts to offer guidance and advice for public health. In Q4, health-related search queries grew about 40% year-over-year, reaching a record-breaking high. Today, we are on the threshold of exciting new developments in our industry. For this call, I will focus on three major themes and then provide quarterly reviews across our business lines. Finally, I'll talk about our outlook for 2023. Regarding the major themes. First, although our fourth quarter results were impacted by COVID-19, we are optimistic about our path to reaccelerate revenue growth in the coming quarters. So far in Q1, we have already seen a recovery of our online marketing revenue from the Cloud, particularly from verticals in healthcare, travel, business services, and lifestyle. Assuming no significant new disruptions, we expect this recovery trend to continue and boost our online marketing revenue through increased demand and to take advantage of pent-up consumption in China. We also anticipate resuming cloud project implementation as business operations return to normal, signing new contracts, and accelerating AI cloud revenue growth. Second, we are riding high on the wave of AI, as our earlier investments position us well to benefit. The industry is about to experience significant growth and monetization. Over the years, we have doubled down on AI, recognizing its potential to drive market expansion and increase enterprise value. Today, AI has become a cornerstone of many of our products and services. For example, our family of large models have been instrumental in delivering improved search results since March of 2019. These models enable improved ranking and multi-modal search capabilities. In cloud, we leverage our AI expertise to offer industry-specific AI solutions and applications for traditional industries such as transportation, manufacturing, energy, and utilities. Our intelligent driving business, built on the backbone of Baidu's computer vision and other machine learning algorithms, is another testament to our commitment to this field. Recently, as users read about ChatGPT, large language models using generated AI have created a megatrend that will revolutionize many businesses. Baidu is well-positioned to capitalize on the imminent inflection point in AI, thanks to our extensive talent pool, well-developed infrastructure, a diverse array of businesses, and leading technology. We are also excited about the upcoming launch of Ernie Bot, our new conversational AI bot powered by our latest in-house large language models. We plan to fully integrate Ernie Bot across all of our operations. For our consumer-facing products, we plan to embed Ernie Bot into Baidu Search first. We believe this will reshape information generation and presentation and create a new entry point for the next-generation Internet, helping us attract more users and gain market share in a profitable manner. In the future, we will also integrate Ernie Bot into Xiaodu, allowing it to significantly upgrade all the smart devices and services. We believe AIGC will also provide notable potential for iQIYI in content generation and user acquisition. For our 2B businesses, we plan to make these technologies widely available to our customers, developers, and ecosystem partners to help boost productivity across industries. By opening the platform to the generated large language model to the public, we expect more and more business owners and entrepreneurs to build their own models and applications on our AI cloud. For intelligent driving, we plan to integrate Ernie Bot into our auto solutions, further enhancing user experience. We also believe generative pre-trained transformers will play an important role in driving the expansion of our operations. Clearly, we can benefit from the new AI inflection point, as we have timely prepared our overall business for this new megatrend. Turning to my third theme, we will continue to focus on the long-term sustainable development of our company. As you all know, 2022 was an incredibly challenging year. However, we have used the time wisely to lay a strong foundation by building a more efficient organization through cost optimization, organizational adjustments, and management reshuffles. As a result, in the second half of 2022, Baidu Core's non-GAAP operating margin and profit both improved year-over-year. We believe a more streamlined operation will help us achieve sustainable growth. Now let's review the fourth quarter operating highlights. AI cloud recorded 4% year-over-year growth in Q4. Revenue growth decelerated from the prior quarters due to the impact of COVID-19 at the end of the quarter. Nevertheless, the margins of AI cloud in Q4 improved year-over-year. Two major factors were at play. First, we continued to scale back low-margin business for both AI and cloud solution projects. And second, we continued to standardize our AI solutions and applications for specific use cases in traditional industries. For example, our quality inspection and strong inspection solutions have been adopted by many leading companies in traditional industries like chemical fiber, electric power, and renewable energy. We have seen margin improvement as we replicate our AI solutions and applications, which tackle industry-specific challenges. By working with industry leaders, we are enhancing our knowledge of industry-specific challenges and standardizing AI cloud solutions and applications for scale. As an example, thermal power, which is mainly coal-fired, makes up the majority of the power supply in China, generating around 5.9 trillion kilowatt-hours in 2022, according to the National Bureau of Statistics of China. Recently, we developed an AI solution for a leading coal-fired power plant in Shanxi province to improve the efficiency of power generation through methods such as an automated cooling system. According to our internal estimates, this solution resulted in almost a 5-gram reduction in coal consumption per kilowatt-hour, well above our customer's expectation of a 1-gram reduction. This also means a reduction of 12.5 grams of carbon dioxide emissions per kilowatt-hour. We aim to create more similar projects to gain scale. Turning to Intelligent Driving, we continued to make significant progress in the fourth quarter, further reinforcing our belief in our strategy and business model. Apollo Go remained the largest autonomous ride-hailing service provider in the world, measured by the number of rides completed. In Q4, Apollo Go provided 561,000 rides to the public on open roads, which is up 162% year-over-year. By the end of January, the cumulative number of rides exceeded 2 million. This demonstrates users' increasing acceptance of Apollo Go's autonomous ride-hailing service. As we scale up our operations, we are able to continuously improve our technologies and refine our services. These accomplishments also build our safety record and bolster both users' and regulators' trust, including the development of the fully driverless ride-hailing market. In 2022, we made some notable breakthroughs in fully driverless operations on public roads. Since last August, we have begun to offer fully driverless ride-hailing services in Wuhan and Chongqing. In late December, we were granted permission to test drive vehicles without safety operators in the car on public roads in the Yizhuang region of Beijing, a critical step before the capital city allows fully driverless ride-hailing operations. As I stated in the past, labor cost is a major cost component in ride-hailing operations. Removing safety operators from vehicles can significantly reduce this cost. In Q4, fully driverless rides provided to the public grew very rapidly, helping us expand our operations and reduce cost per mile. In 2022, we also unveiled RT6, aiming to bring the cost of robotaxis to the price range of mass market EVs for the first time in China. This initiative will allow us to reduce our costs further in the future. Baidu Apollo's auto solutions made a breakthrough engagement with a multinational automaker. It intends to cooperate with us on AVP functionality for one of their popular car models in China. Moving into the mobile ecosystem, our traffic remained strong. Both total mobile search queries and feeds distributed through Baidu App continued to experience double-digit year-over-year growth in the quarter. In December, MAUs for the Baidu App increased 4.2% year-over-year. Despite revenue declining in Q4, our mobile ecosystem continued to generate high operating profit, operating margins, and substantial cash flow, thanks to increased efficiency. Encouragingly, we have seen a recovery in our online marketing revenues after the Chinese New Year holiday. On another positive note, retail and e-commerce remained an outperforming vertical, with more than 20% year-over-year growth, accounting for over 10% of the total advertising revenue. Users not only come to Baidu to search for information and knowledge but also increasingly come to us for services and merchandise, driving up growth in merchandise search queries and transactions on Baidu. Quarterly GMV facilitated by Baidu Search grew by 84% year-over-year in Q4. Short videos contributed to year-over-year increases in feed revenue in Q4, despite macro challenges. Apart from feeds, we believe short videos also benefit search in both user experience and monetization, and the growing prevalence of short videos within Baidu's mobile ecosystem should drive long-term online marketing revenue growth. We continue to help content creators generate content through AI, enriching our mobile ecosystem, particularly producing short videos. As we move forward into 2023, our priorities are clear and focused. First, we are committed to revenue growth, as we have seen a clear pathway for a successful business recovery. Second, we are poised to take advantage of the huge potential of AI to drive business growth. We aim to integrate generative AI into most of our products and services and make our cutting-edge large language models available to both consumers and businesses. Third, we will maintain healthy growth while also strengthening our foundation. Our mobile ecosystem should continue to generate strong margins and cash flow. We aim to continue expanding margins for AI cloud and outgrowing our Internet peers. We will also continue to make strategic and prudent investments in intelligent driving to capture the long-term market opportunity. With that, let me turn the call over to Rong to go through financial results.

Thank you, Robin. Now let me walk you through the details of our fourth quarter and full year 2022 financial results. We closed the year 2022 with solid financial results. Baidu Core's total revenue was RMB 25.7 billion, decreasing 1% year-over-year. In 2022, Baidu Core generated RMB 95.4 billion or US$13.8 billion in revenue, basically flat from last year. Now online marketing business continued to grow very fast and reached 30% of Baidu Core revenue in the fourth quarter, up from 26% a year ago, demonstrating that cloud and other AI-powered businesses fueled our business model and will continue to do so in the medium or long-term. For the full year 2022, our online marketing business accounted for 27% of Baidu Core revenues, up from 22% in 2021. Within the non-online marketing business, revenue from Baidu AI Cloud increased by 4% year-over-year to RMB 5.1 billion in Q4 on an apples-to-apples comparison and was up by 23% year-over-year to RMB 17.7 billion in 2022 on an apples-to-apples comparison. Xiaodu is another revenue contributor to the non-online marketing business. Xiaodu continued to achieve solid revenue growth in both Q4 and the year 2022. Baidu Core online marketing revenue decreased by 6% year-over-year and 4% sequentially in Q4 due to weak demand from advertisers in the challenging macro environment caused by COVID. Baidu Core online marketing revenue was down by 6% year-over-year in 2022. iQIYI revenue was RMB 7.6 billion in Q4, increasing 3% year-over-year. iQIYI revenue was RMB 29 billion in 2022, decreasing 5% year-over-year. Cost of revenue was RMB 16.9 billion in Q4, decreasing 2% year-over-year primarily due to the reduction in content costs, cost of goods sold, and other costs related to new AI business, partially offset by the increase in traffic acquisition costs. Cost of revenue was RMB 63.9 billion in 2022, decreasing 1% year-over-year primarily due to the increase in traffic acquisition costs, bandwidth costs, cost of goods sold, and other costs related to new AI business, offset by the decrease in content costs. Operating expenses were RMB 11.5 billion in Q4, a decrease of 17% year-over-year, primarily due to a reduction in staff-related expenses. Operating expenses were RMB 43.8 billion in 2022, decreasing by 12% year-over-year, primarily due to a reduction in channel spending, promotional marketing, and personnel-related expenses. Non-GAAP operating income was RMB 6.5 billion in Q4 and non-GAAP operating margin was 20%. Non-GAAP operating income was RMB 23.2 billion in 2022, and non-GAAP operating margin was 19% in 2022. For Baidu Core, non-GAAP operating income was RMB 5.5 billion and operating margin was 21% in Q4. Non-GAAP operating income was RMB 20.9 billion and non-GAAP Baidu Core operating margin was 22% in the year 2022. Regarding the non-operating items, in Q4, total other income net was RMB 1.8 billion, mainly resulting from fair value gain of RMB 1.6 billion from long-term investments. Income tax expenses were RMB 1.3 billion. In 2022, total other loss net was RMB 5.8 billion, mainly resulting from a fair value loss of RMB 3.9 billion and an impairment loss of RMB 3 billion from long-term investments. Income tax expenses amounted to RMB 2.6 billion. In Q4, net income attributable to Baidu was RMB 5 billion, and diluted earnings per ADS were RMB 13.59. Net income attributable to Baidu Core was RMB 4.8 billion, and net margin for Baidu Core was 19%. Non-GAAP net income attributable to Baidu was RMB 5.4 billion. Non-GAAP diluted earnings per ADS were RMB 15.25. Non-GAAP net income attributable to Baidu Core was RMB 4.9 billion, and non-GAAP net margin for Baidu Core was 19%. In the year 2022, net income attributable to Baidu was RMB 7.6 billion, and diluted earnings per ADS were RMB 19.85. Net income attributable to Baidu Core was RMB 7.6 billion, and net margin for Baidu Core was 8%. Non-GAAP net income attributable to Baidu was RMB 20.7 billion, and non-GAAP diluted earnings per ADS amounted to RMB 58.93. Non-GAAP net income attributable to Baidu Core was RMB 19.9 billion, and non-GAAP net margin for Baidu Core was 21%. Cash and short-term investments for Baidu Core as of December 31, 2022, were RMB 177.4 billion or US$25.7 billion. Free cash flow for Baidu Core excluding iQIYI was RMB 18.1 billion, or US$2.6 billion in 2022. Baidu Core had approximately 36,300 employees as of December 31, 2022. On a separate note, we are excited about iQIYI's continuous efforts to improve operating efficiency. In the quarter, iQIYI once again generated positive non-GAAP operating profit and free cash flow. On the user side, iQIYI's average daily number of total subscribing members increased to 111.6 million in Q4, a net addition of 10.6 million from the previous quarter. iQIYI maintained its largest market share for the drama category in terms of effective video reels, according to Enlighten Data. In addition, in the past 12 months, iQIYI raised around US$1.3 billion. Post these fund raisings, Baidu continues to hold controlling voting power in iQIYI and consolidated iQIYI's financial results.

Thank you management for taking my question. Congrats on a strong quarter. I have a couple of questions regarding the online advertising business. Can you share with us the trends you are seeing in February, post-Chinese New Year holidays? From an industry perspective, what are the stronger-recovery industries? And what are the relatively weaker-recovery industries? Particularly, I'm interested in the offline verticals such as travel, local services, franchising, and health care. Can you comment on your revenue exposure to these offline verticals? And how are they recovering since the Chinese New Year holiday? Secondly, can you share with us your preliminary thoughts on the advertising recovery trend in the coming months? Particularly, I think the second quarter will be a little bit special because consumption has already normalized. You are comping against a low base on a year-over-year basis. How should we think about the advertising growth trend in the next couple of months, particularly in the second quarter? Thank you.

Hi Alex, this is Robin. Our ad business is highly correlated with Core. As you know, when we entered the first quarter, the number of COVID infections had passed its peak and is now on a downward trend. People's daily lives are gradually returning to normal and the operations of many companies are recovering as well. As the economy continues to recover, our ad revenue is gradually improving from the cost. When we look into our ad verticals, we have seen substantial improvements in our largest verticals, including health care, travel, lifestyle, and franchises. These are all offline businesses. Online businesses, especially online games, are relatively weaker. Regarding the recovery by region, the COVID infection number has passed its peak in all of China. The regions passing the peak earlier started to recover earlier. Post-Chinese New Year holiday, Tier 2 and Tier 3 cities recovered faster than Tier 1 cities because many people took longer breaks with their families before going back to Tier 1 cities for work. The magnitude of the recovery correlates heavily with the recovery of our top verticals. As we look beyond the first quarter and into the latter part of 2023, we're confident that our ad business will benefit from China's reopening and macro recovery. We look forward to demand recovery from advertisers, which should provide a significant boost to our ad revenue. I also want to highlight that advertisers prefer to spend on performance-based ads rather than pure brand promotions during the process of economic and business recovery. Search has proven to be the most effective form of performance-based advertising because users have a clear intent when using search. Search ads connect the users' intentions with the most relevant product and service offerings. That's why we expect to gain more marketing dollars from our advertisers. Over the long-term, we will continue to benefit from the sustained growth of China's macro economy improvement. E-commerce and short videos will continue to drive the long-term growth of our ad business. Overall, we believe our ad revenue should outgrow China's GDP in the long run. Beyond that, we are very excited about the opportunities around generative AI. We believe by incorporating Ernie Bot into Baidu App, and particularly Baidu Search, we will have an enhanced user experience. The new features powered by Ernie Bot should help us attract new users, drive user engagement, and also drive advertiser interest in Baidu, thus powering our long-term revenue growth. Thank you.

Hi. Yes, thank you. Good evening, Robin, Rong Luo, and the management team. Thanks for taking my questions. My questions relate to ChatGPT. There have been a lot of expectations regarding Baidu's progress in ChatGPT and the AI-generated content. Can management share with us what new opportunities you see in this field? And how is Baidu positioned in this trend? Any color that management can provide would be appreciated.

Thank you for your questions, Alicia. We are obviously excited about ChatGPT and AIGC. It represents a megatrend that could change a lot of things. We are working on Ernie Bot, a new version of conversational AI bot that uses our latest technology in large language models. We will embed Ernie Bot into Baidu Search first and will open it to the public in March. Baidu is the leader in technology innovation in China. Remember, we launched Ernie in March 2019 and have scaled it up with well over 100 billion parameters. It is trained by serving billions of user search requests and other applications every day, so in terms of MLP capabilities, Ernie is considered the state-of-the-art Chinese language model. It's not only about language but also about understanding Chinese culture. Ernie 3.0 is already a well-localized AI foundation model for the China market, meaning the generative large language model we are working on right now will be more suitable for the Chinese language and the market than models developed overseas. In addition, our deep learning framework PaddlePaddle, on which Ernie is based, has gained strong momentum. Millions of developers use Paddle for their AI work. There is a strong synergy between the framework layer and the model layer. AI pre-training is very expensive. We believe our full-stack AI capabilities will allow us to build the most efficient large language model and support all kinds of applications, from search to content generation and in vertical areas that could improve productivity significantly. For Baidu Search, I mentioned that we are working hard on a revolutionary version of Baidu Search built upon Ernie Bot that incorporates generative AI into our search algorithm as well as content creation. We are adding interactive features too. Users will soon be able to interact directly with the new generative large language model. It would complement or even upgrade the traditional search experience and attract more users. ChatGPT-type features could potentially become a new traffic entry point for Internet users and therefore expand the market size of search. Meanwhile, it will also help our advertisers, content creators, and merchants, etc. With our strong AI capabilities, we should be able to keep iterating and upgrading the model. Search is just one example. There are many other applications that we believe will also benefit from it. For AI Cloud, our AI Cloud provides full-stack offerings of four layers: from cloud infrastructure layer, to deep learning open-source framework layer, to the large foundation model layer, and ultimately to the application layer. By opening the generative large language model to the public, a.k.a., model as a service, we should help many business owners and entrepreneurs build their own models and applications on our cloud; bringing about significant positive change and improvements in a number of areas including increased efficiency, better decision-making, and improved customer experiences. To recap, Baidu's strong AI capabilities build our moat in large language models and AI foundation models. In addition to expanding the market size for search, we can help many industries build their own models, develop their applications, and significantly improve their productivity. We believe it will be a game changer for cloud computing. AI is transforming many industries in a big way, and we are super excited about what's to come. We are building an AI ecosystem around Ernie Bot. As of today, a number of organizations have already decided to integrate Ernie Bot into their products and services. Remember, this is just the beginning of the journey. Thank you.

Hi. Thank you management, and congratulations on a decent set of results. So I have a couple of questions regarding the AI cloud business. The first one is, for the revenue growth: Will the disruption in revenue collection that we saw in the fourth quarter push out the benefits to the first quarter? Have you seen the reopening kicking off in projects for the cloud so far? What are the overall cloud revenue growth figures for 2023 that management expects to see? What kind of product offerings can we expect to see from the cloud service as the major growth drivers for 2023? How do we expect the company's growth rate and the cloud market in the coming years to be? And I think a second question related to that is: Can you also comment on overall IT spending budgets by enterprises in the public sector versus the private sector? Also, do you expect to win a decent number of new cloud projects this year? Do you think that the uptick will be gradual given the overall macro remains weak? Lastly, any comment on breakeven timeline? What is the key bottleneck so far in reaching breakeven? Thank you.

Hi, Gary, thanks for your questions. This is Dou. I will answer the first two questions and then let Rong take care of the last one. We do have seen a gradual recovery of cloud revenues as our R&D team has begun to work on the ongoing projects post-reopening. However, the cycle for sales lead to revenue recognition varies from a few months to a few quarters. Now considering that, our AI cloud revenue growth should be backloaded this year, but meanwhile, we will keep out low-margin businesses for both ACE and cloud solution projects as we focus on margin improvement for the cloud. This initiative will impact our ad revenue growth going forward, but we still aim to continue outgrowing our Internet peers in 2023. If we look into the long term, the big trend for traditional industries to move business onto the cloud and use AI to improve their efficiency remains unchanged. I believe digital and intelligent transformation will be the key driver for GDP growth in the near future. We will benefit the most from this transformation because we think Baidu is uniquely positioned. Compared to others, our AI cloud provides full-stack offerings on four layers, as Robin just mentioned: from cloud infrastructure to deep learning platform, to large foundation models, and new applications. All four layers can work seamlessly together in each offered end-to-end solutions to achieve optimal outcomes for our businesses, even at lower costs versus other solutions which are built from different providers for the cloud platform and models. End-to-end solutions can upgrade in much shorter time once we have improvements on any of these layers, which will further benefit our plans. So if you are in the sectors of transportation, manufacturing, energy, utilities, or other industries, I believe Baidu's cloud service should be the most efficient one because, in addition to the technical advantage, we already know these industries and their pain points. We have accumulated solid experience by successfully delivering high-quality products already in these sectors. Most importantly, as Robin just mentioned, we plan to integrate Ernie Bot into our cloud and AI products, so this should help many business owners and entrepreneurs build their innovative applications and explore new business or improve their operations. We believe this will be a significant step for our AI cloud and could potentially reshape the whole China's cloud industry. We will help more business owners and entrepreneurs leap from the digital era to the AI era, where AI technologies will play a vital role in productivity across all industries. With that, I will turn it over to Rong for your last part.

Thanks, Dou. Yes, I'm going to address your questions regarding our AI cloud margins. We continually improve margins for the cloud by cutting low-margin businesses and continuing to build AI applications that can scale up, which is a consistent strategy for us over the years. As we have mentioned before, our AI cloud actually includes two parts. The first is the personal cloud, which continues to generate a decent operating profit margin, while the enterprise cloud is still loss-making, though the margins are improving in both the gross margin and operating margin perspective. In fact, when you look at the new projects we've signed, we projected margins continue to improve in the past quarters. Robin has talked a lot about how we can achieve margin improvement in his prepared remarks, and this will help us continue improving our margins in the future. Note that it takes time to build a sizable AI application portfolio that can be used by mid-sized companies in industries, but I'm confident that Baidu's full stack of AI capability can help us achieve that. Lastly, we are well on track to make the AI cloud a profitable and healthy business in the coming few years.

Thank you, Rong.

Thanks for your questions. This is Zhen. For the questions regarding unit economics, as you know, the major costs for robotaxi are labor and vehicle costs. Firstly, regarding labor costs, fully driverless operation means no safety officers in the car, which helps to lower labor costs. In 2022, we made big progress in providing fully driverless service on the open roads. Now we are providing fully driverless ride-hailing services in Wuhan and Chongqing. For example, in Wuhan, we kept expanding operations by covering a wide area and extending daily operating hours and by growing our fleet of vehicles. In December, we were allowed to test drive fully driverless cars on open roads in Beijing, which is an important step towards fully driverless operation in the capital city. In 2023, we plan to further expand our fleet and work towards fully driverless operations. We will continue to reduce labor costs by allowing more vehicles to operate without in-car safety operators. More cities in China are supportive of autonomous ride-hailing operations. As the market leader, Baidu is benefiting from this change. As we said before, scaling up operations helped us refine our core technology and improve our safety performance. As we scale up, we will further improve our core technology and gain trust from regulators. Apollo Go remains the largest autonomous ride-hailing service provider globally. Last year, we provided more than 1.5 million rides to the public, and on average, each vehicle in major cities like Beijing provides more than 15 rides a day, which is already close to what a taxi can do. We believe that by continuously enhancing our technology, more cities will grant permission for our fully driverless ride-hailing services in the future. Secondly, regarding reducing vehicle costs with Apollo RT6, which is designed to offer large-scale fully driverless ride-hailing services, we are bringing the cost of robotaxis to the price range of mass-market electric vehicles for the first time. We believe vehicle costs will continue to decline in the future as China's EV market develops, and the entire supply chain becomes highly localized. The cost of auto parts still has a lot of room to decrease. Combining these two factors, we expect the unique economics of Apollo Go to continue to improve.

Hi. Good evening, management. Congratulations on a strong quarter and thank you for taking my question. I want to ask about your robotaxi business. What is the current unit economics for this business? How should we think about the breakeven timeline for the robotaxi? If management can share any color on your technology road map, that would be appreciated as well.

Hi Kenneth, this is Robin. People started to spend more time outdoors post-reopening, but actually user time spent for our major apps as a whole increased by 6.6% year-over-year, I think, in January. That outperformed the overall mobile market. We have a wide variety of apps that cater to various user needs. Baidu App is one of the very few super apps in China, and Baidu Search has a unique value proposition. We help people quickly find the most relevant and authoritative information online through technology. Whenever users want to search for information and knowledge, they come to Baidu. When they return to work, this becomes more apparent. Even if they want to check for epidemic development in their regions or check entrance exam scores, this kind of need is better matched by Baidu Search and other Baidu Apps. Over the years, we have used technology to enrich content and services so we can provide our users with better experiences in search and in many other products. Today, people not only come to us to search for information but also to find products and services. These efforts have strengthened Baidu's leading position in China's mobile Internet space. Another highlight is, of course, Ernie Bot, as I mentioned before. It has the potential to become a new traffic entry point for people online. Using AI to generate short video content is a typical application for Generative AI. We believe AIGC will help us accumulate more short videos on our platform over time, and the direct benefit will be increasing video viewership and ad revenue. Thank you.

Thank you, management, for the opportunity. I have a follow-up in terms of ChatGPT and our Ernie Bot. It seems that many domestic companies are recently announcing their partnerships with us or using Baidu's Ernie Bot technology. Can management elaborate a bit more on the format of this partnership? What could be the monetization opportunity here? How big should we think about this revenue potential? In terms of competition, how should we think about other Internet companies offering a similar service and the challenges that may limit our monetization opportunities?

Sure. We're glad to see that after we announced the plan to launch Ernie Bot, many organizations reached out to us and expressed their strong interest in working with Ernie Bot. Some have already announced their plans to partner with us to integrate Ernie Bot capabilities into their products, services, or operations. More and more enterprises realize that generative large language models are going to change their industries, and they want to capture this opportunity. The fact that Ernie Bot has attracted so much interest also shows that Baidu is well recognized for our leading AI capabilities, and the age of AI has finally come. Regarding monetization opportunities, Ernie Bot will be integrated into Baidu Search to enhance the user experience. Users will be much more dependent on us for a variety of tasks and needs, expanding the market size of search significantly. We're using AIGC to expand our content, such as text, images, or videos, which will create a great opportunity for us to attract new users, increase user time spent, and user stickiness; helping us gain share in the online ad market over the long run. For cloud customers, they will be able to leverage our full-stack AI capabilities, not just the basics like storage, bandwidth, or database. They can develop their apps based on our AI framework, PaddlePaddle, and the foundation model, Ernie, making it much easier, more efficient, and more powerful. This will propel our cloud revenue too. Our unique full stack of AI capabilities is quite rare. It contains cloud infrastructure, deep learning platform like PaddlePaddle, large language models, and widely used applications. We have a strong presence in all four layers, and these layers work together efficiently. Our large language model, Ernie 3.0, has been trained with billions of daily user search requests and other popular Baidu family of apps. Baidu's Ernie Bot will be using this vast and well-tagged data pool for continuous improvement and adaptation. The barrier to entry for this is very high and requires multiple years of significant investment, which gives us a first-mover advantage. The technology behind Ernie Bot is called Reinforcement Learning with human feedback, where the human feedback part is critical. As a first mover, we gather more human feedback and improve our capabilities faster than others. Right now, we focus on preparing the launch of Ernie Bot and marking continuous improvements afterward. We are also concentrating on areas that we believe Ernie Bot will create immediate value in, so please stay tuned. Thank you.