Operational Highlights

AI and Cloud Services

CEO Robin Li noted the stability of Baidu Core’s online marketing revenue and growth in AI Cloud revenue driven by the optimization of their AI technology stack. The ERNIE family of models has been expanded with several lightweight versions, enhancing affordability and efficiency for various applications.

Intelligent Driving

Baidu’s Apollo Go, the autonomous ride-hailing service, provided approximately 826,000 rides in Q1 2024, a 25% increase year-over-year. As of April 2024, Apollo Go has provided over 6 million cumulative rides.

Mobile Ecosystem

In March 2024, Baidu App’s monthly active users (MAUs) reached 676 million, a 3% increase year-over-year. Managed Page accounted for 50% of Baidu Core’s online marketing revenue, demonstrating significant user engagement.

AI Developer Community

The PaddlePaddle developer community grew to 13 million by mid-April 2024. Baidu launched and improved tools on its MaaS (Model as a Service) platform, facilitating the development of AI-native applications and customized models for enterprise customers.

Financial Highlights

• Revenue: Total revenues for Q1 2024 were RMB31.5 billion (US$4.37 billion), a 1% increase year-over-year.
  • Revenue from Baidu Core was RMB23.8 billion (US$3.30 billion), a 4% increase year-over-year, driven by a 3% rise in online marketing revenue
  • 6% increase in non-online marketing revenue, primarily from the AI Cloud business.
• Operating Income: Operating income was RMB5.5 billion (US$760 million), a 10% increase year-over-year.
  • Baidu Core operating income was RMB4.5 billion (US$629 million), with a 19% operating margin.
  • Non-GAAP operating income was RMB6.7 billion (US$924 million), with Baidu Core contributing RMB5.6 billion (US$774 million).
• Net Income: Net income attributable to Baidu was RMB5.4 billion (US$755 million), a 6% decrease year-over-year.
  • Non-GAAP net income attributable to Baidu was RMB7.0 billion (US$971 million), reflecting a 22% increase year-over-year.
  • Non-GAAP diluted earnings per ADS were RMB19.91 (US$2.76), up 24% year-over-year.
• EBITDA: Adjusted EBITDA was RMB8.2 billion (US$1.14 billion), maintaining a 26% margin. Adjusted EBITDA for Baidu Core was RMB7.1 billion (US$986 million), with a 30% margin.

Since the beginning of Q1 2024, Baidu has returned US$229 million to shareholders, bringing the total repurchase to US$898 million under the 2023 share repurchase program.

The report revealed a staggering 500% year-over-year increase in the number of merchants, surpassing 100 million yuan in transaction volume, with those breaking the 10 million yuan threshold growing by 380%.

This surge underscores the platform’s rapid transformation into a bustling e-commerce hub.

In December 2023, Xiaohongshu’s COO, Conan, made a public statement that sharply contrasted his stance from five years ago when he firmly believed that Xiaohongshu should not venture into e-commerce.

“Back then, I viewed things from a community perspective. But now, I’m spearheading our e-commerce operations,” he said. This shift follows the platform’s strategic move to integrate its e-commerce and live-streaming businesses into a new transactional division, standing alongside the community and commercial departments.

Xiaohongshu has come a long way since its inception. Within six months of its launch, it introduced an overseas shopping-sharing community.

A year later, it launched an e-commerce platform called “Welfare Society.” By 2016, the platform expanded to include third-party platforms and brand merchants, experiencing rapid growth across various product categories.

However, the platform faced challenges in meeting its Gross Merchandise Volume (GMV) targets in 2018 and 2019.

Interestingly, during this period, its content community business thrived, with user numbers increasing by 100 million from January to July 2019. Consequently, Xiaohongshu shifted its focus to strengthening its community aspect, becoming a favored content community among younger demographics.

For Xiaohongshu, with a daily active user count surpassing 100 million in 2022 and advertising revenues accounting for 80% of total income, diving into e-commerce became an inevitable choice.

The platform’s primary user base has always been female, with women accounting for over 80% of its users as of 2021, and a significant 60% hailing from first and second-tier cities.

This demographic, known for its strong purchasing power and high consumer intent, gave birth to Xiaohongshu’s unique “planting grass” culture.

“Planting grass” refers to the practice of posting various forms of notes on the platform, recommending, sharing, and showcasing personal or brand experiences to influence user purchases. From a marketing standpoint, these recommendations and shares are akin to brand advertising, creating brand impressions in the consumer’s mind.

However, creating a brand impression and driving product purchases are two different challenges.

This disparity led to the “brand up, conversion down” phenomenon, where building brand impressions often requires positive language around beauty, advantages, and greatness, while actual product purchases are driven by discounts, price reductions, and limited-time offers.

In this marketing process, brand building and sales conversion are distinct, typically handled by offline malls, supermarkets, convenience stores, and online platforms like Pinduoduo, JD.com, and Taobao.

Xiaohongshu seemed to have solved this challenge by combining search functionality with buyer-driven sales.

Unlike traditional passive content consumption, searching indicates interest in a product, restaurant, or location. As such, search engine marketing has always been highly effective.

With 70% of its active monthly users engaging in search activities, Xiaohongshu focused on closing the loop from search to e-commerce.

The platform’s shift towards e-commerce is also evident in its move towards buyer-driven live-stream commerce.

For instance, in January 2023, Dong Jie’s live-stream debut on Xiaohongshu generated an estimated GMV of over 50 million yuan. Following her, “Chu Dai Fu” achieved fame with her first live-stream lasting nearly six hours and generating sales over 50 million yuan.

These events marked the entry of celebrities and buyers like “Yi Ke KK” and “Dang Ran Shi Dang” into the live-stream sales arena.

Data from August to November 2023 illustrates the platform’s e-commerce momentum, with two billion-level buyers, 21 million-level buyers, and 20 hundred-million-level buyers emerging within just three months.

During the 2023 Singles’ Day shopping festival, Xiaohongshu saw its e-commerce user count triple and order numbers nearly quadruple compared to the previous year.

The number of merchants participating in the event and the GMV from live streaming increased by over four times, highlighting the enormous potential of buyer-driven e-commerce on the platform.

In conclusion, Xiaohongshu’s strategic pivot towards commercialization, as evidenced by organizational restructuring, live-streaming trials, data collaboration, and open search fields, marks a new era for the platform.

By focusing on search conversion and live-streaming sales, Xiaohongshu caters to its core demographic’s shopping needs and cultivates shopping habits among a broader user base. This evolution from a community-focused platform to a dynamic e-commerce powerhouse underscores Xiaohongshu’s adaptability and growth in the digital era.

Review: Xiaohongshu’s live streaming on Business Accounts

In 2022, the total views of the original content on WeChat Channel (video account) increased by 350% year on year, and the scale of live broadcast increased by 300%, according to WeChat’s data released on 10 January 2023.

The commercial potential of live video broadcasting continues to be released, and the corresponding e-commerce sales increased by more than eight times year on year.

In 2022, the number of daily active creators and the average number of videos uploaded by the video account increased by more than 100% year on year, the number of creators with at least 10,000 fans increased by 308%.

The number of video account earners increased by 101%, and the total income of live video anchors increased by 447%.

Live video GMV increased by more than 8 times year on year in 2022, and the average selling price exceeded 200 yuan. Among them, the top three categories of consumption are covered by clothing, food, and beauty.

The monthly active users of WeChat Search have increased to 800 million, and the total search volume increased by 54%. Mini Programs are widely used in scenic spots, hotels, airports, and other fields, and the number of WeChat Mini Programs has increased by 183%.

WeChat Search contributed to 27% of Official Account follower growth and 20% of Mini Program’s new daily active users. Its contribution to WeChat Channel follower growth has increased by 120%.

WeChat MAU

Over 330 million of WeChat’s (known as Weixin in China) 1.2883 billion monthly active users use video calling. 780 million users are on the social networking section WeChat Moments and 120 million publish updates. The content network WeChat Official Account has 360 million users.

WeChat has evolved from an instant messaging app to a service meeting the digital needs of over 1.27 billion MAU in Q4 2021. Each day, more than 120 million active users post in social networking Moments, 360 million users read Official Accounts articles, and 500 million users access Mini Programs (Q1 2022) daily.

For Q4 2021, WeChat daily active advertisers expanded by over 30% year-on-year. Over one-third of Moments’ advertising revenue was generated from advertisements using Mini Programs as landing pages and advertisements connecting users to customer service representatives via WeCom.

WeChat Video Accounts’ time spent per user and total video views more than doubled year-on-year as Tencent enriched content diversity and enhanced the product experience.

WeChat Mini Programs

The daily active users on WeChat Mini Programs reached 450 million according to WeChat official data in January 2022. The transaction volume of catering, tourism, and retail increased by 100% year-on-year. Mini Program DAU reached 500 million (Q1 2022).

The number of Mini Program developers has exceeded 3 million.

In 2020, the daily active users of WeChat Mini Programs exceeded 400 million, according to its official data shared at its annual event WeChat Public Lecture.

The number of mini programs used per user increased by 25%, the average transaction value per user grew by 67%, the number of programs with transactions increased by 68%, and the annual transaction volume of more than doubled in 2020.

In 2020, more than 100 million people purchased in shopping malls and department stores on WeChat Mini Programs. With the help of mini program pre-sale + offline self pick-up mode, more than 300 million users purchased fresh fruits and vegetables.

WeChat Mini Programs overview

WeChat Games

In 2020, the commercial realization of WeChat mini games increased by 20%.

Last year, the proportion of male and female users in the distribution of mini games accounted for 50% respectively. 40% of the users in the first and second-tier cities, and 65% of the users aged 30 and above.

Compared with 2019, the per capita game duration of mini games increased by 50%, and the average number of games played increased by 20% in 2020.

China game live streaming revenues to double by 2021

WeChat Search

The number of monthly active users of WeChat search has reached 700 million according to WeChat official data released in January 2022.

WeChat search staff said that in the mobile Internet era, search should not be limited by the search box, but need to be accessible by the touch. Users can search while chatting.

WeChat search will screen out the high-quality content of WeChat and produce a more accurate connection with users.

In the future, it can expand the search scope to the whole internet-based the needs of users. The search results are currently mostly provided by WeChat Official Account and Sogou.

Top search trends in China

WeChat Pay

In January 2022, WeChat shared the latest progress on WeChat Pay:

• 23 thousand monthly service providers
• Over 10 million merchants
• More than 1800 banks and Payment institutions
• 23 thousand monthly merchants
• In the next three years, WeChat Pay will continue to carry out digital upgrading of WeStore, with a planned investment of more than 10 billion yuan

In 2020, Zhifufen, a credit score on WeChat Pay, saw more than 240 million users. It boosted the conversion rate of e-commerce orders by 14% and the repurchase rate of retail merchants by 73%.

In 2021, WeChat mini stores and Zhuanzhuan (a secondhand-goods marketplace) will integrate Zhifufen.

In the e-commerce industry, WeChat Pay’s Zhifufen enables post-payment after receiving the delivery and faster refund. Users can quickly receive a refund after submitting return logistics information.

As of January 2022, more than 50% of users have activated Zhifufen, whose solutions cover more than 3000 industries. WeChat Pay unit cooperates with the e-commerce industry on “buy first and pay later”, which has been used by more than 100 million users.

Zhifufen also announced the launch of audio and video members’ services such as “watch first and pay later”, which helped solve the problems that bothered audio/music and video users to deduct fees in advance and forget to terminate their contracts.

China’s online payment users penetration reaching 86%

Enterprise version of WeChat: WeCom

In 2020, there were 80,000 enterprise WeChat partners, with a year-on-year growth of 400%. 

Acquire, convert, and retain customers through WeChat Ads + WeChat Work (WeCom)

According to WeChat, search ads will support six promotion goals, including WeChat Official Account promotion, sales lead collection, products promotion, branding events promotion, app promotion, and WeChat Mini Games promotion.

It supports three landing page types, namely, native promotion page, WeChat Mini Program, and custom link. And, based on the search ability of WeChat, WeChat search advertising can support the sale of brand keywords, keywords words, generic keywords, and generic keywords.

At present, Tencent’s mobile search advertising scenarios mainly include WeChat Search and QQ Browser search. In these scenarios, advertisers can do brand and performance marketing.

Since the launch of search feature on WeChat in 2017, it has been at the top of the main interface.

However, after five years of iteration, it has now become a “global search” that includes WeChat Moments, Official Account, and Mini Programs from the early days when it could only search local chat records and contacts.

At the same time, the search scope has also expanded to all content and services related to search queries in WeChat.

WeChat Mini Programs Insights

The top 10 keywords of sad events:

• National mourning
• Anti-epidemic hero
• Kobe died
• Zhao Zhongxiang passed away
  • Zhao Zhongxiang was a well-known Chinese news anchor
• Shen Jilan passed away
  • Shen Jilan was a Chinese politician and former farmer. In 2008, she was chosen as an Olympic torch carrier as part of the buildup to the 2008 Summer Olympics. It was reported by local media that she donated 10,000 Chinese yuan to the 2008 Sichuan earthquake relief. In 2013 her calls for widespread internet regulation were met with controversy by younger people in China. In 2019 she was awarded the highest order of honor in China, the Medal of the Republic
• Xichang firefighters sacrifice
  • A forest fire in Jingjiu Township, Xichang City, Liangshan Prefecture, Sichuan Province, killed 19 local firefighters, 3 local firefighters were seriously injured and some houses burned down.
• The founding major general Chen Shaokun passed away
  • Chen Shaokuan was a Chinese Fleet Admiral who served as the senior commander of Chinese naval forces of the National Revolutionary Army during the Second Sino-Japanese War and World War II
• Maradona passed away
• The little girl studying under the chopping board
  • Read the story here
• Lebanon explosion

The top 10 lifestyle-related keywords:

• Mask
• Live streaming e-commerce
• Work from home
• Online class
• Say no to wild animals (source of food)
• Fitness at home
• Cloud social
  • It is a virtual social application mode of Internet of Things, cloud computing and mobile Internet interactive applications
• Takeaway economy
• Haircut at home
• Domestic travel

Top 10 events keywords

• Covid-19
• Wuhan lockdown
• Fully moderately prosperous society
• International students return home
• Mars exploration
• Resumption of work and production
• U.S. election
• China promulgated the Civil Code
• Central bank cuts RRR
• U.S. stocks hit critical circuit breaker levels

Baidu holds the most AI-related patents in China

The purchaser is Science City (Guangzhou) Investment Group Co., Ltd., with a project valued of nearly 460 million yuan, which has become the largest bidding project order in the field of intelligent transportation in China this year.

The order includes the construction of vehicle road network infrastructure, intelligent intersection, Internet of vehicles, and other related application systems, which is expected to accelerate the construction of Guangzhou Development Zone and Guangdong Hong Kong Macao Bay Area Intelligent Network.

Baidu Performance in Q2 2020

Baidu App daily active users (“DAUs”) reached 204 million in June 2020, adding 16 million users in the last 12 months but 18 million less from March 2020, according to its financial results.

Over 800 sessions of topical live streaming were broadcasted in the second quarter of 2020 on Baidu’s platform, with sessions like Baidu Wiki Virtual Zoo, Summer Art Festival, and Wandering through Civilization Season 2, attracting over 40 million views.

Baijiahao (“BJH”) publisher accounts reached 3.4 million, up 52% year over year, in June 2020. The large scale of Baidu’s platform is drawing more original content creators to join BJH, which allows easy sharing of content across Baidu App, short-video app Haokan, Quanmin, and Baidu’s knowledge products.

Baidu Smart Mini Program’s monthly active users on Baidu App reaching 339 million, up 25% year over year or down over 4% from March 2020.

Revenue from Baidu Managed Page increased to approximately 30% of Baidu Core’s online marketing services revenue in the second quarter of 2020. Merchants with HTML5 websites across many industries are switching to Managed Page, as the landing page for their search results.

Baidu’s new AI businesses, including cloud, smart devices, and smart transportation, saw double-digit growth in the second quarter and stand to become an important revenue driver in the years to come.

Baidu is also diversifying its revenue streams through membership, online games, and others to increase the ARPU of the existing traffic according to Herman Yu, CFO of Baidu. The growth of Baidu App and new AI businesses have enabled Baidu Core’s adjusted EBITDA margin to reach 41% in the second quarter.

Baidu returned US$540 million to shareholders under the 2020 Share Repurchase Program in the second quarter, bringing the Company’s cumulative repurchase for the last two years to approximately US$1.9 billion.

Baidu’s board of directors recently approved a change to the 2020 Share Repurchase Program, increasing the repurchase authorization from US$1 billion to US$3 billion, which is effective through December 31, 2022.

DuerOS

In June 2020, Baidu’s DuerOS monthly voice queries on Xiaodu devices (its smart speakers) reached 2.8 billion, nearly doubling from last year, and DuerOS total monthly voice queries reached 5.8 billion, up 57% from last year.

DuerOS skills store now offers 4,000 skills in wide-ranging genres, including education, video, online game, and live streaming. DuerOS developer community has grown to over 42,000 members.

JD.com announced that Xiaodu series of smart displays and smart speakers were the best-selling in the smart speaker category on its platform during this year’s June 18 Shopping Festival.

Cloud, AI Services & AI Platform.

Baidu formed a strategic partnership with China National Building Materials Group (CNBM Group), the parent of 13 listed companies.

CNBM Group plans to use Baidu AI PaaS, equipped with big data and IoT edge computing capabilities, to provide intelligent logistics, intelligent factory and industrial autonomous driving.

For example, CNBM Group plans to use Baidu AI PaaS paired with Baidu intelligent map to improve the routing efficiency of its logistics vehicles and track the vehicles whereabouts to optimize operational costs and increase traffic safety.

Baidu’s AI open platform, built on top of Baidu Cloud, offers over 260 AI capabilities, which are tapped by over 2.1 million developers.

Apollo

The Apollo robotaxi operations in Beijing, Changsha and Cangzhou have expanded into larger networks and more complex road conditions, such as downtown streets.

In May 2020, Baidu completed the 145,000 square feet Apollo Park in Beijing, an autonomous driving and V2X testing facility that supports testing, operational command center, cloud control system, vehicle warehousing, maintenance, and calibration.

iQIYI

One of the top online video platforms iQIYI’s subscribers reached 104.9 million, up 4% year over year, in June 2020, and membership revenue was up 19% year over year.

Financial Results

Total revenues reached RMB 26.0 billion ($3.69 billion), decreasing 1% year over year.

• Online marketing revenues were RMB 17.7 billion ($2.50 billion), decreasing 8% year over year.
• Other revenues were RMB 8.3 billion ($1.18 billion), increasing 18% year over year, driven by the strong growth of iQIYI membership and Baidu’s cloud and smart transportation solutions.
  • Revenue from iQIYI reached RMB 7.4 billion ($1.05 billion), up 4% year over year.

Its share price fell more than 6% in the extended session Thursday.

Revenue from Baidu Core reached RMB 18.9 billion ($2.68 billion), decreasing 3% year over year.  iQIYI membership revenue grew 19% year over year, partially offset by online advertising revenue declining 28% year over year.

Cost of revenues was RMB 13.1 billion ($1.86 billion), decreasing 19% year over year, primarily due to a decrease in traffic acquisition costs, sales tax and surcharges, and costs of goods sold. The decrease in traffic acquisition costs reflected decreasing union revenues, as Baidu focused on optimizing profitability over revenue growth.

Selling, general and administrative expenses were RMB 4.4 billion ($625 million), decreasing 16% year over year, primarily due to decreased marketing spending and personnel-related expenses.

Research and development expenses were RMB 4.8 billion ($685 million), increasing 2% year over year.

Operating income was RMB 3.6 billion ($516 million) and operating margin was 14%. Baidu Core operating income was RMB 5.0 billion ($703 million) and Baidu Core operating margin was 26%.

Non-GAAP operating income was RMB 5.6 billion ($793 million), and non-GAAP operating margin was 22%. Non-GAAP Baidu Core operating income was RMB 6.5 billion ($917 million), and non-GAAP Baidu Core operating margin was 34%.

Total other income was RMB 366 million ($53 million), decreasing 70% year over year, primarily due to loss from equity method investments, which is booked a quarter in arrears and reflects the impact of COVID-19 on its investees.

Income tax expense was RMB 1.2 billion ($174 million), which included tax withholding accrual for dividend distribution to offshore entities, compared to RMB 416 million in Q2 2019.

Net income attributable to Baidu was RMB 3.6 billion ($507 million), and diluted earnings per ADS was RMB 10.31 ($1.46). Net income attributable to Baidu Core was RMB 4.4 billion ($626 million).

Non-GAAP net income attributable to Baidu was RMB 5.1 billion ($719 million), and non-GAAP net margin was 20%. Non-GAAP diluted earnings per ADS amounted to RMB 14.73 ($ 2.08). Non-GAAP net income attributable to Baidu Core was RMB 5.7 billion ($801 million), and non-GAAP net margin for Baidu Core was 30%.

Adjusted EBITDA was RMB 7.0 billion ($993 million) and adjusted EBITDA margin was 27%. Adjusted EBITDA for Baidu Core was RMB 7.8 billion ($1.1 billion) and the adjusted EBITDA margin for Baidu Core was 41%.

As of June 30, 2020, cash, cash equivalents, restricted cash, and short-term investments were RMB 154.1 billion ($21.80 billion), and cash, cash equivalents, restricted cash and short-term investments excluding iQIYI were RMB 144.6 billion ($20.46 billion).

Free cash flow was RMB 7.3 billion ($1.04 billion). Free cash flow excluding iQIYI was RMB 8.8 billion ($1.24 billion).

Baidu may spin off its online storage business

Baidu recently plans to split multiple internal businesses, which may be listed independently, according to Business Data.

Baidu declined to comment on the news.

If spun off, Baidu online storage business can benchmark the US cloud storage company Dropbox for its valuation. The market value of Dropbox has exceeded $9.016 billion at the intraday price on July 28.

After 360 Cloud disk, Kingsoft Online Disk, Xunlei Express Disk, Netease Cloud Disk, and other similar products stopped services, Baidu Online Disk, launched in February 2012, continues its service with a large storage capacity of 100G and clean interface.

According to 36Kr, in November 2019, the number of MAU (monthly active users) in China’s personal online storage industry was 107 million, with a penetration rate of 22.1% for mobile Internet users nationwide. Baidu Online Disk market share is 82.9%, followed by Tencent Weiyun, about 8% market share.

Questmobile’s data show Baidu Online Disk has a market share of over 85% with 600 registered users and over 100 million MAU. It currently generates revenues from users, advertising, information, mini programs, and etc.

Baidu starts offering Microsoft’s MSN ad inventory on a new ad platform

Baidu announced on 8 July 2020 that it is providing advertisers direct access to Microsoft’s MSN native desktop inventory via Baidu’s MediaGo advertising platform. The agreement enables advertisers around the world to reach consumers in the United States through premium placements on multiple MSN properties.

Rather than requiring advertisers to purchase bulk inventory, as is standard practice for many digital ad companies, this collaboration allows advertisers to secure the placements that fit their goals and budget on MSN’s desktop site.

As part of Baidu’s ongoing effort to bridge the gap between Eastern and Western markets, Baidu works with Microsoft to offer their premium MSN placements to its advertising partners in China, the U.S. and beyond. It will continue to explore meaningful ways to provide mutual growth opportunities to global advertisers and U.S. media.

The cooperation allows advertisers worldwide to access high-visibility, native placements on the MSN homepage, as well as other sister pages throughout the MSN site, via Baidu’s MediaGo ad platform.

With MediaGo, advertisers can upload assets, select placements on top-tier MSN properties and measure campaign success on a single centralized platform. MediaGo also offers 24/7 local language account management services.

“Baidu’s MediaGo platform streamlines the process for global advertisers to purchase high-visibility ad placements on MSN, helping them reach new customers,” said David Carkeek, Principal PM Lead at Microsoft.

Baidu International launched MediaGo overseas advertising platform last year when it had established cooperation with Snapchat, Reddit, Pinterest, etc., which will provide a very good channel for China’s domestic small and medium-sized enterprise owners to promote overseas.

Mobile reach in Q1 2020: Tencent, Alibaba, Baidu, ByteDance

Sogou’s search-related revenues were $237.6 million, a 1% increase year-over-year. The auction-based pay-per-click services continued to increase year-over-year, accounting for 91.0% of search and search-related revenues, compared to 87.2% in the corresponding period in 2019.

Other revenues were $19.7 million, a 6% increase year-over-year. The increase was primarily due to increased revenues from sales of smart hardware products.

Net loss attributable to Sogou Inc. was $31.6 million, compared to a net loss of $3.9 million in Q1 2019. Non-GAAP net loss attributable to Sogou Inc. was $31.1 million, compared to a net loss of $2.7 million in the corresponding period in 2019.

Sogou Mobile Keyboard had 482 million DAUs (daily average users), up 9% year-over-year. As China’s largest voice recognition app, it processed up to 1.4 billion daily voice requests.

Sogou released its Sogou Mobile Keyboard 10.8 in April 2020, the latest version of the Sogou Mobile Keyboard. Powered by its AI technologies, the latest upgrade features new multilingual voice-based transcription and translation services, supports language input in four more languages, and offers improved accuracy rates for voice inputs.

For the second quarter of 2020, Sogou expects total revenues to be in the range of $260 million to $280 million, representing a decrease of 8% to 14% year-over-year, or a decrease of 4% to 11% year-over-year in RMB terms.

China’s mobile search market overview 2020

Sogou Financial Results in Q4 2019

Total revenues were $301.0 million, a 1% increase year-over-year.

• Search and search-related revenues were $274.6 million, down 1% year-over-year. However, auction-based pay-for-click services continued to increase year-over-year, accounting for 88.2% of search and search-related revenues, compared to 84.8% in the corresponding period in 2018.
• Other revenues were $26.4 million, a 26% increase year-over-year. The increase was primarily due to increased revenues from sales of smart hardware products.

Cost of revenues was $168.7 million, a 9% decrease year-over-year. Traffic acquisition cost, a primary driver of cost of revenues, was $129.0 million, a 14% decrease year-over-year, representing 42.8% of total revenues, compared to 50.3% in the corresponding period in 2018.

Gross profit was $132.4 million, an 18% increase year-over-year. Non-GAAP gross profit was $132.6 million, a 19% increase year-over-year.

Total operating expenses were $95.0 million, a 4% decrease year-over-year.

• Research and development expenses were $48.7 million, a 1% increase year-over-year, representing 16.2% of total revenues, largely flat with the corresponding period in 2018.
• Sales and marketing expenses were $34.9 million, a 16% decrease year-over-year, representing 11.6% of total revenues, compared to 14.0% in the corresponding period in 2018. The decrease was primarily attributable to a decrease in marketing and promotional spending.
• General and administrative expenses were $11.3 million, a 21% increase year-over-year, representing 3.8% of total revenues, compared to 3.1% in the corresponding period in 2018. The increase was primarily due to an increase in professional fees.

Operating income was $37.4 million, a 202% increase year-over-year, compared to $12.4 million in the corresponding period in 2018. Non-GAAP operating income was $41.5 million, a 216% increase year-over-year, compared to $13.1 million in the corresponding period in 2018.

Other income, net was $0.5 million, compared to $9.6 million in the corresponding period in 2018. The decrease was primarily due to a $9.1 million impairment loss on certain equity investments of Sogou in 2019.

Income tax expense was $2.0 million, compared to an income tax benefit of $3.6 million in the corresponding period of 2018.

Net income attributable to Sogou Inc. was $35.0 million, a 33% increase year-over-year, compared to net income of $26.4 million in the corresponding period in 2018. Non-GAAP net income attributable to Sogou Inc. was $39.0 million, a 44% increase year-over-year, compared to net income of $27.1 million in the corresponding period in 2018.

Basic and diluted earnings per ADS were $0.09. Non-GAAP basic and diluted earnings per ADS were $0.10.

As of December 31, 2019, it had cash and cash equivalents and short-term investments of $1.1 billion, compared to $1.0 billion as of December 31, 2018.

Net operating cash inflow for the fourth quarter of 2019 was $52.0 million. Capital expenditures for the fourth quarter of 2019 were $9.1 million.

Sogou Financial Results for Full Year 2019

Total revenues were $1.17 billion, a 4% increase from 2018.

• Search and search-related revenues were $1.07 billion, a 5% increase from 2018. The increase was primarily due to growth in auction-based pay-for-click services. Auction-based pay-for-click services accounted for 88.1% of search and search-related revenues, compared to 83.8% in 2018.
• Other revenues were $99.1 million, compared to $101.0 million in 2018.

Cost of revenues was $738.5 million, a 6% increase from 2018. Traffic acquisition cost, a primary driver of cost of revenues, was $562.2 million, a 6% increase from 2018, representing 48.0% of total revenues, compared to 47.4% in 2018.

Gross profit was $433.8 million, a 1% increase from 2018. Non-GAAP gross profit was $434.3 million, a 1% increase from 2018.

Total operating expenses were $369.4 million, a 4% decrease from 2018.

• Research and development expenses were $190.4 million, a 6% decrease from 2018, representing 16.2% of total revenues, compared to 17.9% in 2018.
• Sales and marketing expenses were $138.3 million, a 5% decrease from 2018, representing 11.8% of total revenues, compared to 13.0% in 2018.
• General and administrative expenses were $40.7 million, a 7% increase from 2018, representing 3.5% of total revenues, compared to 3.4% in 2018.

Operating income was $64.4 million, a 44% increase from 2018. Non-GAAP operating income was $80.3 million, a 36% increase from 2018.

Other income, net was $21.1 million, compared to $41.5 million in 2018. The decrease was primarily due to a $17.8 million gain from one of Sogou’s equity investments recognized in the third quarter of 2018.

Income tax expense was $2.7 million, compared to $1.2 million in 2018.

Net income attributable to Sogou Inc. was $89.1 million, compared to $98.8 million in 2018. Non-GAAP net income attributable to Sogou Inc. was $105.0 million, compared to $113.0 million in 2018.

Basic and diluted earnings per ADS were $0.23. Non-GAAP basic and diluted earnings per ADS were $0.27.

Sogou Outlook for Q1 2020

For the first quarter of 2020, Sogou expects total revenues to be in the range of $240 million to $260 million, representing a 5% decrease to 3% increase year-over-year, or a 1% decrease to 7% increase year-over-year in RMB terms.

In developing this guidance, Sogou has considered the potential impact of the COVID-19 outbreak, as well as other challenges in the macro-environment and the online advertising industry.

Given its Search business has navigated the situation relatively well, Sogou expects Search to remain resilient in the first quarter. The guidance represents its current and preliminary view, which is subject to substantial uncertainty, particularly as to the development and potential impact of the COVID-19 virus in China and elsewhere.

For the first quarter 2020 guidance, the Company has adopted a presumed exchange rate of RMB7.00 = $1.00, as compared with the actual exchange rate of approximately RMB6.74 = $1.00 for the first quarter of 2019, and RMB7.03 = $1.00 for the fourth quarter of 2019.

China’s second-largest search engine Sogou announced total revenues of $314.9 million in the third quarter, a 14% increase year-over-year, or a 17% increase in RMB terms.

Search and search-related revenues were $288.2 million, a 13% increase year-over-year and accounting for 91.5% of total revenues in Q3 2019.

The increase was primarily due to growth in auction-based pay-for-click services. Auction-based pay-for-click services accounted for 88.7% of search and search-related revenues, compared to 82.7% in Q3 2018.

Other revenues were $26.7 million, a 25% increase year-over-year. The increase was primarily due to increased revenues from sales of smart hardware products.

Net income attributable to Sogou was $36.6 million, a 53% increase year-over-year. Non-GAAP net income attributable to Sogou was $40.9 million, a 46% increase year-over-year.

Cost of revenues was $189.3 million, a 9% increase year-over-year. Traffic acquisition cost was $143.7 million, a 6% increase year-over-year, representing 45.6% of total revenues, compared to 48.9% in Q3 2018.

Gross profit was $125.6 million, a 22% increase year-over-year. Non-GAAP gross profit was $125.7 million, a 22% increase year-over-year.

Total operating expenses were $98.2 million, a 10% decrease year-over-year.

• Research and development expenses were $50.0 million, relatively stable year-over-year, representing 15.9% of total revenues, compared to 18.3% in Q3 2018.
• Sales and marketing expenses were $37.5 million, a 14% decrease year-over-year, representing 11.9% of total revenues, compared to 15.8% in Q3 2018. The decrease was primarily attributable to a decrease in marketing and promotional spending.
• General and administrative expenses were $10.7 million, a 31% decrease year-over-year, representing 3.4% of total revenues, compared to 5.6% in Q3 2018. The decrease was primarily due to a decrease in expenses related to non-core business initiatives.

Sogou’s operating income was $27.4 million, compared to an operating loss of $6.8 million in Q3 2018. Non-GAAP operating income was $31.6 million, compared to non-GAAP operating loss of $2.7 million.

Income tax expense was $2.4 million, compared to an income tax benefit of $0.4 million in the corresponding period of 2018.

Net income attributable to Sogou was $36.6 million, a 53% increase year-over-year, compared to net income of $23.9 million in Q3 2018. Non-GAAP net income attributable to Sogou was $40.9 million, a 46% increase year-over-year, compared to net income of $28.0 million in Q3 2018.

Basic and diluted earnings per ADS were $0.09. Non-GAAP basic and diluted earnings per ADS were $0.10.

As of September 30, 2019, ogouS had cash and cash equivalents and short-term investments of $1.1 billion, compared with $1.0 billion as of December 31, 2018. Net operating cash inflow for Q3 2019 was $19.6 million. Capital expenditures for Q3 2019 were $0.7 million.

Sogou Mobile Keyboard had 464 million daily average users, up 14% year-over-year. Claiming to be China’s largest voice app, it processed up to 830 million daily voice requests.

Chinese search engine Sogou’s search-related revenues totaled $276 million in Q2 2019, accounting for 91% of total revenues according to its announced financial results.

Sogou Performance Highlights in Q2 2019

• Total revenues were $303.6 million, a 1% increase year-over-year, or an 8% increase in RMB terms.
• Net income attributable to Sogou Inc. was $21.3 million. Non-GAAP net income attributable to Sogou Inc. was $27.8 million.
• Sogou Mobile Keyboard had 453 million DAUs (daily average users), up 17% year-over-year. As China’s largest voice app, it processed up to 680 million daily voice requests.

During the second quarter, our business maintained steady growth and we made important progress in key areas,” said Xiaochuan Wang, CEO of Sogou. “Search revenues continued to grow faster than the industry average. At the same time, by leveraging the large user bases for both Search and Mobile Keyboard, we have gradually built up our big data and recommendation service at a company level and are focusing on unlocking its commercial value.”

Mr. Wang added,

We also geared up our efforts to drive innovation in language-centric AI technologies and continued to advance our leadership in voice and computer vision. Moreover, leveraging our core AI capabilities, we made significant progress in upgrading the smart hardware business, with new AI-enabled products launched and more in the pipeline. Going forward, we believe the steady growth in our core search business, coupled with the solid progress in the big data and recommendation service and smart hardware, will support sustainable expansion across our businesses.

Joe Zhou, CFO of Sogou, said, “We continued to drive top-line growth during the second quarter. Notably, revenues generated from the big data and recommendation service ramped up quickly year-over-year. Although we anticipate the external environment will remain challenging in the second half of 2019, we expect to experience positive momentum from our new growth drivers.”

Financial Results in Q2 2019

Total revenues were $303.6 million, a 1% increase year-over-year.

Search and search-related revenues were $276.2 million, a 2% increase year-over-year. The increase was primarily due to growth in auction-based pay-per-click services. Auction-based pay-for-click services accounted for 88.2% of search and search-related revenues, compared to 84.7% in the corresponding period in 2018.

Other revenues were $27.5 million, an 11% decrease year-over-year. The decrease was primarily due to lower sales of smart hardware products as a result of Sogou’s continued efforts to upgrade its smart hardware strategy.

Cost of revenues was $195.9 million, a 9% increase year-over-year. Traffic acquisition cost, a primary driver of the cost of revenues, was $146.3 million, an 8% increase year-over-year, representing 48.2% of total revenues, compared to 45.0% in the corresponding period in 2018. The increase was driven by price inflation.

Gross profit was $107.8 million, an 11% decrease year-over-year. Non-GAAP gross profit was $107.9 million, a 12% decrease year-over-year.

Total operating expenses were $96.1 million, largely flat year-over-year.

• Research and development expenses were $50.6 million, a 10% decrease year-over-year, representing 16.7% of total revenues, compared to 18.7% in the corresponding period in 2018. The decrease was primarily due to a decrease in professional fees.
• Sales and marketing expenses were $36.7 million, an 8% increase year-over-year, representing 12.1% of total revenues, compared to 11.2% in the corresponding period in 2018. The increase was primarily attributable to an increase in personnel-related expenses.
• General and administrative expenses were $8.8 million, a 31% increase year-over-year, representing 2.9% of total revenues, compared to 2.2% in the corresponding period in 2018. The increase was primarily due to an increase in expenses related to non-core business initiatives.
• Operating income was $11.6 million, compared to operating income of $24.8 million in the corresponding period in 2018. Non-GAAP operating income was $18.1 million, compared to non-GAAP operating income of $29.9 million in the corresponding period in 2018.
• Other income $4.2 million, compared to $3.4 million in the corresponding period in 2018.

The income tax benefit was $1.4 million, compared to income tax expense of $3.0 million in the corresponding period of 2018. The income tax benefit resulted from a tax filing adjustment of income tax expense previously recognized, which was due to a reduction in taxable income related to Chinese government initiatives to encourage investment in R&D.

Net income attributable to Sogou Inc. was $21.3 million, compared to net income of $33.2 million in the corresponding period in 2018. Non-GAAP net income attributable to Sogou Inc. was $27.8 million, compared to net income of $38.2 million in the corresponding period in 2018.

Basic and diluted earnings per ADS were $0.05. Non-GAAP basic and diluted earnings per ADS were $0.07.

As of June 30, 2019, Sogou had cash and cash equivalents and short-term investments of $1.1 billion, compared with $1.0 billion as of December 31, 2018. Net operating cash inflow for the second quarter of 2019 was $56.2 million. Capital expenditures for the second quarter of 2019 were $12.1 million.

China’s mobile internet users overview for the first half of 2019

The revenues of Chinese search engine companies were estimated to reach 135.76 billion yuan (US$19.74 bn) in 2018, with an increase of 20.8% YoY according to iResearch.

China’s search engine companies revenue is estimated to reach 158.08 billion yuan (US$22.98 bn) in 2019 and 183.17 billion yuan (US$26.63 bn) next year.

Newsfeed advertising has become another revenue driver for China’s search engines in recent years. Check out top newsfeed advertising platforms in China here.

iResearch forecasts that the growth-driving effect of news feed advertising on the revenue of search engine companies will be increasingly obvious in the following two to three years.

China is to see internet advertising market exceed over US$90 billion by 2019, over 80% of which is from mobile advertising. The US$36.02 billion native advertising market accounted for nearly 50% of the total in 2018.

71% of digital ad spending in China will be traded programmatically by 2019. The internet giants BAT controlled around 80% of programmatic buying.

Also read: Top short video apps compared: Tik Tok vs. Kwai

Not long after Facebook’s Hangzhou subsidiary launch, Google was reported to be planning a launch of a censored search engine in China. A poll was created on Weibo asking “if Google returns to China, which will you choose between Google and Baidu?”. 72.8% voted for Google.

Google released its first WeChat Mini-Programs “Guess My Sketch” in July 2018, which went viral on WeChat Moments for a while.

Later on August 6, the state-run People’s Daily posted an article on its Twitter and Facebook accounts that Google is welcome to return to the mainland China but it must comply with local laws.

Robin Li Yanhong, chairman and CEO of Baidu, commented on his WeChat Moments that Baidu has the confidence to defeat Google again if it returns.

China has seen the internet being developed at an unprecedented speed, with the number of mobile internet users more than doubled, from 303 million in 2010 to over 800 million in 2018. Baidu has kept the leading position in the search engines market for years.

While Google kept taking over 90% shares of global search market for years running, with Baidu only took less than 2%.

It’s a big challenge and question mark whether Google makes its search engine available in China again. Its workers are already protesting its censored search engine plans for China. And, Google is not close to launching a search product in China according to its CEO.

A survey might not tell what will really happen if Google did return to China with a search product. But the poll on Weibo by Sina Jiangsu account has been deleted.

Find out Mobile Search Engine Market in China

Sogou achieved solid results in Q2 2018 with revenue increasing 43% year-on-year to US$301.4 million and non-GAAP net income up by 58% to US$38.2 million, according to its financial results. That was greatly driven by the twin growth engines – search and mobile keyboard – and AI-focused strategy.

Search and search-related revenues were $270.6 million, a 45% increase year-on-year. The increase was primarily due to the strong growth in auction-based pay-for-click services, driven by improved monetization and continued traffic growth in mobile search.

Auction-based pay-for-click services accounted for 84.7% of search and search-related revenues, compared to 83.0% in the corresponding period in 2017.

In search, Sogou differentiated services from Baidu in key verticals, such as healthcare. It also deepened its partnership with WeChat by providing more search services such as the encyclopedia and interactive Q&A platform.

Its AI-powered innovations drove broader adoption of the Sogou Mobile Keyboard, with DAU increasing by 36% year-on-year to 380 million in Q2 2018. Especially in June, Sogou Mobile Keyboard handled approximately 300 million voice inputs on average per day, up 54% year-on-year, and remained China’s largest voice mobile application.

Meanwhile, Sogou also applied its AI capabilities to enhance the competitiveness of the recently launched hardware products, such as Sogou Travel Translator and Sogou Smart Recording Translator.

Baidu also had a good quarter in Q2 2018. Check out China mobile internet market forecast 2018-2020 here.