Baidu Announces Third Quarter 2020 Results

BEIJING, Nov. 16, 2020 /PRNewswire/ -- Baidu, Inc. (NASDAQ: BIDU) ("Baidu" or the "Company"), a leading search engine, knowledge and information centered Internet platform and AI company, today announced its unaudited financial results for the third quarter ended September 30, 2020^[1].

"Our revenue growth turned positive in the third quarter with many advertising verticals turning around, putting Baidu in a good position to further benefit from a recovery in the Chinese economy. The vibrant mobile ecosystem that Baidu has built in the last few years sets a strong foundation for us to grow our non-advertising business," said Robin Li, Co-founder and CEO of Baidu. "Our new AI businesses saw healthy growth in the third quarter, particularly from cloud, where we are differentiating with AI solutions."

"Our team executed in the third quarter with top line growth, resilient profitability and strong cash flow, a testament to the durability of Baidu's business, despite China experiencing a second wave of COVID-19 in July. Our focus on differentiating Baidu with open-platform, in-app search and new AI businesses has enabled Baidu Core's adjusted EBITDA margin to reach 46% in the third quarter," said Herman Yu, CFO of Baidu. "We also executed on our capital allocation strategy by selling down equity investments and continuing to execute on our share repurchase plan."

Financial Highlights

Other Highlights

Corporate

• Baidu received an ESG rating of BB from MSCI and an ESG risk score of 21.5 from Sustainalytics, reflecting the progress the Company has made through ESG policy changes and improved disclosure on corporate governance.
• Baidu World was held virtually in September 2020 in partnership with CCTV, reaching an audience of over 60 million. This year's theme centered on the "Intelligence of Everything," highlighting how Baidu AI products and solutions can improve everyday life and empower enterprises and the public sector to do more and do better in the areas of cloud computing, smart transportation and autonomous driving.
• Baidu entered into definitive agreements to raise financing for its Smart Living Group ("SLG") at a post-money valuation of approximately RMB 20 billion, or US$2.9 billion, in September 2020. The transaction is expected to be completed in the fourth quarter of 2020, and Baidu is expected to be a super majority shareholder.
• Baidu completed a bond offering of US$950 million in October 2020, consisting of US$650 million of 1.720% notes due 2026 and US$300 million of 2.375% notes due 2030, the proceeds from which are expected to be used to repay certain existing indebtedness.
• Baidu returned US$596 million to shareholders in the third quarter of 2020, bringing the cumulative share repurchase over the last two years to approximately US$2.0 billion.

Mobile Ecosystem

• Baidu App's daily active users ("DAUs") reached 206 million and its monthly active users ("MAUs") reached 544 million in September 2020.
• The massive reach of Baidu App, along with other products in the Company's product portfolio, is attracting a wide range of knowledge and information-centric videos, including live and short videos. Topical live streaming, such as Wander Planet and Who to Support, grew eight folds sequentially.
• Publishers are sharing more originals on Baijiahao ("BJH") accounts, to take advantage of Baidu's large scale and easy sharing of content across Baidu family of apps. BJH accounts reached 3.6 million, up 52% year over year, in September 2020.
• App developers are adopting Baidu Smart Mini Programs ("SMPs") to provide users with native-app like experience on Baidu, without having to download the host apps. The number of SMPs grew three folds, and SMP monthly active users on Baidu App reached 355 million, up 22% year over year, in September 2020.
• Site merchants are switching to Managed Page as the landing page for their search results to improve marketing effectiveness, resulting in Managed Page revenue reaching almost 1/3 of Baidu Core's online marketing services revenue in the third quarter of 2020.

DuerOS

• DuerOS first-party monthly voice queries reached 2.7 billion, up 65% from last year, and DuerOS total monthly voice queries reached 5.3 billion in September 2020.
• Xiaodu Smart Display ranked #1 in smart display shipments globally, and Xiaodu smart speakers ranked #1 in smart speaker shipments in China for the second quarter of 2020, according to market research firms IDC, Strategy Analytics and Canalys.
• The DuerOS skills store, offering 4,300 skills in wide ranging genres, including education, video, online game and live streaming, is supported by a developer community of 45,000.
• Xiaodu Smart Earphones was introduced in September 2020, allowing users to navigate DuerOS skills using its voice assistant and hear instant language translation. Xiaodu Smart Earphones broaden the use case of the Xiaodu voice assistant from home, auto and hotel to anywhere with mobile.

Cloud, AI Services & AI Platform 

• Baidu partners with Postal Savings Bank of China ("PSBC"), a top consumer bank in China with 40,000 branches nationwide, to provide Baidu AI PaaS, which can be trained to provide better credit risk management by leveraging Baidu's advanced AI capabilities, such as big data and natural language processing.
• Baidu partners with the Economic and Technological Development Zone in Guiyang, a major national data center hub in China, to provide its AI PaaS platform that will be made available to the 400+ enterprises across 10 industries located in the economic development zone. Baidu's AI PaaS can help businesses improve their operations and do more through advanced AI, including deep learning, blockchain and computer vision,
• Baidu's AI open platform built on Baidu Cloud offers over 270 AI capabilities, attracting a developer community of over 2 million.
• Baidu Translate, an AI cloud service leveraging Baidu's advanced natural language processing, speech and vision processing technologies, supports over 200 languages and processes over 100 billion bites a day, attracting a developer community of 400,000.

Apollo

• Baidu partners with the city of Guangzhou, Guangdong to provide smart transportation solutions to improve traffic efficiency, air pollution and road safety.
• Apollo Go robotaxi is now opened to the public in Beijing, becoming the third city following Changsha, Hunan and Cangzhou, Hebei. Apollo Go rides may be ordered from Baidu Maps or Apollo Go app.
• Baidu was granted China's first driverless test permit in Changsha.

iQIYI

• iQIYI subscribers reached 104.8 million in September 2020, and membership revenue was up 7% year over year. iQIYI's large subscriber base further strengthens iQIYI's foundation to produce entertainment blockbuster originals.

Third Quarter 2020 Results

Total revenues reached RMB 28.2 billion ($4.16 billion), increasing 1% year over year.

Revenue from Baidu Core reached RMB 21.4 billion ($3.15 billion), increasing 2% year over year. Online marketing revenue from Baidu Core was RMB 18.4 billion ($2.72 billion), which was basically flat from last year. Non-online marketing revenue from Baidu Core reached 2.9 billion ($434 million), increasing 14% year over year, primarily driven by the growth of cloud services.

Cost of revenues was RMB 12.8 billion ($1.89 billion), decreasing 22% year over year, primarily due to a decrease in content costs, traffic acquisition costs and costs of goods sold.

Selling, general and administrative expenses were RMB 4.7 billion ($692 million), increasing 1% year over year.

Research and development expenses were RMB 4.6 billion ($673 million), decreasing 3% year over year.

Operating income was RMB 6.2 billion ($907 million) and operating margin was 22%. Baidu Core operating income was RMB 7.4 billion ($1.09 billion) and Baidu Core operating margin was 35%.

Non-GAAP operating income was RMB 7.6 billion ($1.13 billion), and non-GAAP operating margin was 27%. Non-GAAP Baidu Core operating income was RMB 8.5 billion ($1.25 billion), and non-GAAP Baidu Core operating margin was 40%. 

Total other income was RMB 8.9 billion ($1.31 billion), compared to total other loss of RMB 9.5 billion in Q3 2019. Total other income in Q3 2020 included fair value gain of RMB 9.0 billion from long-term investments.

Income tax expense was RMB 1.6 billion ($239 million), compared to RMB 934 million in Q3 2019.

Net income attributable to Baidu was RMB 13.7 billion ($2.02 billion), and diluted earnings per ADS was RMB 39.79 ($5.86). Net income attributable to Baidu Core was RMB 14.4 billion ($2.12 billion).

Non-GAAP net income attributable to Baidu was RMB 7.0 billion ($1.03 billion), and non-GAAP net margin was 25%. Non-GAAP diluted earnings per ADS amounted to RMB 20.35 ($3.00). Non-GAAP net income attributable to Baidu Core was RMB 7.5 billion ($1.10 billion), and non-GAAP net margin for Baidu Core was 35%.

Adjusted EBITDA was RMB 9.1 billion ($1.34 billion) and adjusted EBITDA margin was 32%. Adjusted EBITDA for Baidu Core was RMB 9.8 billion ($1.45 billion) and adjusted EBITDA margin for Baidu Core was 46%. 

As of September 30, 2020, cash, cash equivalents, restricted cash and short-term investments were RMB 146.0 billion ($21.50 billion), and cash, cash equivalents, restricted cash and short-term investments excluding iQIYI were RMB 138.5 billion ($20.41 billion). Free cash flow was RMB 6.3 billion ($925 million), and free cash flow excluding iQIYI was RMB 8.3 billion ($1.22 billion).

For more information on the adoption of ASU 2019-02 beginning January 1, 2020, in accordance with the new accounting standard, please see explanation under "Non-GAAP Financial Measures".

Financial Guidance

For the fourth quarter of 2020, Baidu expects revenues to be between RMB 28.6 billion ($4.2 billion) and RMB 31.3 billion ($4.6 billion), representing a growth rate of -1% to 8% year over year, which assumes that Baidu Core revenue will grow between -1% and 10% year over year.

The above forecast reflects Baidu's current and preliminary view, which is subject to substantial uncertainty.

Conference Call Information

Baidu's management will hold an earnings conference call at 8:15 PM on November 16, 2020, U.S. Eastern Time (9:15 AM on November 17, 2020, Beijing Time).

Please register in advance of the conference call using the link provided below. Upon registering, you will be provided with participant dial-in numbers, Direct Event passcode and unique registrant ID by email.

For pre-registration, please click http://apac.directeventreg.com/registration/event/2876397. It will automatically direct you to the registration page of "Baidu Q3 2020 Earnings Conference Call", where you may fill in your details for RSVP. If it requires you to enter a participant conference ID, please enter "2876397".

In the 10 minutes prior to the call start time, you may use the conference access information (including dial-in number(s), Direct Event passcode and unique registrant ID) provided in the confirmation email that you have received following your pre-registration.

Additionally, a live and archived webcast of this conference call will be available at http://ir.baidu.com.

A replay of the conference call may be accessed by phone at the following number until November 24, 2020:

About Baidu

Baidu, Inc. is a leading search engine, knowledge and information centered Internet platform and AI company. The Company's mission is to make the complicated world simpler through technology. Baidu's ADSs trade on the NASDAQ Global Select Market under the symbol "BIDU". Currently, ten ADSs represent one Class A ordinary share.

Contacts

Investors Relations, Baidu, Inc.
Tel: +86-10-5992-8888
Email: [email protected]

Safe Harbor Statement

This announcement contains forward-looking statements. These statements are made under the "safe harbor" provisions of the U.S. Private Securities Litigation Reform Act of 1995. These forward-looking statements can be identified by terminology such as "will," "expects," "anticipates," "future," "intends," "plans," "believes," "estimates," "confident" and similar statements. Among other things, the outlook for the fourth quarter of 2020, quotations from management in this announcement, as well as Baidu's and other parties' strategic and operational plans, contain forward-looking statements. Baidu may also make written or oral forward-looking statements in its periodic reports to the U.S. Securities and Exchange Commission, in its annual report to shareholders, in press releases and other written materials and in oral statements made by its officers, directors or employees to third parties. Statements that are not historical facts, including but not limited to statements about Baidu's beliefs and expectations, are forward-looking statements. Forward-looking statements involve inherent risks and uncertainties. A number of factors could cause actual results to differ materially from those contained in any forward-looking statement, including but not limited to the following: Baidu's growth strategies; its future business development, including development of new products and services; its ability to attract and retain users and customers; competition in the Chinese Internet search and newsfeed market; competition for online marketing customers; changes in the Company's revenues and certain cost or expense items as a percentage of its revenues; the outcome of ongoing, or any future, litigation or arbitration, including those relating to intellectual property rights; the expected growth of the Chinese-language Internet search and newsfeed market and the number of Internet and broadband users in China; Chinese governmental policies relating to the Internet and Internet search providers, and general economic conditions in China and elsewhere. Further information regarding these and other risks is included in the Company's annual report on Form 20-F and other documents filed with the Securities and Exchange Commission. Baidu does not undertake any obligation to update any forward-looking statement, except as required under applicable law. All information provided in this press release and in the attachments is as of the date of the press release, and Baidu undertakes no duty to update such information, except as required under applicable law.

Non-GAAP Financial Measures

To supplement Baidu's consolidated financial results presented in accordance with GAAP, Baidu uses the following non-GAAP financial measures: non-GAAP operating income (loss), non-GAAP operating margin, non-GAAP net income (loss) attributable to Baidu, non-GAAP net margin, non-GAAP diluted earnings per ADS, adjusted EBITDA, adjusted EBITDA margin and free cash flow. The presentation of these non-GAAP financial measures is not intended to be considered in isolation or as a substitute for the financial information prepared and presented in accordance with GAAP.

Baidu believes that these non-GAAP financial measures provide meaningful supplemental information regarding its performance and liquidity by excluding certain items that may not be indicative of its recurring core business operating results, such as operating performance excluding not only non-cash charges, but also other items that are infrequent or unusual in nature. The Company believes that both management and investors benefit from referring to these non-GAAP financial measures in assessing its performance and when planning and forecasting future periods. These non-GAAP financial measures also facilitate management's internal comparisons to Baidu's historical performance and liquidity. The Company believes these non-GAAP financial measures are useful to investors in allowing for greater transparency with respect to supplemental information used by management in its financial and operational decision making. A limitation of using these non-GAAP financial measures is that these non-GAAP measures exclude certain items that have been and will continue to be for the foreseeable future a significant component in the Company's results of operations. These non-GAAP financial measures presented here may not be comparable to similarly titled measures presented by other companies. Other companies may calculate similarly titled measures differently, limiting their usefulness as comparative measures to the Company's data.

Non-GAAP operating income represents operating income excluding share-based compensation expenses and amortization and impairment of intangible assets resulting from business combinations.

Non-GAAP net income attributable to Baidu represents net income attributable to Baidu excluding share-based compensation expenses, amortization and impairment of intangible assets resulting from business combinations, disposal gain or loss, impairment of long-term investments, fair value change of long-term investments, adjusted for related income tax effects. Baidu's share of equity method investments for these non-GAAP reconciling items, amortization and impairment of intangible assets not on the investees' books, accretion of their redeemable non-controlling interests, and the gain or loss associated with the issuance of shares by the investees at a price higher or lower than the carrying value per shares, adjusted for related income tax effects, are also excluded.

Non-GAAP diluted earnings per ADS represents diluted earnings per ADS calculated by dividing non-GAAP net income attributable to Baidu, which is adjusted for accretion for the redeemable non-controlling interests, by the weighted average number of ordinary shares expressed in ADS. Adjusted EBITDA represents operating income excluding depreciation, amortization and impairment of intangible assets resulting from business combinations, and share-based compensation expenses.

Free cash flow represents net cash provided by operating activities less capital expenditures. Starting from January 1, 2020, Baidu adopted ASU 2019-02, Improvements to Accounting for Costs of Films and License Agreements for Program Materials, which reclassifies cash outflows for costs incurred to acquire licensed contents from investing activities to operating activities. To increase comparability, 2019 free cash flow has been retrospectively adjusted to include cash outflows of acquisition of licensed copyrights, which is presented on the same basis as 2020 and going forward.

For more information on non-GAAP financial measures, please see the tables captioned "Reconciliations of non-GAAP financial measures to the nearest comparable GAAP measures."