百度 (BIDU) 2011 Q4 法說會逐字稿

Thank you for standing by for Baidu's fourth quarter and full year 2011 earnings conference.

(Operator's Instructions).

I would now like to turn the meeting over to your host for today's conference, Victor Tseng, Baidu's Investor Relations Director.

Hello everyone and welcome to Baidu's fourth quarter and full year 2011 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.

Today you will hear from Robin Li, Baidu's Chief Executive Officer, and Jennifer Li, Baidu's Chief Financial Officer.

After their prepared remarks, Robin and Jennifer will answer your questions.

Before we continue, please note that the discussion today will contain forward-looking statements Safe Harbor provisions of the US Private Securities Litigation Reform Act of 1995.

Forward-looking statements are subject to risk and uncertainties that may cause actual results to differ materially from our current expectations.

Potential risks and uncertainties include but not limited to those outlined in our public filings with the SEC, including our Annual Report on Form 20-F.

Baidu does not undertake any obligation to update any forward-looking statement, except as required under applicable law.

Our earnings press release in 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 also be available on Baidu's IR website.

I will now turn the call over to Baidu's CEO Robin Li.

Hello everyone and welcome to today's call.

In the final quarter of 2011 we delivered strong financial results driven by our relentless execution and ability to capitalize on exceptional market opportunities.

Overall, 2011 was an extraordinary year for Baidu with strong financials and encouraging progress.

Today I would like to take you through some of the achievements for the quarter and the year and discuss our strategy going into 2012.

I will begin by looking at some of the advances we have made on the user front in Q4.

We made great strides in our mobile strategy over the quarter.

The mobile internet is growing at an astonishing pace in China and Baidu has kept abreast of that growth.

We devoted significant resources to enhancing user experience for our products and optimizing them for mobile.

I am pleased to say that all of our mobile products are growing very well and we expect to see strong growth momentum carrying into 2012.

Search queries from mobile devices already represent more than 15% of our total search query volumes.

Smart phone shipments in China surpassed those in the US last quarter, and Baidu has positioned itself to capture this opportunity.

Baidu is already the default search engine on 80% of branded Android handsets sold in China.

In addition we have developed a mobile phone platform called Baidu Yi to integrate our services, including web search, music, maps, and LBS, to ensure that users get the premium internet experience right on their mobile devices.

Currently, we have a partnership with Dell and we are looking forward to working with more vendors and to introducing Yi to many more users this year.

Building on our success in the desktop mass market where we have an 85% market share, we are moving ahead full [throttle] with mobile maps two.

The number of daily users using Baidu maps on mobile devices grew by more than 10 times in 2011.

In Q4 we introduced a range of new services, including interior maps of shopping malls, airports, and other large facilities, as well as satellite maps of major Chinese cities, in addition to 3D map services we were already offering.

Meanwhile, we continue to deepen our partnerships with leading content providers and to more tightly integrate Baidu products like Symbian to offer Baidu map users greater and more useful content.

Right throughout 2011 we made important progress on the user front.

As a key part of our efforts to increase user engagement in September we introduced Baidu's new personalized home page feature.

Using past search behavior and intelligent recommendation technology, the new home page allows users to access much of the data, content, services, and apps they most want with just one click.

Our landing page strategy helps ensure that users enjoy an optimal experience even after they leave the Baidu site.

We made great progress here by partnering with a large number of leading sites in important verticals, like online video, travel, music, automotive, real estate, and finance.

In the booming travel space we signed a landmark deal to acquire a majority stake in the leading travel search provider Qunar.

Qunar continues to grow well and we have integrated its comprehensive travel database into our product lines.

In music we launched the Baidu Ting music social network and signed a major agreement with the leading global record labels to enable Baidu users to discover and share millions of licensed Chinese and international songs on our platform.

In the online video our IQIYI joint venture has been growing solidly and now ranks amongst the top three in China by time spend.

In Q4 IQIYI's unique monthly users reached 198 million.

And of course we continue to make strides on box computing --- the innovative paradigm that represents our ambitions for the future of search.

I am pleased to tell you that over 70% of our search queries now return dynamic interactive results.

Every day users click 20 million times on results returned through the open application platform.

With tens of thousands of third party developers already participating we are confident that the Baidu search box will increasingly become Chinese users' primary point of entry onto the internet.

This commitment to providing the best possible user experience has helped us to [build] Baidu's leading market position and we continue to gain market share.

China's internet population is now at about 513 million and it continues to grow.

We expect to capture the overwhelming majority of new user growth, and to increase engagement with both existing and new users.

In 2012 Baidu will continue to push forward on the product front with continuous improvements to virtual search products, to our mass services, as well as to our popular social products.

Also look for new initiatives in the mobile internet space, and for new (inaudible) offerings.

We also continue to explore long-term international opportunities.

Let's now look at our progress in improving customer experience and enhancing monetization.

In the fourth quarter we delivered solid revenue growth of 83% year-on-year.

We saw increased spending by customers in traditional industries such as automotive and cosmetics.

During the quarter our penetration in brand advertising deepened.

Customers who typically advertise offline continue to increase their spending with us.

These customers include some of the biggest brand advertisers like P&G and many luxury brands like Louis Vuitton.

The fact that they are turning to Baidu for brand building marketing is a demonstration of the effectiveness of our platforms.

E-commerce remained an important revenue driver for us, but we did see some cooling off in the more heated segments, such as classified websites and group buying.

We believe that it's healthy in the long-term for these sectors to stabilize marketing spending at more sustainable levels.

We recorded ARPU growth of 62% year-on-year while our customer base grew 13% year-on-year.

This demonstrates the success of our efforts to reach not just the quantity of customers but also the quality of customer spending.

In particular, our large customers allocated a bigger percentage of their marketing budgets to Baidu and this was an important driver of growth in revenue and APRU in Q4.

2011 was another remarkable year for top line growth.

We benefited from growth in the e-commerce industry and succeeded in gaining more traction with traditional customers.

We made important improvements to our online marketing platform and monetization (inaudible) to improve customer ROI.

We also pushed out new targeting options like advanced (inaudible) match and a series of customer friendly campaign management programs that proved popular with customers.

As a result we successful accelerated revenue growth in 2011 over the previous year.

Revenue increased by 83% for the year, up from 78% in 2010.

Even with such strong growth, our long-term market opportunity in China is still enormous.

In 2012 we will remain focused on exploring this opportunity through better understanding of customer needs and stronger customer targeting.

To do this we are forming market research teams to help drive more penetration into promising sectors --- like food and beverage, cosmetics, automotive, and [fin] services.

We are also recruiting specialists in traditional marketing who will work with our larger customers to develop new formats and services for online marketing that will help them drive results.

We are also looking at how to better serve our SME customers.

This includes enhancing the Phoenix Nest interface and making improvements to our CRM systems and customer service offerings.

In addition, we are now working closely with government agencies on a nationwide project aimed at educating SME owners about how the internet can help their business.

As our social products continue to thrive, we think it is increasingly important to consider Baidu --- to consider how Baidu can better help our customers harness the power of the social web.

Given that most of our social products --- such as Post-Bar, Baidu Notes, Baidu encyclopedia --- are organized both around people and topics.

We can more naturally offer advertisers that highly desired combination of reach, relevance, social contact and engagement on our platform.

Our social products have a much larger user base than peers' offerings.

In 2012 we will continue to explore better monetization mechanisms for social media.

2011 was an amazing year, but there is lot more to come in 2012.

The [addressable] market for Baidu is enormous and with our peer strategy and the pipeline full of exciting initiatives, we have only scratched the surface of our success in China.

With that I will now turn the call over to Jennifer for discussion of financials.

Thank you Robin.

I am pleased that we are capping off a remarkable and productive year for Baidu with a strong set of results for the fourth quarter.

That outstanding pace of top line growth enabled us to enjoy great margins as we sustained a very aggressive pace of investment in talent, infrastructure, and marketing.

Head count for year increased by 5200, bringing total staff to more than 16,000 at year end.

CapEx was RMB1.8 billion in 2011 and we funded strong marketing efforts towards SEM market development and building ecosystems for the Baidu open data and open application platforms.

In 2012 we aim to continue a robust pace of investment to build a solid foundation for long-term growth while maintaining our disciplined approach to spending.

We have a very clear vision of how we intend to grow our business.

This entails continued investment in R&D talent and infrastructure.

To support this expansion in talent we will add new office space.

This includes the recently announced Baidu International building in Shenzhen in southern China, which we expect to be completed in 2015.

We will also add more network infrastructure, such as data centers and services.

As part of our landing page strategy in 2011, we invested in key vertical areas, such as online video and online travel.

In 2012 we will continue to support the growth of these invested entities while also focusing on key strategic initiatives to finance as appropriate.

We are confident about the long-term opportunity in China's internet industry and we will invest to develop and capture future growth of our business.

With that, let me run through some of the key financial indicators for the fourth quarter and the full year.

All amounts mentioned are in RMB unless otherwise noted.

For the fourth quarter, total revenue was RMB4.5 billion representing an 83% increase year-over-year.

Total revenues for the full year 2011 were RMB14.5 billion, an increase of approximately 83% from 2010.

During the fourth quarter Baidu had approximately 311,000 active online marketing customers, a 13% increase from the corresponding period in 2010 and a 2% increase from the previous quarter.

Revenue per online marketing customer for the fourth quarter was approximately RMB14,400, a 62% increase from the corresponding period in 2010 and an increase of 5% from the previous quarter.

For the full year 2011 active online marketing customers increased by 18%, and revenue per online marketing customer increased by 55% over the full year 2010 figures.

Traffic acquisition cost as a component of cost of revenues in Q4 was RMB354 million, or 7.9% of total revenues, as compared to 8.1% in the corresponding period in 2010 and 8.0% in the third quarter of 2011.

Full year 2011 TAC as a percent of revenue was 8%, down from 9.6% for 2010, which primarily reflects the continued impact of our traffic optimization efforts from previous years.

As we noted before, we expect TAC as a percent of revenue to gradually increase over the long-term.

Given that, we need to manage our partnership network dynamically and we will also offer incentives, especially a higher payout ratio for new and important products such as contextual ads.

Bandwidth costs and depreciation costs as a per cent of revenues in Q4 were 4.3% and 4.8% respectively, compared to 4% and 4% in the corresponding period in 2010.

In 2011 bandwidth and depreciation costs as a per cent of revenue increased to 4.3% and 4.5% respectively, compared to 3.9% and 4.2%.

The increase was mainly due to an increase in network infrastructure capacity.

We expect to recognize more bandwidth and depreciation costs in 2012, in line with the Company's sustained investment in network infrastructure.

Selling, general and administrative expenses in Q4 were RMB522 million, an increase of 67% year-on-year.

Total SG&A expenses for 2011 were RMB1.7 billion, a 55% increase from 2010, mainly due to increased personnel costs and marketing expenses.

R&D expenses in Q4 were RMB414, an increase of 78% over the corresponding period in 2010, primarily due to increased head count.

Total R&D expenses for 2011 were RMB1.3 billion, an 86% increase from 2010, reflecting our continued emphasis on investing in top-notch R&D talent.

Share-based compensation expenses, which were allocated to related operating cost and expense line items, increased in aggregate to RMB47 million in the fourth quarter from RMB28 million in the corresponding period in 2010.

SBC for 2011 increased 62% over the 2010 level.

Operating profit for Q4 was RMB2.3 billion, an increase of 80% over Q4 2010.

Operating profit for the full year 2011 increased 91% from 2010.

Loss from equity method accounting was RMB8 million in Q4 2011 and RMB171 million in 2011, versus RMB7 million in Q4 of 2010 and RMB9 million in the whole year of 2010.

The year-on-year increase was mainly due to Baidu's cash investment in iQiyi.

Total head count as of 31 December 2011 was about 16,100, an increase of 5200 over the end of 2010.

Of this total head count, around 1100 is attributable to Qunar, with the remaining primarily attributable to head count increases in R&D and sales.

In the fourth quarter, head count increased roughly 1400.

In 2012 we will continue to increase head count with more emphasis on R&S expansion.

Income tax expense was RMR404 million for the fourth quarter.

The effective tax rate for the fourth quarter was 16.5%, compared to 12.1% in Q4 of 2010.

For the full year, our effective tax rate was 15.2%, compared to 13.2% in 2010.

The increase was mainly due to expiration of preferential tax treatments for some of Baidu's PRC subsidiaries.

Also, we have recognized a higher effective tax rate for the full year 2011, because we are in the process of applying for the high-end new technology tax enterprise status for one of our entities.

Until we receive this status we have accrued the income tax at a high non-preferential tax rate.

We expect we will be granted the HNTE status and to reverse this over-accrual in 2012, when we receive the status.

For 2012 we expect our effective tax rate to be around mid-teens.

Net income attributable to Baidu for Q4 was RMB2.1 billion, a 77% increase from the corresponding period in 2010.

Basic and diluted earnings attributable to Baidu per ADS for the fourth quarter of 2011 amounted to RMB5.88 and RMB5.87 respectively.

Net income attributable to Baidu for the full year increased by 88%.

Net income attributable to Baidu excluding share-based compensation expenses, a non-GAAP measure for Q4 was RMB2.1 billion, a 77% increase year-over-year.

Basic and diluted earnings attributable to Baidu per ADS excluding share based compensation expenses, both non-GAAP measures, were RMB6.02 and RMB6.01 respectively.

As of 31 December 2011 the Company had cash, cash equivalents and short-term investments of RMB14.2 billion.

Net operating cash inflow and capital expenditure for the fourth quarter of 2011 were RMB3.4 billion and RMB502 million respectively.

Full year net operating cash inflow

Full year net operating cash inflow and operating expenditures were RMB 8.2 billion and RMB1.8 billion respectively.

In 2012 we plan to aggressively expand our network infrastructure and office capacity.

Now let me provide you with our top line guidance for the first quarter 2012.

We currently expect total revenues for the first quarter of 2012 to be between RMB4.195 billion and RMB4.33 billion, which would represent a 72.2% to 77.7% year-on-year increase.

I do wish to emphasize that this forecast reflects Baidu's current and preliminary view, which is subject to change.

I will now open the call to questions.

(Operator's Instructions).

Your first question will come from the line of Alex Yao of Deutsche Bank.

Please go ahead.

Hi.

Good morning Robin, Jennifer and Victor.

Thank you very much for taking my question.

Can you talk about 2012 revenue growth outlook, specifically how do you expect the larger and smaller advertisers react to the current macro-environment?

Thank you.

Alex, thank you for your question.

As we provided in the Q1 guidance, we are projecting a revenue growth at this point on a year-over-year basis for the quarter between 72% to close to 78%.

We provide you this Q1 outlook based on our best understanding and insight into our business, and that's the consistent approach we provide in terms of revenue guidance.

We do not offer the full year outlook, however I think there are two things I want to emphasise --- is on one hand the internet and search engine marketing market has tremendous opportunities.

At this point we're very focused on the matters that we have control over, and the efforts that we put in are based on the initiatives that we put forward and the things that we have control over.

So this, I mean I would say we not read too much into the macro-environment.

In terms of large customers' contribution to our revenue growth, that will continue to be a very strong driver.

This has been the case for the past few years, and as we have outlined in our script, the business that we are growing in the large accounts has been building very solid base; more and more traditional players are allocating more of their ad budgets with us, and brand players are standing to put emphasis into our platforms, so we have continued to see there is a lot of growth momentum within the large clients business.

Next question will come from Dick Wei of JP Morgan.

Please go ahead.

Hi, thanks for taking my question.

My question is on the cost side --- looks like a bandwidth and depreciation are up in terms of percentage of revenue in Q4.

I wonder if it is just a normal volatility or should we be expecting more of the, that is in the medium-term, that the spending would be higher compared with the revenue growth?

Thank you.

I think over the past couple of quarters Dick you would have noticed we used to have these cost components as a per cent of revenue at a decreasing rate, but that momentum has changed.

This is reflective of our continued investment in the infrastructure as we put out more servers, we handle more products, there's more traffic that will service our users, the bandwidth and depreciation costs naturally go up.

You should continue to expect this trend going forward.

This is not one-time special activities going on.

Next question will come from Alicia Yap of Barclays Capital.

Please go ahead.

Good morning Robin, Jennifer and victor.

Thanks for taking my questions.

My question is relating to your mobile strategy --- so can you --- I mean I think Robin you mentioned substantially on some of the mobile initiatives --- then can you share with us the current revenue contribution or maybe you know how much do you expect mobile to contribute in 2012?

Thank you.

Okay, over the past conference calls as well --- repeatedly said that we do think mobile would become a very important channel to distribute our products and that has increasingly become true over the past quarter and we think during the coming year mobile will represent an ever larger percentage of our total traffic.

In the past we basically did not spend any resources on monetizing the mobile traffic, but starting from this year we will do something to figure out how to better serve our customers the mobile platform.

That being said, I think probably over the next three to five years, our resource and our emphasis on mobile will continue to be on the user front instead of the monetization mechanisms.

Right now mobile represents a very small percentage of our total revenue.

Next question will come from Jin Yoon of Nomura.

Please go ahead.

Hi, it's Yong Wang from Nomura.

I will ask questions on behalf of Jin Yoon.

Thanks for taking my question.

So my question is about the Hao123.

So given your guidance for the Q1 '12 have you seen any potential slowdown in Hao123 and how much impact have you seen from group buying and e-commerce to Hao123?

Thanks

Thank you for your question.

Hao123 has been around for a number of years and it is an integral part of our services, both to the users as well as to our customers.

We do not have the Q1 guidance specifically to address the Hao123 contribution, but Hao123 as I mentioned has been around for a number of years and it does generate some level of monetization for us, but not materially large.

It remains to be an integral part of our service to the users and we continue to deepen the product offerings to add additional features and also to help users navigate popular verticals such as group buying, lottery, and many other verticals.

We did say that in Q4 we see some cooling off in vertical areas like group buying or classified ads, and naturally these players also do a little bit of business on the Hao123 site, but however as I said, Hao123 is not materially huge component of our overall revenue picture, and it doesn't make sense for us to single that out for Q1 forecast.

Next question will come from Jiong Shao for Macquarie Group.

Please go ahead.

Thank you very much for taking my question.

Could you please comment a bit on the user activity or engagement trends in areas such as the click-through rate, [accrued growth], out growth and the time spent, et cetera, and how they relate to your sort of --- how they contribute to your revenue growth?

Thank you.

I think there has not been any material change in the user activity in either the nature of the queries or the click-through rates.

Chinese internet users continue to rely on Baidu as their main information source, so whatever they are looking for they type in the related key word into our search box.

We haven't seen anything different from that.

Of course we continue to fine tune our monetization mechanism, including the picking price, pixel rate, and where we show the promotional messages and how they are displayed --- that will be an ongoing effort.

But over the past quarter, and I think probably for the next quarter too, there shouldn't be any material change.

Next question will come from Eddie Leung of Merrill Lynch.

Please go ahead.

Good morning.

Thank you for taking my question.

My question is on more about the Brand Zone.

Could you give us the proportion of advertisers which have Brand Zone and then how much the revenue contribution from Brand Zone is a material part of your business?

Thanks.

Brand Zone is a very popular feature among our product offerings and many customers do select into -- to conduct our business using this product.

It has been growing very fast; is one of the core products we offer as an overall package to the customer base.

We do not -- you know I think in terms of the whole scheme of things, I think you understand we haven't really broken out the large client group business and this is only one product for that group of business.

It is, you know, one of the main features that we offer to the customers, but we, you know it has been growing very very nicely, but you know we don't single out the revenue contribution just for one product.

For the Brand Zone product, it's primarily designed for the large customers for brand building purposes.

We have seen very good results from that, that's why during the prepared remarks I said that the large customers who traditionally advertised offline are allocating more and more budget and Baidu Brand Zone does give them a lot of flexibility to promote their brand.

They have got a lot of ways to display the promotional messages and we even allow certain interactivities from our search results with Brand Zone.

So we are very bullish on the future of this product.

Next question will come from Yu Jin of CICC.

Please go ahead.

Thank you for taking my question, and good morning Robin, Jennifer and Victor.

So, I have a broad question, probably for Robin, so traditionally I think that people agree search is the center of the internet industry, however conversely some people said the compatible landscape will change in the future, possibly driven by (inaudible) open platform and sometimes the mobile internet is also different from the PC internet.

So that side of the internet industry might be divided into different ecosystems which are built around several leading players.

An alternative is a much different ecosystem, they may not open to each other, and just (inaudible) [the whole internet] ecosystem less connected than before.

So my question is, how do management view the (inaudible) trend of the China internet industry?

Do you agree with the idea of a multi-ecosystem, and if so, where and how the potential change of the [compatible] landscape will affect search provision amongst the internet industry and what kind of strategy or initiative Baidu may take to cope with the changes.

That's my question.

I will stop here.

Thank you.

Okay, we firmly believe that search is and will be the center of the internet ecosystem for information purposes.

Of course the market, the internet market keeps changing and keeps evolving.

There are all kinds of innovations, new products, and then the new user behaviors, but what we are saying is that in other areas -- for example e-commerce -- there are a lot of user activities going on and user behavior has changed a lot.

Also on the (inaudible) side, user activities keep increasing and a lot of people are used to communicating through social networks services, but those are things that differ in nature from information.

So I think for Baidu we continue to be sort of the most comprehensive place for people to get that information, and for other types of activities -- be it e-commerce or social communication -- they have their ways of making money and they may choose to be a closed system and they may choose to be open to us.

But because we continue to have the most comprehensive information, I think most of the users will rely on Baidu as their primary information source.

Next question will come from Catherine Leung of Goldman Sachs.

Please go ahead.

Hi, good morning.

I was wondering if you could discuss in more detail how much of your bandwidth and server cost growth is related to traffic growth from your core search versus non-search products, and also how much impact does the growth in mobile internet or mobile search traffic have?

Both our core search web search business in terms of traffic, as well as our non-search products in terms of traffic, has grown very very healthily and very nicely.

The service that we put out not only will handle traffic, it also handles a lot of the back end technology -- things like, you know, our open data platform, open application platform, the computing capabilities, to constantly improve on search results to generate high quality search results to the users, a dynamic search result, and also servers to use for our monetization efforts.

So you know you do see bandwidth costs and depreciation costs increase.

This is overall handles, you know not only the back end technology, but also the traffic that you know we are very happy to see that it's growing very nicely.

As I mentioned earlier, we will continue to aggressively invest in infrastructure to support these core -- our core business, as well to support future initiatives, such as mobile.

So we will continue the pace of investment on the server and infrastructure side, and in that you will continue to see the bandwidth cost and depreciation add up going forward.

Next question will come from Cynthia Meng of Jefferies.

Please go ahead.

Thank you management.

My question is on Robin's comments about exploring ways to monetize for social media.

Can management give a little bit more color on how Baidu plans to do this?

And also, any outlook for equity gain or loss for NTE going forward for this year?

Thank you.

For the social media monetization, like I mentioned, many of our social offerings are organized both around people and topics.

When customers want to advertise social media I think we have an angle of topics that can group people together with similar interests, so we can better target and have more impressions for our customers.

That's why I think we have an advantage over those other [Ethernets] whose main purpose is to communicate with each other instead of seeking information.

The total offerings of ours have been growing very nicely; faster than the web search traffic, and we are actively exploring all kinds of monetization opportunities on these products.

But it's still at the early stage.

We will report back to you the progress when there is anything worth mentioning.

next question will come from Ming Zhao of SIG.

Please go ahead.

Thank you for taking my question.

Just a question on iQiyi.

Jennifer, I think you said that in the fourth quarter you will have another $23 million equity loss picked up from iQiyi, but it didn't happen this quarter and you also mentioned that there might be some strategy change on iQiyi.

So my question is really, is there any change to your strategy there and why there is no equity loss for this quarter; should we expect that to happen in the next quarter?

Thank you.

Okay, thank you Ming.

As, you know, the background that you are all familiar with -- Baidu and our partners have joint control over iQiyi and the investment that we have for this entity is recorded under equity accounting method.

We have in the past supported the business in kind, and so there has been minimum financial impact to date.

In Q3 we made a cash contribution to iQiyi and the cash investment was put against our share of iQiyi's cumulative results.

In Q4, as planned, we made another cash contribution to iQiyi of $22 million, but we did not need to repeat the one-time pick up to reflect the cumulative nature of iQiyi's financial performance.

This cash investment, this new cash investment that we did in Q4, on a going forward basis, will pick up along the way our share of the results on an ongoing basis --- up to that cash contribution amount.

For iQiyi, our investment strategy doesn't change.

iQiyi is an important initiative for us and we will continue to support iQiyi very strongly.

We will regularly review what is the optimal strategy for us to support it, and on a going forward basis.

Next question will come from Eric Wen of Murray Asset Management.

Please go ahead.

Good morning and thanks very much for taking my questions.

I have a question on the percentage of traffic and of revenue outlook for vertical search.

What I mean by vertical search is seems like map travel, video and online shopping.

I think first image and music search in the past.

Right now it's about around 15% of the search queries and a revenue much less.

How does Baidu see those vertical searches growing in traffic share and revenue share terms going forward?

For some of that, if it's not just the --- some of the important ones that you think is going to grow in the future.

Thanks.

Eric, the main purpose for our vertical search product offerings was really to make our users dependent on Baidu for any type of information needs.

So over the past years, searches like video search, image search in map, have helped us to maintain and gain market share or traffic share web search.

We did not put into our resources to monetize the vertical search classic.

Image search represents the largest portion of vertical search queries, but it's not that easy to find a good way to monetize this part of traffic.

While map is a little bit different, it's central to the location-based services that a lot of people have high hopes on, as more and more people access our services through mobile devices.

We believe there could be good monetization opportunities on map related LVS services.

Next question will come from Aaron Kessler from Raymond James.

Please go ahead.

Yes, thank you.

A couple of questions.

First on the SG&A, those up decently on a sequential basis whereas last year was relative flat sequentially.

Was there anything there and is there any sense for the clicks volume for the year?

I think you usually disclose that in the 10K unless you can give us an advanced preview of that?

Thank you.

Let me address your first question first.

I didn't quite hear your second question.

The marketing dollars increases sequentially, yes we do have not necessarily a flat pattern quarter over quarter, this past Q4 there are a number of marketing activities going on that contributed to the sequential increase.

We celebrated our 10th year anniversary of Baidu's commercial products and that was a big marketing event this year, compared to probably prior quarters.

There are also, as you can see, headcount increases related somewhat to marketing and that contributed to the sequential increase as well.

As I mentioned in my script, marketing is a very important component of our overall expense structure.

Not only we have a lot of market opportunities, which as a search engine market leader that we need to develop the market opportunities, particularly on the SME side, on the user front we're trying to build a healthier, very positive ecosystem with our open applications and open data platform.

That in itself will also drive our marketing spending going forward.

So quarter over quarter there's always different events that we're trying to drive our strategic focus.

The second question is on click volume growth in 2011.

I think you disclosed that in your annual filings typically.

A click volume, did you say click volume?

Yes.

Okay, yeah we typically release that in our 20F filing, but not on the quarterly review.

Next question will come from Wallace Cheung of Credit Suisse.

Please go ahead.

Hi, thanks for taking my questions.

I think after the Google fourth quarter result (unclear) a lot of client has been quite interested to see how the search engine to improve monetization on mobile search for as the matter of like the phone factor has some kind of limitation.

So when Baidu's trying to say about monetization mobile search probably in this year, would you have the same sort of platform for both the PC and mobile search front in order to have two different kind of a CPC or would you think about other projects in order to improve the [relevance] of the search queries on the mobile [site].

Thank you.

Frankly we just started to work on the monetization off mobile traffic.

It's very early for us to have any conviction what best way to monetize mobile traffic is.

But right now the monetization system mobile is the same as it is PC based internet.

So there shouldn't be any change for near future, it's just the way we display promotional messages on mobile interface could be a little bit different.

We may display phone numbers and users can click on the phone numbers and make phone calls.

We may display less promotional message than PC interface, but we are working to optimize these kind of offerings.

Because they represent a very small percentage of our revenue, to our revenue right now, we will not be able to get into more details at this time.

But going forward, when we develop more product features for mobile monetization, we will give you more color around that.

Your next question will come from Ravi Sarathy of Citigroup.

Please go ahead.

Good morning Robin, Jennifer and Victor and thank you very much for taking my call.

I have a question about your vision for the Box computing platform and your broader web apps initiatives.

Clearly the more immersive environment that you said that 70% of clicks resulted on your search pages both delivers contextually relevant search results and information, but it also moves you into entertainment and other services around that app's platform.

Do you envisage an opportunity incrementally for monetization for Baidu beyond the paid search results into an economic share with an incremental share of apps that may monetize or charge users going forward?

I think at the end of day, we make the same --- we get the same budget from the same group of customers.

It could be marketing budget, it could be revenue sharing or commission.

Right now most of our Box computing results are not commercial results, but some of them do have commercial value and we work with a number of partners to provide both of high quality information and good revenue contributions to our platform.

The recent benefit from the traffic and user delivered choose --- well we can choose to be paid by marketing budget or from revenue sharing, but at this time, because we think at the end of the day it's the same budget, we'd like to stick with the same mechanism which is marketing budget instead of revenue sharing.

But I agree with you, a lot of the entertainment ended applications could benefit from our Box computing infrastructure very well.

The next question will come from Richard Ji of Morgan Stanley.

Please go ahead.

Thanks for taking my call.

Can you comment on your plans for Baidu Union going forward, especially regarding potential traffic expansion as well as revenue opportunities?

We have a long standing of having the largest union network in the country and we and our partners together offer the kind of services that complement each other.

Throughout the past two years, I think you have seen on the search side, there has been improvement in terms of the traffic quality and our task has been managed very well in that regard.

However, this environment is dynamic, as I mentioned in the script, we will manage our partnership network dynamically and that could have implications to the tax expenses going forward.

We're also pushing new products and services through the union network, products like contextual apps like home media.

We hope that with our joint efforts, we offer better services to the advertisers and at the same time, everybody has a win/win situation.

So in all, I think this is an important component of the overall ecosystem, as well as our business and we will manage the business dynamically.

In the early days, the main purpose of Union was to distribute the Baidu search box as much as possible.

Now that Baidu has become the de facto standard of web search, the strategic focus for Union has shifted a little bit.

We would like to partner with a lot of media properties and other distribution channels to display contextual ads and other forms of display ads.

So that's why the nature of attack will change a little bit going forward.

Next question will come from Wendy Huang of RBS.

Please go ahead.

Thanks for taking my questions, I just wonder if you can give more color on your search traffic growth in 2012 and I think there are probably three different sectors impacting this.

One I think you mentioned that when you launched the personalized home page last September, you said it potentially make (inaudible) traditional search traffic.

So, so far, have you seen any cannibalization effect on your traditional search traffic?

Also I think the number two factor here is that given that market share by your search queries already exceed 80% and you're sitting on a high base of the search traffic, so your search traffic growth decelerates dramatically in 2012.

The number three sector would be I say given the emerging different standalone vertical search engines in market, are you see your search traffic being affected by those search engines?

Thank you.

Okay, our search traffic has been growing very predictably over the past few years and we think 2012 will be no exception.

The new personalized home page offered a lot of stickiness to the heavy users of Baidu, but it's not a huge percentage of our total user base yet, so that's why we haven't seen material cannibalization in the search traffic because of that.

What we are saying is that, like I mentioned before, mobile search traffic has been growing very, very fast and this, again, I don't think the overall exactly is cannibalization, it's actually increased the chance for in our users to use search more.

So if you combine PC searching and mobile search together, I think in that we are benefiting users contributing more search traffic to Baidu.

We don't believe any vertical search would have major impact on us, because consumers would like to depend on one single entry point for information.

Next question will come from Elinor Leung of CLSA.

Please go ahead.

Hi, thank you for the call.

Can you give us an update on your contextual app business as well as your personalized home page platform?

I would like to know what is the contribution of contextual apps right now with the growth rate --- will it be huge next year in 2012?

Also, for the person home page, how many registered users you have right now and what is the growth rate on that at the moment?

Elinor, I'll take your first question.

Contextual apps, we're pleased with the progress we've made on contextual apps.

We have gained a good traction, improved on the product quality, have higher customer reception to the product and overall its performing as expected.

That will continue to be our focus going into 2012.

This business, as you can understand, is not one overnight kind of jump to a new platform.

So it's a gradual process but today we're pretty pleased with the progress we're seeing.

For the personalized home page, the way it works is that whenever a user come to Baidu.com, if they choose to log into their account, they will see a personalized home page.

So far very few of them opt out on that.

So what we are seeing is that those very loyal users of Baidu are served by the personalized home page, but the rest gets the traditional home page.

We are still investing very heavily in the personalization technology so that the layout and the content offerings on the personalized home page will be more accurate and sticky to our users.

We are now approaching the end of the conference call.

I will now turn the call over to Baidu's Chief Executive Officer, Robin Li, for his closing remarks.

Once again, thank you for coming today.

Please do not hesitate to contact us if you have any further questions.

Thank you for your participation in today's conference.

This concludes the presentation, you may now disconnect.

Good day.