Baidu Inc. (BIDU) Q2 2022 Earnings Call Transcript

Baidu Inc.  (NASDAQ: BIDU) Q2 2022 earnings call dated Aug. 30, 2022

Corporate Participants:

Juan Lin — Head of Investor Relations

Robin Li — Co-Founder, Chairman and Chief Executive Officer

Rong Luo — Chief Financial Officer

Analysts:

Alex Yao — JPMorgan — Analyst

Kenneth Fong — Credit Suisse — Analyst

Dou Shen — Executive Vice President

Lincoln Kong — Goldman Sachs — Analyst

Alicia Yap — Citigroup — Analyst

Zhenyu Li — Senior Vice President, Baidu Intelligent Driving

Eddie Leung — Bank of America Merrill Lynch — Analyst

Gary Yu — Morgan Stanley — Analyst

James Lee — Mizuho — Analyst

Wei Xiong — UBS — Analyst

Presentation:

Operator

Thank you for standing by, and welcome to the Baidu Second Quarter 2022 Earnings Conference Call. [Operator Instructions] There will be a presentation followed by a question-and-answer session. [Operator Instructions]

I would now like to hand the conference over to Ms. Juan Lin, Head of Investor Relations for Baidu. Please go ahead.

Juan Lin — Head of Investor Relations

Hello, everyone, and welcome to Baidu’s second quarter 2022 earnings conference call. Baidu’s earnings release was distributed earlier today, and you can find a copy on our website as well as on newswire services. On the call today, we have Robin Li, our Co-Founder and CEO; Rong Luo, our CFO; Dou Shen, our EVP in-charge of Baidu AI Cloud Group; and Zhenyu Li, our SVP in-charge of Baidu Intelligent Driving. After our prepared remarks, we will hold a Q&A session.

Please note that the discussion today will contain forward-looking statements made under the safe harbor provision of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from our current expectations. For detailed discussions of these risks and uncertainties, please refer to our latest annual report and other documents filed with the SEC and Hong Kong Exchange.

Baidu does not undertake any obligation to update any forward-looking statements except as required under applicable law. Our earnings press release and this call include discussions of certain unaudited non-GAAP financial measures. Our press release contains a reconciliation of the unaudited non-GAAP measures to the unaudited most directly comparable GAAP measures and is available on our IR website at ir.baidu.com. As a reminder, this conference is being recorded. In addition, a webcast of this conference call will be available on Baidu’s IR website.

I will now turn the call over to our CEO, Robin.

Robin Li — Co-Founder, Chairman and Chief Executive Officer

Hello, everyone. Baidu Core earned RMB23.2 billion in revenues and RMB5.1 billion in non-GAAP operating profit in the second quarter. The resurgence of COVID-19 led to an unfavorable macro environment in the quarter. However, Baidu AI Cloud and Intelligent Driving business maintained their rapid growth momentum as we aligned well with the government’s repeated calls for technology innovation. Especially, Q2 revenues from Baidu AI Cloud increased by 31% year-over-year, outgrowing many of our peers, contributing 18% of Baidu Core revenues in the quarter, that’s up from 14% in the same period last year.

Further, the operating margin for Baidu AI Cloud improved on both a year-over-year and quarter-over-quarter basis. Apollo Go completed 287,000 rides in Q2, increasing by almost 500% year-over-year. On July 20, Apollo Go’s accumulated rides reached 1 million. And in July, we unveiled Apollo RT6, the sixth generation Apollo robotaxi vehicle, bringing the cost of robotaxi to the price range of mass market electric vehicles for the first time in China and globally. We aim to put a sizable amount of RT6 vehicles into operation in the year 2024. While Baidu Core ad revenues decreased by 10% over the year and in second quarter due to a challenging macro environment, our mobile ecosystem continued to generate strong cash flow as we focused on operational excellence and efficiency.

Since early June, we have seen signs of recovery as the control measures were gradually lifted. For example, the year-over-year decline of our ad revenues narrowed in June and July. In particular, ad revenues from retail customers resumed year-over-year growth during the 618 Shopping Festival. Project implementation for Baidu AI Cloud has also been improving, thanks to the gradual removal of some major travel restrictions. While the recovery is likely to be at a gradual pace, and there could still be some uncertainties about the development of COVID-19, our long-term goals, strategies and capabilities for shareholder value creation remain intact.

At Baidu, we have built a discipline of long-term thinking, which we believe is a strong asset in this fast-evolving innovative and highly competitive wins environment. Cost optimization and operational efficiencies are always top of mind for us. Our mobile ecosystem business should continue to generate strong cash flow to fuel and fund our investments in Baidu AI Cloud and Intelligent Driving over the long-term.

Now let’s review the second quarter operational highlights. Revenues from Baidu AI Cloud grew by 31% year-over-year in the quarter, once again, outgrowing our peers despite the macro challenges brought by COVID-19 resurgence. Our growth was driven by the strong performance in cloud business within enterprise business and the public sector. Not only we managed to improve our operating margin both on a year-over-year and quarter-over-quarter basis in Q2 as we focused on healthier and more sustainable cloud revenue growth. We aim to achieve profitability as we scale up further. Baidu AI Cloud continue to benefit from the growth opportunity in China digital and intelligent transformation. We believe this transformation is still at the early stage, and organizations are eager to leverage technologies to improve efficiency and productivity.

Over the past years, we have made tremendous advances in AI technologies, made our AI capabilities widely available to enterprises and developers through our open platform, gained valuable industry expertise, saw significant improvements in productivity in areas like manufacturing, transportation, energy and utilities and the public sector. Baidu AI Cloud’s differentiating strengths are our AI capabilities and deep understanding of industry-specific pain points to help our customers to accelerate their transformation. In short, our competitiveness enables us to take full advantage of the tailwind offered by these new secular trends.

Revenues from ACE smart transportation increased by about 40% in Q2. During the second quarter, we won several new projects for highways and in urban roads, both from our new and existing customers. By the end of second quarter, Baidu ACE smart transportation has been adopted by 51 cities up from 20 cities a year ago and 41 cities a quarter ago based on the contract amount over RMB10 [Phonetic] million. Going forward, we will continue to focus on key industries and enable cross-industry replications for similar use cases by utilizing AI innovation. By doing so, we believe we will be able to reduce the operating losses and achieve profitability over time. In the meanwhile, we will continue to focus on quality and sustainable revenue growth and aim to continue outgrowing our peers.

Moving to Intelligent Driving, Apollo Go continues to take a big step towards scaling up operations, strengthening its lead position as the world’s sixth [Phonetic] autonomous ride-hailing service provider. In Q2, Apollo Go provided 287,000 rides to the public, up from — up almost 500% year-over-year and 50% quarter-over-quarter. On July 20, 2022, Apollo Go accumulated rides reached 1 million. In the Yizhuang region of Beijing, according to our estimate, Apollo Go has obtained a 10% market share for ride-hailing services with pickup and drop-off both in Yizhuang.

Apollo Go already becomes an important supplement for daily commuting after we launched the services less than two years ago. Now more than 100 Apollo Go vehicles are serving the Yizhuang residents on a daily basis, and each vehicle on average completes more than 20 rides per day. In July, Apollo Go branched out to Hefei and Chengdu and is now operating in more than 10 cities charging fees in seven cities across China. We believe large scale operation allows us to improve our Level 4 autonomous driving technologies further.

With data generated from everyday operation, we can identify problems that are not visible during the testing phase. The number of corner cases incurred during operations has far exceeded the ones found by vehicles and testing. In addition, Apollo Go has made some exciting progress since our last earnings call, marked by receiving the green light to provide fully driverless ride-hailing services and launching of the sixth generation robotaxi vehicle, RT6. Earlier this month, we obtained the regulatory permits in Chongqing and Wuhan to provide fully driverless ride-hailing services on open roads.

We were also authorized to collect fees on those services. We are proud to be the first and only Company in China now to offer fully driverless ride-hailing services to the public on open roads entirely without human drivers in the car. Such achievements validate our superior Level 4 autonomous driving technology and endorse our strategy of utilizing large scale operations to boost further technological advancements. On July 21, at Baidu World, we unveiled Apollo RT6, the sixth generation Apollo robotaxi vehicle with a targeted mass production cost of RMB250,000. This is significantly lower than the mass production cost of the fifth generation vehicle and is in the price range of mass market electric vehicles.

RT6 is designed to offer large scale fully driverless ride-hailing services and launched at a time that both our technologies — both our technological and operational capabilities are ready. We believe that China’s smart EV value chain has already been well established. Some of the auto parts and components for Level 4 autonomous driving solutions are already being produced in China at a much lower price than a few years ago. Moreover, RT6 is a passenger-centric vehicle, so we have removed some components, especially designed for drivers. For example, RT6 has a detachable steering wheel, which could unlock space for extra seats, luggages, desks and even some entertainment equipments enriching the in-car experience for the passengers.

Such achievements have set a strong foundation for Apollo Go to significantly reduce the two largest cost items for its operations, labor cost and the robotaxi vehicle cost. This is a critical step for Apollo Go to build a revolutionary business model and accelerate its expansion. Over the long-term, we aim to make Apollo Go an alternative mobility option for millions of people creating tremendous economic and social values. Baidu Apollo Auto Solutions, including ASD and DuerOS for auto continue to gain popularity among automakers. As an increasing number of auto OEMs have publicly committed their brands to autonomous and connected vehicles, we’re pleased to say that many have chosen to form alliances with Baidu to expedite their timeline and plans. Recently, the total projected accumulated sales of our auto solutions have grown to RMB10.3 billion per our internal estimate.

Moving to the mobile ecosystem, the user base of our mobile ecosystem continued to grow steadily. We once again delivered strong margins in the second quarter despite the negative impact on our absence caused by macro weakness. On the user side, Baidu App’s MAU increased by 8% year-over-year to 628 million in June. Data search queries and the content distributed through Baidu App grow double-digits year-over-year in Q2. Our innovations and efforts in delivering a closed-loop experience has made Baidu App increasingly valuable to users. In addition to searching for information and knowledge, people come to Baidu App to look for ways to fulfill their needs. We have enabled them to other services, purchase products and interact with industry experts and others without leaving Baidu App. Here are some metrics to share. 84% of our DAU in June were locked-in users, that’s up from 76% a year ago.

People have discovered that their user experience within Baidu App continues to improve once they are locked in. Quarterly GMV facilitated by Baidu Search, though still small, grow by about 127% year-over-year. In particular, during the 618 Shopping Festival, GMV increased by about 260% year-over-year. In June, while 130,000 industry experts actively signed up for our instant replies feature, up from about 100,000 in March. Total daily instant replies increased by about 190% year-over-year, up about 30% from March. Another highlight is our progress in short videos. Currently, about 85% of the content distributed within Baidu App feed are short videos. During the quarter, we expanded the fully immersive video experience in the search result page to all the users. This feature is now available on both search and feed helping by short video consumption on Baidu App.

In Q2, short videos distributed through search and feed increased by double-digits year-over-year. In addition, we are also using AI to expand our content portfolio. We give content creators, AI tools, which they can use to produce video content more efficiently. AI generated content works particularly well for long and short content and breaking news. While using our closed-loop experience, more and more users are leading their footprint within our mobile ecosystem, increasing our capability to understand user needs and enabling strong conversion optimization at each step of their journey.

Together with our continuous effort to optimize the advertising technologies, this has helped us to significantly improve the app conversion rate for our customers. Looking ahead, here are some key takeaways I’d like to give you. First, operationally, we have built strong new growth engines for Baidu Core, which we believe will boost Baidu Core’s revenue growth in the coming years.

Baidu AI Cloud uniqueness in AI capabilities continues to outgrow most of our peers. Apollo Go continues to solidify its position as the largest autonomous ride-hailing service provider in the world. Apollo Go has entered a new chapter with fully families ride-hailing on open roads. While the launch of our purpose-built RT6 robotaxi vehicles for ride-hailing at really low cost, Apollo Go is set to accelerate its operation, further differentiating from our peers in both technology and operation.

And second — and the second takeaway financially is the mobile ecosystem will continue to generate strong cash flow to fund our investments in Cloud and Intelligent Driving. On a separate note, we are also excited about iQIYI’s continuous efforts in improving operational efficiency. iQIYI once again generated operating profit in Q2, the second consecutive quarter to report positive operating profit on both GAAP and non-GAAP financial measure. Furthermore, iQIYI generated positive net operating cash flow in the quarter for the first time.

Before I turn the call to Rong, I’d like to highlight that we will be added to the Hang Seng Index from September 5. We believe with the inclusion of Hang Seng Index, one of the best known indices in Asia, the Hong Kong shares of Baidu will receive more sound flow. Overall, I’m very proud of the team’s strong execution in the quarter and remain excited about our future.

With that, let me turn the call over to Rong to go through our financial highlights.

Rong Luo — Chief Financial Officer

Thank you, Robin. Now let me walk you through the details of our second quarter financial results. Total revenue was RMB29.6 billion, decreasing 5% year-over-year. Revenue from Baidu Core was RMB23.2 billion, decreasing 4% year-over-year. Baidu Core, online marketing revenue was RMB17.1 billion, decreasing 10% year-over-year. Baidu Core non-online marketing revenue was RMB6.1 billion, up 22% year-over-year, driven by cloud and other AI-powered businesses.

In Q2, Baidu AI Cloud increased by 31% year-over-year to RMB4.3 billion. Revenue from iQIYI was RMB6.7 billion, decreasing 13% once through [Phonetic] year-over-year. Cost of revenues was RMB15.2 billion, decreasing 5% year-over-year, primarily due to the decrease in content costs, partially offset by the increase in personnel-related expenses and other costs related to new AI businesses. Operating expenses were RMB11.1 billion, decreasing 8% year-over-year, primarily due to an increase in channel spending and promotional marketing expenses.

Operating income was RMB3.4 billion. Baidu Core operating income was RMB3.2 billion, and Baidu Core operating margin was 14%. Non-GAAP operating income was RMB5.5 billion. Non-GAAP Baidu Core operating income was RMB5.1 billion, and non-GAAP Baidu Core operating margin was 22%. Total other income net was RMB151 million compared to a total other loss of RMB2.4 billion last year, which included a fair value loss of RMB3.1 billion from long-term investments. In the second quarter of 2022, we recognized a favorable gain of RMB536 million. A significant portion of long-term investments including, but not limited to investments in equity securities of public and private companies, private equity funds and digital assets is subject to quarterly fair value adjustments, which may contribute to a net income volatility in future periods.

Income tax expenses was RMB25 million, decreasing 99% year-over-year, primarily due to the reversal of certain tax expenses accrued for 2021 based on the 2021 tax return filed in the second quarter of 2022, and an increase in deduction on certain expenses that were considered non-deductible in the second quarter of 2021. Net income attributable to Baidu was RMB3.6 billion and diluted earnings per ADS was RMB9.97. Net income attributable to Baidu Core was RMB3.7 billion. Non-GAAP net income attributable to Baidu was RMB5.5 billion. Non-GAAP diluted earnings per ADS were RMB15.79. Non-GAAP net income attributable to Baidu Core was RMB5.4 billion, and non-GAAP net margin for Baidu Core was 24%.

Adjusted EBITDA was RMB7.1 billion, and adjusted EBITDA margin was 24%. Adjusted EBITDA for Baidu Core was RMB6.6 billion, and adjusted EBITDA margin for Baidu Core was 28%. As of June 30, 2022, cash, cash equivalents, restricted cash and short-term investments were RMB189.4 billion, and cash, cash equivalents, restricted cash and short-term investments, excluding iQIYI were RMB184.5 billion. Free cash flow was RMB5.5 billion and free cash flow, excluding iQIYI was RMB5.5 billion. Baidu Core had approximately 36,000 employees as of June 30, 2022.

With that operator, let’s now open the call to questions.

Questions and Answers:

Operator

Thank you. [Operator Instructions] Your first question will come from Alex Yao of JPMorgan. Please go ahead.

Alex Yao — JPMorgan — Analyst

Hi, management, good evening. Thank you for taking my question. I note you guys mentioned that you are seeing a sign of recovery in your advertising business since June. Could management just share more color on the recovery in terms of advertising categories? Looking into the second half of 2022, how do you expect the advertising to develop? And in the medium to longer-term, if we look beyond the near-term impact on COVID, how do you foresee advertising business to develop in the medium to longer-term? Thank you.

Robin Li — Co-Founder, Chairman and Chief Executive Officer

Hi, Alex, this is Robin. As you know, Baidu Core ad revenues decreased about 10% year-over-year last quarter because of the challenging macro environment. In April and May, our ad revenues experienced a significant year-over-year decrease because COVID-19 impacted some of China’s major cities, especially Shanghai and to a lesser extent, Beijing. In June, our ad revenue started to recover, when the situation gradually improved and July was better than June.

In terms of ad verticals, some of the ad verticals got hit really hard in April and May. That includes the retail sector, travel, local services and healthcare. Ad spending from these verticals has been picking up quickly since June. Looking into the second half of the year, we’re still facing macro uncertainties. It is hard for us to predict the divestment of COVID at this stage. For example, the resurgence in some of the hot travel destinations like Sanya caused by — caused the early ending of the summer travel peak season. Our search app is highly correlated with China’s GDP growth and the performance of China’s SMEs. So we believe our ad revenue should recover when macro improves.

We have also seen some opportunities for our mobile ecosystem around e-commerce and short videos. For example, integrating e-commerce and short videos with our search and feed, in fact, more and more short videos are available in our search results. This should help us to improve the user experience. I think in the mid-to-long-term, in which the content in key verticals and our capabilities in facilitating transactions within Baidu App as well as our closed-loop experience for users will help us to create more user insights for our customers. These insights will help us drive ad conversion and generate advertiser value, supporting the long-term growth of our online advertising business.

Juan Lin — Head of Investor Relations

Operator, next question, please.

Operator

The next question comes from Kenneth Fong of Credit Suisse. Please go ahead.

Kenneth Fong — Credit Suisse — Analyst

Hi, good evening. Thank you for taking my questions. Congratulation on another quarter with a strong cloud revenue growth. Can you help us understand the underlying drivers that help Baidu AI Cloud to outperform your peers? What’s your outlook for the cloud business for the second half of the year? And I’m wondering if you can also help us understand your strategy as well as timeline for the cloud business to reach breakeven? Thank you.

Dou Shen — Executive Vice President

Thank you, Kenneth, for your question. This is Dou. I will address the revenue part and leave the second part to Rong. As Robin just mentioned, right, Baidu AI Cloud continues to grow pretty well in Q2 despite the challenging macro environment. And the revenue was up 31% year-over-year, and the AI Cloud now contributed to almost 20% of the total Baidu Core revenue. We believe what differentiates Baidu AI Cloud from our peers is that we have been dedicated to integrate cloud computing with AI, so that our AI capabilities can help our customers to improve efficiency.

To be more specific, as a cloud vendor, we have strong AI capabilities. While on the other side as an AI solution provider, we have strong cloud computing capabilities. So also as we’ve mentioned, right, so the enterprises in the public sector were the main growth driver for cloud computing for us. So we built that in China, the traditional enterprises in the public sector are still at the early stage of digital and intelligent transformation. So clearly, this transformation means organization is no matter big or small, they want to use AI to improve their efficiency and their competitiveness, so which will further drive the demand for high-performance computing.

So as a result, right, the combined revenues for — from manufacturing, energy, utilities and the public sector almost doubled in Q2. In the smart transportation, we continue to leverage our leading AI technologies and the deep understanding of autonomous driving to grow our business. So we see small transportation has already become one of the largest verticals for our Baidu AI Cloud. So with that, we are confident that revenues from enterprises in the public sector will continue to drive the growth of Baidu AI Cloud in the future. Also since early June, we have seen some gradual improvement in project implementation. But for sure, there are still some uncertainties around COVID-19 in the near-term. But however, we believe the strong need and the trend for AI in China remain unchanged. And with that, we aim to continue growing faster than our peers.

Rong Luo — Chief Financial Officer

Yeah. Hi, Kenny. So I will answer the question about margins. Baidu AI Cloud continue to generate positive gross margins in the second quarter, same as what we’ve been in the first quarter. On top of that, we managed to improve our operating margin, thanks to our strategy to focus on quality and sustainable revenue growth. So we have two parts in our AI Cloud, the first part is the personal cloud. The personal cloud contributes a small portion of the overall cloud revenue. It should continue to generate big operating profit, and its revenue is growing a little bit slower than overall cloud.

And the second part, which is the majority part is enterprise and a puck [Phonetic] set of cloud, which continue to generate positive gross profit in the second quarter. We improved operating margin growth on a year-over-year and quarter-over-quarter basis. This was because we practically focus on high-quality revenue growth and gradually will reduce the unhealthy projects. I think in the future, we will work very hard to narrow the loss margins.

Within enterprise and public sector cloud, the ACE smart transportation, which just as mentioned by Dou just now. Already insurance a very healthy gross margin. because of the higher portion of the software and AI components. We think ACE’s smart transportations may achieve breakeven earlier than any other verticals in the coming quarters. And because we have focused on to provide personalized solutions and products to for — the key use cases, for example, urban roads, highways and power.

Secondly, I think we are also working very hard to replicate the similar scenarios in use cases across different industries. Cross-industry replication require the AI technology to find all the connections across many different scenarios. We believe that our AI technology, such as the large models will help us to achieve that goal. Overall, we will continue to focus on quality and sustainable revenue growth to improve margins and reach profitability in the next few years. Thank you so much, Kenny.

Kenneth Fong — Credit Suisse — Analyst

Thank you.

Operator

The next question comes from Lincoln Kong of Goldman Sachs. Please go ahead.

Lincoln Kong — Goldman Sachs — Analyst

Thank you, management. So my question is about robotaxi. So we’re quite impressed that RT6 is targeting a cost of RMB250,000 per car, and that’s significantly lower than the previous generation of the taxi models. So can management help us understand what’s the main driver for this cost reduction? And what’s our outlook for the future cost trend? And how should we think about robotaxi economical mechanism on this cost? Any timeline, I think when to expect major commercial contribution from the robotaxi business? Thanks.

Robin Li — Co-Founder, Chairman and Chief Executive Officer

Hi, Lincoln, this is Robin. I think there are three drivers for the cost reduction. First, it’s our deep knowledge in the autonomous driving technology and operation. Over the past nine years, Baidu has built strong Level 4 technology and gained industrial — industry know-how on the auto industry and on how to operate our four ride-hailing services. Also we have become the largest autonomous ride-hailing service provider in the world. So we fully understand the autonomous ride-hailing market and understand our passengers’ needs.

We know where we can simply find our in-car features and where we should allocate more resources. For example, RT6 is a passenger-centric vehicle, not a driver-centric vehicle. So on one hand, we have reduced some in-car features designed for the drivers to reduce the cost, like I mentioned during the prepared remarks, RT6 can remove the steering well and exclude some other accessories such as white screen, white display screen for drivers. On the other hand, we put more efforts on safety performance and the passenger experience to make RT6 passenger-centric.

For example, we have used safety redundancy in seven parts of RT6, setting an industry standard. This includes redundancy for computing unit, sensors, steering systems, braking systems, communication systems, power supply and auto architecture. Also RT6 is designed for more in-car space and better in-car experience. I also want to highlight that about 60% of our RT6 BOMs for intelligent features, like L4 autonomous driving capabilities. The second driver is scale. We plan to leverage third-party automakers to produce RT6 for us. So RT6 will not retrofit a passenger vehicle. This is a key differentiator of RT6.

We will pay for the BOM of RT6 instead of the retail price like what we did in the past. Once Baidu able to move away from retrofitting vehicles to use third-party automakers to produce RT6, that’s because we have the capability to offer large scale while protect the operation, supported by our leading autonomous driving technology and operational capability. And I think the third driver is the divestment of the value chain for China’s intelligent EV industry. RT6 was launched at the time when China’s intelligent industry is well built up with many new EV companies and auto part producers in the market, in particular, many autonomous driving-related auto parts are now being produced locally.

So intelligent EVs are becoming more affordable than before. And for the autonomous driving related auto parts, its cost is also much lower than before. For example, LiDAR. LiDAR is the most important component for autonomous driving solutions. It was charged hundreds of thousands of U.S. dollars in the beginning, but now it only costs like $1,000. So in the future, we believe the BOM for our robotaxi will continue to decrease because China’s intelligent EV industry will continue to develop and Apollo Go will continue to scale.

Our approach is a gradual approach. We will continue to roll out regions in different cities. So therefore, scale up our robotaxi service, as we gain scale, as we improve continuously on technology, I think that the cost for operating such a service will continue to drop. And we certainly have the first-mover advantage and the barrier to entry for this will become higher and higher.

Juan Lin — Head of Investor Relations

Operator, next question, please.

Operator

The next question comes from Alicia Yap of Citigroup. Please go ahead.

Alicia Yap — Citigroup — Analyst

Thank you. Good evening, management. Thanks for taking my question. I have a follow-up question on Apollo Go. So congratulations on some of the solid achievements recently. Can management provide some update on regulatory environment for autonomous driving and robotaxi in China, and how Baidu will capture this trend? And then can management also provide updates on Baidu’s goal and strategy for this fully driverless operation? Thank you.

Zhenyu Li — Senior Vice President, Baidu Intelligent Driving

Thank you. This is Zhenyu. Just as Robin said, Apollo Go is already the largest autonomous ride-hailing service provider in the world. In quarter two, Apollo Go has completed 287,000 rides and accumulated rides surpassed 1 million. This number is much higher than option [Phonetic]. Our strategy is to leverage a large operation to improve Level 4 technology and growing faster and larger. This is very important in China because of the road and traffic condition what we communicated here. And the data generated from larger scale operations will help us to improve our Level 4 technology and overcome the problem.

Today, Apollo Go is already available in more than 10 cities, including all the Tier 1 cities in China. Our operating areas are many places, including couple of visions, office building and the hospitals in few cities. On the other hand, we’re also expanding off-rate and use safety [Phonetic]. With the larger RT6 as a target market production cost or RMB250,000, we will be able to purchase grow off-rate at a faster pace. In the future, we will continue to improve our Level 4 technology and grow our operation. Also, we will try to push and make our influence on China’s regulation or autonomous driving. For technology, we started up to offer autonomous ride-hailing services on open roads in Wuhan on May the 10. In less than three months, we will allow us to provide fully driverless ride-hailing services on the open road. The great progress is for our leading technologies and the capabilities.

For operation in the Yizhuang region of Beijing, as Robin mentioned, we have already acquired about 10% of our share for ride-hailing services in the region. On average, each level of activity complete more than 20 rides per day. As a pioneer in the industry, Baidu had worked closely with the regulator to set up regulations and industry standards. Recently, the Chinese Ministry for Transport issued a draft or deadline for the driving vehicle transportation safety services. The deadlines aim to push the commercial operations for autonomous ride-hailing services in China. This is the first regulation on autonomous ride-hailing services at a central government level globally.

It matched China’s efforts in promoting high-level autonomous driving. We are proud to be the first and only Company in China to offer fully driverless ride-hailing services. In early August, Baidu was allowed to provide fully driverless ride-hailing services and collect fee in Chongqing and Wuhan, who own China’s major cities in the Middle West. In the future, we will continue to scale up our region and try to push fully in driverless ride-hailing to markets. Thank you.

Alicia Yap — Citigroup — Analyst

Thank you.

Operator

The next question comes from Eddie Leung of Bank of America Merrill Lynch. Please go ahead.

Eddie Leung — Bank of America Merrill Lynch — Analyst

Good evening, and thank you for taking my questions. I have a question about your autonomous driving solution for OEMs. So you mentioned that the contract value after the second quarter was just over RMB10 million [Phonetic]. It doesn’t seem to be increase — increasing much from the last quarterly result, could you tell a little bit about the reason behind that? And then could you also remind us some of the automakers that have been working with you guys in using your autonomous driving solutions? Thank you.

Rong Luo — Chief Financial Officer

Hi, Eddie, let me answer your questions. I think as Robin mentioned in the remarks, yes, the total projected cumulative sales of our solutions has been RMB10.3 billion [Phonetic] per our own estimates. I think let’s just talk about the numbers that we need to keep in mind, the smart EV is a trend that is irreversible. For cars, we believe that over the long-term, electrification is just a part of the play, and intelligent is a game changer. So in the future, EV without Intelligent Driving capabilities will not be competitive.

And many automakers like some leading domestic or even international automakers, they are interested in using our solutions for their models to capture this kind of new market opportunity. Based on our conversations with them, we understand the automakers like our AI capabilities, our insights of the autonomous driving and our strong brand name. And we are talking with many of the automakers, both locally and globally, and some are very large names in the industry. I want to emphasize that each automaker has its own schedule for setting up the countries with the suppliers. This could result in a different pace of our backlog. This is absolutely normal in the auto industry.

As of today, we have partnered with many automakers, including some leading names like the Audi, Donko [Phonetic] model and so on. And in addition to our in-car infotainment solutions, more and more customers now are adopting our Apollo self-driving products, including the ANP products, Apollo Navigation Pilot for highways or urban roads, the automatic valet parking AVP products and HD Maps products. I think in the future, we will continue to expand our partnership to work with more automakers. And as more and more auto models equipped with our auto solutions are set to be launched into the market in the coming few years, the auto solution should start generating meaningful revenues. Thank you so much, Eddie.

Juan Lin — Head of Investor Relations

Operator, next question, please.

Operator

The next question comes from Gary Yu of Morgan Stanley. Please go ahead.

Gary Yu — Morgan Stanley — Analyst

Hi, thank you for the opportunity to ask question, and congratulations on the solid results. My question is about margin and cost control and optimization. We saw that you achieved another strong quarter results with margin better than expected. Could you please elaborate the efforts to talk for such encouraging result and what is the margin outlook for the second half of the year? Thank you.

Rong Luo — Chief Financial Officer

Yeah, thanks so much, Gary, and I’ll take this question. I think despite of the very challenging macro environment in Q2, Baidu Core’s non-GAAP operating margin was 22%, which is up five percentage points quarter-over-quarter. Over the past few months, I think we have made a lot of efforts to improve our operational efficiencies. And for example, the Baidu Core’s SG&A was down by 12% year-over-year in the second quarter. I think our business are at a different stage of development. So we have different strategies of investment for each business.

For the mobile ecosystem, which is relatively mature business, our goal is to keep its profits and margins solid. So that our mobile ecosystem can continue to generate a very strong cash flow to support our investments in the new AI initiatives. I think for our new AI businesses, we will be focused on AI Cloud and Intelligent Driving. Both of them grew very fast in the past few quarters, which you can see there. So we will continue to make necessary investments as needed. As Zhenyu just announced, we’ll remain focused on healthy and sustainable revenue growth, and we aim to continue improving our operating margins in the future. Thank you so much, Gary.

Gary Yu — Morgan Stanley — Analyst

Thank you.

Operator

The next question comes from James Lee of Mizuho. Please go ahead.

James Lee — Mizuho — Analyst

Great. Thanks for taking my questions. My question is regarding Jidu, and congratulations, by the way, on your launch in June. And at the same time, you guys also launched RT6. I’m just curious about maybe the positioning of Jidu and RT6. Can you guys talk about the customer segmentation strategy of the two autonomous driving vehicles? Just curious how much overlap in demand between the two? Thanks.

Robin Li — Co-Founder, Chairman and Chief Executive Officer

Yeah, this is Robin. The position for Jidu and RT6 are very different. Before I talk about Jidu, let me first talk about our strategy for Intelligent Driving. Our goal is to provide large scale fully driverless ride-hailing services on open roads. This is powered by our L4 autonomous driving technology. And at the same time, we use some of our L4 capabilities to put them into assisted driving features to support automakers’ Intelligent Driving needs. And Jidu is just a perfect example of such automakers.

So if you look at our business portfolio for Intelligent driving, we have RT6. RT6 represents Baidu’s best autonomous driving technology. RT6 is for large scale fully driverless ride-hailing services on open roads. That is not a consumer-facing vehicle. I mean it’s not selling to the consumer. Jidu’s Robo-1 is a consumer facing product. We put on our Level 4 technology into Level 3 or Level 2+, if you will. Jidu Robo-1 will be equipped with ANP 3.0, our most advanced autonomous driving solution. ANP 3.0 can handle end-to-end intelligent driving and parking, urban roads and highways. Also, our smart cabin will be installed in the car. It allows Jidu to provide voice interaction, inside and outside the car. We believe these new features will help us to expand our business.

For the timeline, we could see everything is well on track. We could see the first mass-produced Robo-1 finished very soon. This car will demonstrate Jidu’s capability from design to mass production. Jidu plans to take orders for Robo-1 later this year and deliver the vehicles starting 2023. And Jidu has the second model. Jidu plan to launch at the end of this year, then start taking orders in 2023 and deliver in 2024 for our second model. Yeah, that’s it.

James Lee — Mizuho — Analyst

Great. Thank you.

Juan Lin — Head of Investor Relations

Next question, please.

Operator

Our last question will come from Wei Xiong of UBS. Please go ahead.

Wei Xiong — UBS — Analyst

Thank you. Good evening, management. Thank you for taking my questions. First, I’m wondering if management can share some updates on your capital allocation? Could management talk a bit more on the implementation of your share buyback program? And how do you balance the investments into new businesses versus doing more buybacks or dividend? And second, as we recently saw the development between the U.S. and Chinese regulators regarding the audit inspections of ADRs, could management also share your thoughts on this progress? And given some of your peers have started the process to convert into dual-primary listing, I was wondering would Baidu also consider such a U.S. Hong Kong dual-primary listing status? Thank you.

Rong Luo — Chief Financial Officer

Yeah. Thank you for your questions. Let me take your questions. I think as of today, we have returned about USD2.9 billion to shareholders under the 2020 share repurchase program. The program authorized USD4.5 billion cap, which means we still have around USD1.6 billion left in the program. Baidu will continue to buy back our shares from open markets since we quite strongly believe in our long-term developments. If you look into our balance sheet, as of Q2, our cash, cash equivalents, restricted cash and short-term investments were USD28.3 billion, and we also have the other USD11.1 billion in our long-term investments.

And if you look into our business today, some of that was mentioned in our previous remarks. I think for mobile ecosystem, it continues to generate very healthy profits and margins. For Baidu AI Cloud, the revenue has been growing very fast, faster than our peers in this industry. For Apollo Go, it’s already the largest autonomous ride-hailing service provider in the world. So everything is pretty much on track. So we believe that we are on the right direction, and we will continue to invest in other steps.

And about your second question about the delisting and the primary in Hong Kong, I think the most recent statement of the protocol site between the PCOB and the Chinese authorities marks the very important first step towards opening access for the PCOB to investigate complete to the rest public accounting fund in China. I think which is a very important milestone for both countries and China-based issue with the ADR trading in the U.S. Also, we can feel that the two governments are practically seeking solutions.

For Baidu, we have already have the Hong Kong secondary listing, and we have some major shareholders who converted their Baidu ADR into ordinary shares in Hong Kong. Also, we are also very glad to be included in the Hang Seng Index. It will take effect on September 5. We believe with the inclusion to the Hang Seng Index, our Hong Kong shares will receive more fund flow. For the dual-primary listing, as far as what we understand, the process of switching from the secondary to primary listing in Hong Kong should be straightforward.

We don’t see any kind of hurdles for us to achieve that. But I think what’s even more important for us is to remain focused on these fundamentals and drive long-term shareholder values. Also, Baidu will continue to comply with applicable laws in both China and the United States and try to maintain listing both in NASDAQ and Hong Kong Exchange. Thank you so much.

Wei Xiong — UBS — Analyst

Thank you.

Operator

[Operator Closing Remarks]