Baidu, Inc. (BIDU) Q4 2020 Earnings Call Transcript

Baidu, Inc.  (NASDAQ: BIDU) Q4 2020 earnings call dated Feb. 17, 2021

Corporate Participants:

Juan Lin — Director of Investor Relations

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

Herman Yu — Chief Financial Officer

Analysts:

Alicia Yap — Citigroup — Analyst

Eddie Leung — Bank of America Merrill Lynch — Analyst

Piyush Mubayi — Goldman Sachs — Analyst

James Lee — Mizuho Securities — Analyst

Jerry Liu — UBS Securities — Analyst

Alex Yao — JPMorgan Chase & Co. — Analyst

Gregory Zhao — Barclays — Analyst

Natalie Wu — Haitong International Securities Group Limited — Analyst

Tian Hou — T.H. Capital — Analyst

Presentation:

Operator

Hello, ladies and gentlemen, and thank you, for standing by for Baidu’s Fourth Quarter and Full Year 2020 Earnings Conference Call. At this time, all participants are in a listen-only mode. After management’s prepared remarks, there will be a question-and-answer session. Today’s conference is being recorded. If you have any objections, you may disconnect at this time.

And I’d now like to turn the meeting over to your host for today’s conference, Juan Lin, Baidu’s Director of Investor Relations.

Juan Lin — Director of Investor Relations

Hello, everyone, and welcome to Baidu’s fourth quarter and full year 2020 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 Chief Executive Officer; Herman Yu, our Chief Financial Officer; and Dou Shen, our Executive Vice President in-charge of search and feed. After our prepared remarks, we will hold a Q&A session.

Please note that the discussion today will contain forward-looking statements made under the safe harbor provisions of the US Private Securities Litigation Reform Act of 1995. Forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from our current expectations. Potential risks and uncertainties include, but are 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 statements, except as required under applicable law.

Our earnings press release and this call include discussions of certain unaudited non-GAAP financial measures. We have made minor adjustments to our non-GAAP measures and retroactively applied these changes for comparison purposes. 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 our CEO, Robin.

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

Good morning, everyone. Baidu delivered another solid quarter in Q4 with Baidu core revenue reaching RMB23.1 billion, that’s $3.5 billion, which is up 6% year-over-year and up 8% quarter-on-quarter. The latter was much higher than our historical flattish or low single-digit growth from Q3 to Q4. In addition to the improvement of macroeconomic conditions in China, we are benefiting from the digitalization of industrial Internet.

Baidu core non-advertising revenue in the fourth quarter grew 52% year-over-year to an annualized run rate of $2.6 billion, driven by the convergence of AI solutions, cloud services and consumer Internet. Such convergence is expected to accelerate into the next decade and Baidu stands to benefit from it.

Let me elaborate on the trends that we are seeing, starting from smart transportation. China aims to raise its global competitiveness in the transport sector through aggressive infrastructure building. The Chinese government is promoting a multi-year plan to install smart transportation network in cities with sensors and cameras on public roads, connecting vehicles with road side units to foster safer driving, improved throughput and reduced carbon emission. Such government initiative encourages municipal governments to shift their budget towards a more software-defined transportation network. Apollo’s strong brand in intelligent driving and our holistic approach to smart transportation makes us well suited to capture the opportunity in smart transportation infrastructure development.

For example, Baidu signed a strategic partnership with Guangzhou in Southern China to deploy the world’s first multi-modal autonomous driving Mobility as a Service or MaaS platform. Utilizing Apollo robotaxi and robobus fleets, Guangzhou begins this month to allow commuters in the Huangpu district to call-up public transport services on demand in lieu of taxis, ride hailing and other traditional gasoline powered public transport services. The Guangzhou smart transportation project takes advantage of Baidu’s leading autonomous driving technologies and Baidu Cloud’s strong technology infrastructure as well as leveraging the reach of Baidu App and Baidu Maps, to enable locals easy access to Apollo MaaS.

For enterprise cloud, we are seeing ad customers subscribing to Baidu Cloud due to our strong Internet foundation. For example, a major e-commerce company and existing ad customer began using our cloud services a year ago. And in the past year, the ad customer saw its business grow to massive scale. When the customer realized that Baidu AI Cloud was able to support businesses with over 100 million daily users and enabled them to expand rapidly, the App customer increased its purchase of Baidu Cloud services by 82 fold from a year ago. Over-time, we believe Baidu AI Cloud stands to benefit from our existing advertiser base of hundreds of thousands of enterprises as well as our provider neutrality status in the face of enterprise customers adopting multi-cloud provider strategies.

From this example, we see strategic advantage of concurrently operating in the AI solution, cloud services and Internet markets as enterprises and the public sector embrace digital transformation to strengthen and expand their relationships with their customers and constituents online. As we enter the next decade, Baidu is well positioned as a leading AI company, with a strong Internet foundation to seize the huge market opportunities in cloud services, autonomous driving, smart transportation and other AI powered areas.

Turning to Q4 operating highlights. Let me start with AI Cloud. Baidu Cloud continues to be number one in China’s AI public cloud market, per IDC’s latest report, marking the third time that Baidu has topped the list. Baidu AI Cloud offers a full suite of cloud services and solutions and is differentiated in the market with our use of AI to power cloud solutions and improve our customer’s operational efficiency and service levels. Our AI solutions are demonstrating scalability and replicability across multiple industry sectors. For example, our AI call center solution, which uses Baidu Brain to handle customer calls with conversational AI is drawing repeat purchases. Our first key customer, a major telecom operator has followed up with two more purchases of our AI call center and installed them in their customer service centers nationwide.

As we strive for customer satisfaction and best-in-class solutions, our AI call center solution has successfully expanded from telecom into other sectors including airline, financial services, energy and automobile. Through greater industry adoption model, training time has dropped by more than 50% and the project implementation has been shortened to one month. In the area of vertical cloud, the smart transportation project with Guangzhou serves as a lighthouse project for other cities to follow. The deployment of Apollo MaaS allows commuters to order robotaxi and robobus in place of taxi ride or other public transportation.

The implementation of V2X smart road infrastructure equips 102 intersections and the streets in the Knowledge City district of Guangzhou with cameras and sensors, enabling better traffic management. Commercial vehicles entering the vicinity are installing DuerOS powered rearview mirror to enable traffic violation enforcement, even if the license plate of a violating vehicle is covered by mud. The Guangzhou project uses Apollo ACE transportation engine, which in essence is a transportation cloud solution. Its processes traffic information from Apollo MaaS and V2X, DuerOS connected vehicles and Baidu Maps. It provides traffic agencies better information to improve traffic management and transportation services and it enables Apollo and other compatible vehicles, better understanding of surrounding traffic conditions.

Similarly, we recently signed a second contract with the City of Baoding to expand coverage of Apollo smart transportation in their city. Our strategic partnerships with Beijing, Guangzhou, Shanghai, and Chongqing to name a few to provide smart transportation is becoming an important milestone in the development of modern cities, serving as a means for public sector to use AI to improve metropolitan traffic, public transportation and air quality.

Turning to intelligent driving. We continue to invest aggressively in self-driving technology for passenger vehicles and robotaxi fleet management. Apollo was once again ranked number one in China for autonomous driving according to the 2020 Beijing Autonomous Vehicles Road Test Report. The report is highly respected in the industry as Beijing Traffic Authority closely monitors autonomous driving test miles. Apollo accumulated test miles reached 4.3 million in December. Apollo has been granted China’s first driverless testing permit and is the only Chinese company to be granted driverless testing permit from both California and China.

In terms of our autonomous driving operational experience, Apollo robotaxi and robobus fleets have provided over 210,000 rides to the public, as of December 2020. We are proud that DuerOS for Auto, our operating system powering auto infotainment has been installed in over 1 million new vehicles just last year, pointing to two market trends; one, mobile, home and in-vehicle Internet are converging. Baidu’s Internet platform, designed to draw synergy across usage platform enables DuerOS for Auto to leverage the large developer community for Baidu Smart Mini Program, to populate its skills store. And at the same time, consumers benefit from the consistency and familiarity of DuerOS skills developed from mobile and home environment. Two, new car buyers are turning to best-in-class self-driving capabilities, so that they can do more and enjoy their ride in cars. The race towards building new vehicles with better self-driving capabilities through AI creates a big opportunity for Baidu.

Let me talk about the progress of Apollo Self Driving or ASD, which includes HD maps, AVP and ANP. To-date, we have signed strategic partnerships with 10 leading automakers to power their new vehicle model with Apollo Self Driving services. Baidu is uniquely positioned to offer high definition Map or HD Maps, a critical component for self driving to top automakers in China. We have invested in Baidu Maps for many years and are one of the very few companies in China offering HD Maps.

Last month, WM Motor, a leading Chinese EV maker announced the mass production of their new W6 SUV due to release in the first half of this year with Apollo Automated Valet Parking, or AVP, a Level 4 service option. We are excited to announce that we will be taking orders of Apollo autonomous navigation pilot, or ANP, which is based on Apollo’s leading autonomous driving technology. This comes timely as MIIT, China’s transport agency releases its draft regulation to allow highway testing of autonomous driving.

We believe end-to-end integration of hardware and software will make the best vehicle. That’s why we are in the process of setting up an intelligent EV company and we have entered into strategic partnerships with multinational automaker, Zhejiang Geely Holding Group (Geely), to offer automobile design and manufacturing for Baidu’s new EV company. Geely holds the distinction of best-selling Chinese automobile brand in past years, under the Volvo and Geely brand. By combining Baidu’s expertise in autonomous driving and smart transportation with Geely’s expertise, as a leading automobile and EV manufacturer, we hope to pave the way for the future passenger vehicles.

Turning to DuerOS, which continues to see strong adoption. Monthly voice queries from first-party devices reached 3.7 billion, that’s up 66% year-over-year. And DuerOS skills store now offers over 4,400 skills. Our focus on user experience through leading AI capabilities, has made Xiaodu Smart Display number one in global shipments again, according to all three market research firms, IDC, Strategy Analytics and Canalys for the third quarter of 2020.

Turning to mobile ecosystem. In December, MAUs of Baidu App reached 544 million. The number of creators on BJH nearly tripled. The total number of Smart Mini Programs grew 124% from a year ago. The MAU of Smart Mini Programs reached 414 million. This number points to a thriving Internet platform that is attracting a large number of third-party creators, publishers and service providers. The same trend can be seen in our vertical and community efforts. For example, on a quarter-over-quarter basis, daily average viewership of videos on Baidu Health grew 92% and daily average live video sessions hosted by healthcare professionals grew 163%.

E-commerce touchs the lives of 1.16 billion Internet users each month in China. Through our AI building blocks, we enable users to have a single log-on, meaning that a user can log into our app to check his or her express delivery status or summon some express delivery pickup just by searching and clicking the applicable delivery company search result. The service convenience of our AI building blocks enabled daily express delivery service usage to surpass 4 million times, just a month after going live in Baidu App. The vibrancy of our mobile ecosystem allows third-party services to quickly ramp up, and our search nature supports the survival of long-tail services. Daily log-in users on Baidu App surpassed 70%, up 18 points from a year ago, which creates a strong foundation for further growth of third-party services and non-advertising offerings on Baidu.

On monetization, for the fourth quarter, revenue from Managed Page reached a third of Baidu Core’s online marketing revenue, up from less than 24% a year ago. Over 300,000 Managed Page customers have adopted Baidu Marketing Cloud, which enables them to purchase marketing services, build audience, generate leads and maintain lifetime relationships with consumers through the tools and services offered on our hosted platform. Our Marketing Cloud service provides CRM-like services, for example, allowing merchants to message customers who have previously interacted with them. So such CRM features facilitate retargeting and other measures to improve overall marketing effectiveness.

We aim to integrate YY onto our platform in a deep and thorough way. Comparing with other large mobile ecosystems, our non-advertising revenue represents a much smaller percentage, which means there is a huge potential for upside. The YY acquisition will help speed-up the development of our non-ad revenue. We will allow YY broadcasters to increase their fans following on Baidu. Hundreds of millions of Baidu users will be able to enjoy more live streaming content through Baidu App and Haokan short videos and Baidu Post.

We believe such large-scale product integrations will create significant synergy in content, infrastructure and monetization. We also plan to leverage YY to accelerate the divestment of information and knowledge-centric live streaming on Baidu. These efforts will not only improve user stickiness and vibrancy on our large Internet platform, we believe live streaming has the potential to evolve beyond host tipping to become a major way for community, Baidu to further develop and merchants to increase their user engagement and grow their social assets on the Baidu platform. User attention usually shift towards interactive content, with the advent of 5G and augmented reality to increase video effects, live streaming will be an integral component of future content development, and we are excited about this opportunity.

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

Herman Yu — Chief Financial Officer

Thank you, Robin. Hello, everyone. Welcome to Baidu’s fourth quarter 2020 call. All monetary amounts used in my discussion are in renminbi unless stated otherwise. Despite an unprecedented year, our business has returned to growth, and our profits were solid in the fourth quarter. Baidu’s online marketing is widely diversified, covering many industries in the Chinese economy and we are benefiting from a rebound of the Chinese economy.

Concurrently, our non-advertising revenue is growing rapidly, especially for the new AI business. Non-advertising revenue was up 52% in the fourth quarter, reaching 18% of Baidu core revenue. We recently conducted a TAM service exercise as part of our strategic planning process, and found that the TAM for our non-advertising business including Internet value-added services, cloud services and intelligent driving, before adding autonomous driving was 10 times the size of our online marketing TAM and the expected CAGR to 2025 is 3 times that of our online marketing TAM. The potential for our non-advertising business is quite significant.

For example, we recently signed a smart transportation project, whose contract amount was more than half a quarter’s worth of our auto online marketing revenue. There are over 100 cities in China with a population of over 1 million. When you consider a robobus project recently experimenting, collecting RMB25 for each ride, if fare collection becomes feasible, we could see an increase in robotaxi demand, which could drive our MaaS revenue under transportation cloud, the service component of fleet management.

For fiscal 2020, Baidu Core revenue reached $12.1 billion and we spent 21% of research and development, which is a testament to our commitment to technology, especially in the area of research. Our consistent heavy investment in technology has made Baidu PaddlePaddle the number two deep learning framework in the world.

Baidu open AI platform, the largest developer community of its kind among Chinese companies, and our AI patent portfolio, the largest in China. Our investment in AI runs the gamut of technology, developer communities, IP patents, AI chip design and talents. As we began to commercialize AI at scale, the incremental revenue that we derive will be reinvested into product development, sales and project delivery to further accelerate AI commercialization and strengthen our moat in our AI business.

Unlike 2C business, 2B and 2G will require that we hire developers, sales and engineering delivery personnel a few quarters ahead before they start contributing to revenue. At the same time, as our solutions become more widely adopted and we develop more toolkits, margins usually improve. We should also gain synergy coming from multiple businesses scaling, while leveraging-off of Baidu Brain, our core AI engine. We are excited about our non-advertising opportunities, from cloud services to smart transportation, to intelligent driving, which includes self-driving services, intelligent EVs, robotaxi fleet management as well as non-advertising upside under our mobile ecosystem.

Turning to financial highlights. Total revenue for the fourth quarter reached RMB30.3 billion or $4.6 billion, increasing 5% year-over-year. Our business improved mainly from Baidu Core, which was up 6% year-over-year in the fourth quarter to RMB23.1 billion or $3.5 billion compared to down 13%, down 3% and up 2% for Q1, Q2 and Q3, respectively.

Let me give you more color on the progress of each component of Baidu Core. Our AI cloud grew 67% year-over-year, reaching $2 billion on an annualized basis. Cloud growth benefited from enterprise customers coming from the Internet, media business, financial services, transportation and healthcare sectors. Our Intelligent Driving and OGI revenue is also growing, but its near-term contribution may not be as apparent. Apollo Self Driving, what we call ASD services, are booked on a multiyear basis, and we recognize revenue when an automakers’ new vehicles are shipped with the installation of our ASD services. We have signed strategic partnerships with 10 leading automakers for ASD and we are taking orders for autonomous navigation pilot, or ANP.

Our Mobile Ecosystem, many of our ad verticals are growing, including healthcare, education, Internet, retail, real estate, home furnishing and auto. In app advertising, the majority of Baidu Core ad revenue, continues to see double-digit growth, benefiting from the growth of search queries and CPM. Ad revenue is partially offset by Baidu Union where we are prioritizing profitability over revenue growth.

IQIYI revenue reached RMB7.5 billion, down 1% year-over-year. iQIYI subscribers reached 101.7 million in December 2020, further strengthening its foundation to produce entertainment blockbuster originals. Non-GAAP operating income for Baidu and Baidu Core was RMB7.1 billion and RMB8 billion or $1.2 billion, respectively. Non-GAAP operating profit was down 5% for Baidu Core and non-GAAP operating margin for Baidu Core was 35%. Cost of revenue was on RMB14.5 billion, down 6% year-over-year, primarily due to the decrease in content costs, traffic acquisition costs, bandwidth costs and the amortization impairment of intangible assets, partially offset by an increase in cost of goods sold.

SG&A and R&D together were RMB10.8 billion, up 24% year-over-year, primarily due to an increase in promotional and R&D personnel-related expenses. Adjusted EBITDA for Baidu and for Baidu Core were RMB8.6 billion and RMB9.4 billion or $1.4 billion respectively. Cash and short-term investments for Baidu and Baidu Core at the end of the year were RMB162.9 billion and RMB148.6 billion or $22.8 billion, respectively.

Free cash flow for Baidu, and excluding iQIYI were RMB3.8 billion and RMB5.4 billion or $827 million, respectively. Baidu Core had approximately 32,800 full-time employees as of December 31st, up 14% from last year. During the fourth quarter, we returned $600 million to shareholders, bringing the cumulative share repurchase in 2020 to $1.9 billion compared to $709 million in 2019.

Turning to first quarter guidance. For the first quarter of 2021, Baidu expects revenue to be between RMB26 billion ($4 billion) and RMB28.5 billion ($4.4 billion), representing a growth rate between 15% to 26% year-over-year, which assumes that Baidu Core revenue will grow between 26% and 39% year-over-year. This guidance does not include any potential contribution from the acquisition of YY Live. And the above forecast reflects our current and preliminary view, which is subject to substantial uncertainty.

Before I turn the call back to the operator, let me summarize our fourth quarter results. We have made significant strides in preparing Baidu for the next legs of growth. Our heavy investment in technology has allowed us to build leading AI technology and put us in a strong position to pursue huge, fast-growing market opportunities such as cloud services, smart transportation and intelligent driving, which includes self-driving services, intelligent electrical vehicles and autonomous driving. The TAM for our non-advertising business, before including autonomous driving, is about 10 times that of our online marketing business, and the CAGR is 3 times faster. We get a glimpse of the impact of these opportunities with Q4 non-advertising revenues growing 52% and already reaching 18% of our core revenues.

We view Baidu Core’s business on three revenue growth curves; Mobile ecosystem, AI cloud and intelligent driving and OGI, with non-advertising value-added services and AI cloud to boost our near-term revenue growth and with intelligent driving and other growth initiatives to boost revenue growth further out. Over the past quarters, we discussed the aggregation of services on Baidu platform. The technology convergence trend that Robin talked about will allow Baidu families of apps to be equipped with unique services offered from us working directly with enterprises and the public sector.

Robin gave an example in the smart transportation sector. We are also seeing this trend in the health sector, where we are working with hospitals to provide their services and doctors greater Internet presence. Some call this trend in industrial Internet, where there is a deep integration with enterprises and the public sector of each industry and provide them with a turnkey solution to Internet presence. Our strength in building technology infrastructure puts us at an advantage in the current Internet environment, where synergy is generated from our offering of cloud, other growth initiatives and mobile ecosystem concurrently. Our mobile ecosystem is benefiting from a rebound in the Chinese economy, and we stand to benefit from leveraging our large user base to grow our non-advertising revenue, such as fully integrating YY onto Baidu platform.

On capital allocation, our share repurchases in 2020 totaled $1.9 billion, which reflects the conviction that we have in the direction of our business. Over the past two decades, we have demonstrated a track record for long-term growth and strong profitability. The heavy investment that we are making to seize growth potential puts us on a path to further improve our long-term growth.

Let me end by talking about our efforts in ESG. We recently released four series of ESG report, clarifying our policy in anti-corruption, non-discrimination, privacy protection, data security, talent empowerment and low-carbon emission commitment. More importantly, Baidu’s effort in autonomous driving, including empowering EVs and robotaxis as well as smart transportation decreased carbon dependency and enabled the improvement of traffic congestion and air quality through AI and cloud services, supporting green energy and green environment. We are pleased that Baidu’s ESG ranking was raised twice last year as we improved the communication of our ESG efforts.

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

Questions and Answers:

Operator

Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. [Operator Instructions] Your first question comes from the line of Alicia Yap from Citigroup. Please ask your question.

Alicia Yap — Citigroup — Analyst

Hi, good morning. Good morning, Robin, Herman and Juan [Foreign Speech]. My question is related to your partnership with Geely. Can you share with us some colors on the expected time line for this new EV to be released and what Baidu wanted to achieve out of it? Will Baidu also continue to seek for partnership with other OEMs to coproduce other EV? And just related to that is, it seems like Geely is also working with multiple AD companies and also working on developing their own ADAS. So how would you describe the partnership and your relationship with Geely? Thank you.

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

Hi Alicia, this is Robin. Let me answer your question. Our partnership with Geely is based on the belief that end-to-end integration, hardware and software will provide the best experience for autonomous driving or smart EV. And in the past, we had a lot — we have developed a lot of very advanced autonomous driving technologies. We tried to push this to integrate into our OEM customers. But most of the traditional OEMs tend to wait until someone else adopts the newest and latest technology. That’s why we decided it’s time for us to just build a benchmark vehicle to show that how good the experience is. It also serves the purpose of better and faster and stronger feedback loop, so that we can improve our self-driving technology faster. Right now, the venture is progressing very well. We have a CEO on board, and we have decided on the brand of the new vehicle. As you know, it usually takes around three years from the beginning to the launch of a new EV model and we try to do the same for this new venture.

On the other hand, Apollo and Baidu Brain, in general, remains to be a very open platform. We will continue to work with other OEMs to provide the technology and the products to them, whenever that is needed. We will serve them to our best efforts. And in the past, it’s just without someone first trying, they tend to wait. Now we have flagship where we have a benchmark, they can follow. I’m sure it will also help the revenue of the Apollo technology provider product of autonomous driving.

Operator

Great. Thank you. Our next question comes from the line of Eddie Leung from Bank of America Merrill Lynch. Please ask your question.

Eddie Leung — Bank of America Merrill Lynch — Analyst

Hi, good morning guys. Just I have a follow-up question on AI Cloud. I remember one of the key reasons behind AI Cloud is that it should have better margins than some of your competitors, which are focused on some of the more infrastructure cloud services. So just wondering if you can offer some, not necessarily a very quantitative guidance, but some margin outlook for your AI cloud thesis, given some of your competitors already are achieving a breakeven status? Thank you.

Herman Yu — Chief Financial Officer

Yeah. Hi Eddie, Happy New Year. And this is Herman. I’ll take that. So for our cloud, we have several pieces of business in our cloud. We talked about our enterprise cloud, which is IaaS, but we differentiate in the market, with AI solutions such as PaaS and SaaS. And clearly, when we’re able to do PaaS and SaaS, we see there’s much more profitability to be made over IaaS. But what we have to recognize is that, when you’re going into a software space of PaaS and IaaS, initially, it might not be very profitable. For example, the AI solution that Robin talked about, when we did our first solution a couple of years ago, that was actually a very, very poor margin, because you’re going into a new environment, you might have a good product, where you’ve got to spend a lot of effort to integrate with your existing legacy systems. So as you build that out, as you’re selling to more customers and so forth, and you make your product more standardized, then the next few versions of this allows your profit margin to increase.

So because we’re growing so fast and we’re trying a lot on new product, we would not expect profit margin at this stage to be very profitable. But when we look at our product life cycle, such as the automated AI solution, customer solution, call center, we can see that over time that, that margin trends up. So to answer your question, I think on the one part, on enterprise cloud and so forth, one, our margin is going to be a function of how much is PaaS and how much is PaaS and SaaS and how much is IaaS. I think IaaS over time, because we’re differentiating with SaaS and PaaS, over time, when that proportion, things go bigger and bigger, I think our profitability will be better, especially when products matures.

And then another big part of our cloud is, for example, a vertical cloud such as smart transportation. And again, that principle of product maturity, that principle of how — what mix of that is software and so forth, I think overall, all of this would be very helpful.

And just to answer your question, some of our competitors might be profitable and so forth. I think it really depends on the business that you want to be in and unfortunately, we don’t have the luxury of some of our peers where they can just allocate expenses right to their other businesses and so forth, because the infrastructure is the same. So I think profitably, I think one is how you do allocation of expenses. Another is, are you focused more on software? Do you have a differentiation in the software sector, such as our AI solutions? And then, how mature your product is over the product life cycle. I think these are determinations of future profitability.

Operator

Thank you. Our next question comes from the line of Piyush Mubayi from Goldman Sachs. Please ask your question.

Piyush Mubayi — Goldman Sachs — Analyst

Thank you for taking my question and congratulations, Robin and Herman for a splendid quarter, a great outlook. Can I just go back to the intelligent EV company that you talked about, Robin? And you talked about a three-year lead time to get a car to market under the name. So you selected a name, let’s call it, Baidu car for the time being. Why would it take three years for that to happen first? And second, when you launch that car, and I’m just trying to fish here also, what segments are you targeting? And are you targeting a certain market share in this explosively growing market? And we’re trying to get a better sense of how this will evolve with time. And while this is happening, what happens to the revenue lines, as we start to see accrue from the ANP in particular. So if you could give us a sense of what pricing could be like, with products like the ANP, that has just gone, I suspect, live right now. And I’ll stop there.

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

Hi Piyush. Yeah. As I mentioned that the reason we’re doing this smart EV that we want to bring the best of our technology to the market. So the main selling point of this new car model will be more on the software side or the — the software and hardware integration, so that has a better autonomous driving capability as well as better infotainment because of DuerOS for Auto, etc. We will announce that the price range or demographic target when we think it’s mature enough or when we are really ready for that. But that means that, that you can count on that, that we will try to speed-up the process to launch this new car as soon as we can and it will be the best car on the marketplace, with best autonomous driving technology and that infotainment for the smartest car. People generally call the class EV, but for us, the real point is not electric, the real point is intelligent. And we are best in terms of the intelligent driving and we will fully leverage this kind of capabilities in the new car venture.

Herman Yu — Chief Financial Officer

Yeah. And let me elaborate that, Piyush, when — just to go a little bit deeper, give you more color on the meaning of intelligence. So when you look at EVs, right, there are several components. For example, there is the ASD, Apollo self driving services that we talked about. That would be HD Maps, that would be valet parking, that would be navigation pilot, stuff like that, right? And our model is different than most of EV manufacturers where we license OEM, right? So we can spend that R&D and then because our market is not just limited to how many cars we sell, it’s open platform, so we sell to many OEMs. That’s number one.

Number two, in addition, being able to power the operating system of infotainment, that’s very key, because that requires a big ecosystem where you have a lot of content made. So DuerOS for Auto, as we mentioned, we’ve already been installed for over 1 million cars in 2020. And again, that’s an open model we’re working with several OEMs. So we have the edge in these two areas. In addition, we’re doing autonomous driving, so we can leverage that technology. And more importantly, you’ve got to realize, we’re doing this on an ecosystem basis. So on the one hand, it’s making the car more intelligent from ASD, from connected vehicles, from autonomous driving. Another is the fact that we’re doing V2X with smart transportation. Because a lot of the key data is being gathered on our transportation cloud, whether it’s on the road, whether it’s through the maps or whether it’s connected vehicles and so forth, we can understand the road better. So all of that data and that capability will then empower our EV.

So two things. Number one is, we think our EV can be more intelligent because we’re doing other components and because R&D is centralized and it supports other manufacturers. And secondly, because of our ecosystem strategy, we were coming up from a transportation angle, and also from the different components of it.

Operator

All right. Thank you. Our next question comes from James Lee from Mizuho. Please ask your question.

James Lee — Mizuho Securities — Analyst

Great. Thanks for taking my questions and congrats on an excellent quarter here. On the smart transportation side, can you guys maybe provide some framework on the government’s plan in terms of building out across the country? Should we think about that build-out being maybe top 30 markets? And also maybe help us understand the bidding process for city contracts a little bit. Do they choose multiple vendors and tech standards to do testing? And what is your key advantage compared to other operating systems? Is it your experience in autonomous driven miles or your ability to offer multiple services on the platform?

And also lastly, maybe, Herman, you can address this. Can you talk about the level of investments that is needed to make for smart transportation and also for autonomous driving over the next few years? And would you be breaking out the core advertising margin separately, so we can also see the organic growth. Sorry for the long-winded questions. Thanks.

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

Hi, James. In terms of smart transportation, we are the pioneer of the ACE concept, which means that we are the first company to really consider transportation as a whole, using more software-centric solutions to improve the throughput, to connect the road with vehicles and to help reduce accidents and reduce carbon emission.

Yes, when we talk to the potential customers of all kinds of different tier cities, they will obviously compare and invite multiple vendors to bid on those kind of projects. But in almost all cases, we are so much ahead of any competition. Essentially, if they care more about the effectiveness of those smart transportation projects, we win. So we’re so much ahead because Apollo system is very open and we’ve invested in this area for many, many years. And our AI capability provides a very solid foundation and we have been doing a lot of customization for smart transportation. As Herman mentioned previously, initially that the margin could be low. But when we repeat this kind of projects city after city, the margin improves in the overall gross margin for smart city, smart transportation projects keep improving. It’s much better than the IaaS and CDN business off of a lot of cloud services.

On investments?

Herman Yu — Chief Financial Officer

Yeah, hi. So the good thing is, when you look in our financial results, the amount that we’re spending for autonomous driving and also for smart transportation is built into our model. So smart transportation is part of our AI cloud. So what you’re seeing is already built in there. And you mentioned what does our margin look like for our core business. I suppose you’re asking for mobile ecosystem. So for mobile ecosystem, our margin on that, on a non-GAAP basis usually is between mid-40s to high-40s. And we’ve been pretty consistent in the last couple of years. Sometimes when revenue in a higher quarter, we might reach a little bit over 50, but usually, it’s around that range. And we currently expect to be in that range right now. So you can see, as I talked about the V-curve growth, mobile ecosystem will try to maintain within that range. And then for our new businesses and so forth, we look at it differently because that is more about are we funding it right to optimize growth for the next couple of years.

Operator

Thank you. Our next question comes from Jerry Liu from UBS. Please ask your question.

Jerry Liu — UBS Securities — Analyst

Hi. Thanks, management. Happy New Year. So my question, first is just to go back to the revenue guidance for the first quarter, definitely a bit stronger than we even expected. So wanted to look at what are some of the key growth drivers here. On the non-ad side, I would assume some of this is related to cloud and smart transportation. I’m wondering if there’s any other key growth areas. And then secondarily, in the core advertising business, do we chalk this up to improving macro or are there some maybe different dynamics in terms of competition or products? Thank you.

Herman Yu — Chief Financial Officer

Yeah, let me answer it in different components. We talked about how non-advertising is now 18% of our revenue and in Q4, it’s growing robustly 52%. We expect non-advertising to continue to outgrow our overall Baidu. So meaning, it’s going to — because a lot of these are new businesses, it’s going to be able to pull the weight. Smart transportation is part of cloud, and we talked about, it’s over 60-some-percent growth in Q4. So I think that with our strong offering and so forth, I expect this to continue into 2021, but do recognize that there is seasonality, for example, when you think about AI cloud, Q4 tends to be stronger than Q1. Just so how the budget works and so forth. But overall, I think non-advertising is going to be driving us, not only in cloud, for example, in our other growth initiatives, such as DuerOS and so forth. We think that these are all going to be engines of growth.

Piyush talked about earlier about our Apollo self driving services. That — while it’s a small base, but that growth also helps. So it’s all of these things. And then with regards to our advertising business, I think several things. I think number one is, the economy is coming back. So the macro helps certainly. But more importantly, is Baidu App. We talked about in-app services several times already. Because we’re seeing user behavior switching from browser into in-app services because we have AI building block, we’re the only one at this scale in China where the app was designed as a search app and it’s open. It allows worldwide web search. It allows content from all different apps and from all different websites. Because of that and because the content and services on our platform making the closed-loop native app experience, the best we think, in China that the AI building blocks provides, we think that, that helps user behavior. And because of great growth and so forth, that helps drive our revenue. And then also because it’s native app, it’s on the platform. Obviously, CPM helps. So you have traffic growth, you have CPM, and then also you have the macro as a backdrop helping.

Operator

Thank you. Next question comes from Alex Yao from JPMorgan. Please ask your question.

Alex Yao — JPMorgan Chase & Co. — Analyst

Hi. Good morning, management team. Thank you for taking my question and congratulations on a fantastic quarter. So I have a question regarding the YY integration. Robin, I think you mentioned that you guys plan to start integrating YY operation into your own content ecosystem in the coming quarters in your prepared remarks. Can I confirm that the deal is still going ahead with the previously announced valuation despite of the Muddy Water report and the changing regulatory environment of live broadcasting business in China? And then I think that you also mentioned new business opportunities will gradually unfold as you guys integrate YY’s live streaming operation capability into your content ecosystem. Can you talk us through some of the key addressable market and the business model that will potentially unfold with the integration process.

And lastly, perhaps, Herman, can you talk about how should we think about the financial impact in the coming quarters as you guys consolidate business and integrate the operation into your content ecosystem? Thank you very much.

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

Alex, let me first answer the business model question and I’ll let Herman to answer the regulatory and financial guidance question.

In terms of this model, we basically view live streaming as yet another new form of content and also new form of monetization. For content, live streaming is comparable to text, images and videos including long and short form videos. Live streaming is just a new form of media. It serves the users best when you combine all kinds of different media forms and provide them the right form of media whenever necessary. And YY apparently provides a very vibrant and also mature ecosystem for live-streaming content. Although they are more show-based content, but the capability can be transformed into other form of live streaming including knowledge or e-commerce-related live streaming.

And in terms of — or in terms of monetization, we view that the Baidu platform as a whole mobile ecosystem with hundreds of millions of users log on to our platform on a daily basis and we increasingly provide more native app experiences. Super majority of these users logged in, so that we know who they are, and they can have a better experience going from here to there. Right now, the large user base is primarily monetized through advertising. This is sort of unusual when you compare with other large mobile ecosystems. They typically have, well, more than 50% of their revenue coming from non-advertising. And for Baidu, in addition to advertising or online marketing, we can monetize our user base through live streaming, through subscription, through e-commerce and many other forms of revenue streams. That’s the rationale behind the YY acquisition.

Herman Yu — Chief Financial Officer

Hey Alex, can you help me with that question on Muddy Water report again? I didn’t hear the whole thing.

Alex Yao — JPMorgan Chase & Co. — Analyst

Yeah, I mean, I just want to clarify, the transactions due going ahead, despite of the Muddy Water report and the changing regulatory environment. And also the deal — is the deal still going ahead with the previously announced valuation?

Herman Yu — Chief Financial Officer

Yeah. So you asked quite a mix of questions. With regards to the Muddy Water report, I think JOYY has come out with a statement. As you guys know, they hired a global legal team, and they also hired a big lawyer auditor, and they have made their own announcement. That’s a JOYY announcement, not a Baidu announcement. So I think looking at that what would be the best.

With regards to a regulatory environment, we are cognizant of the situation. And that’s why we think that and wanted to navigate. As you know, you have a lot of experience looking at this. As you know, whenever there’s a regulatory environment that you have to steer towards, it’s more important to have a bigger leading player in China, who have good relationships with the government, who knows how to do things correctly and so forth. And we needed an experienced team. And that gives us a better reason if we’re going into a live streaming, we will buy a large experienced team. So this is more of an acquisition of a team rather than a particular product or just a business. It’s the team talent, is very important.

With regards to the contribution and so forth, currently, we’re moving ahead. We’re planning to integrate onto our platform as Robin has said. And we’re currently dealing — addressing with some conditions and procedures. And we still is on pace to do the closing. As we announced previously, we’re moving ahead with this. And the revenue is usually between RMB2 billion, RMB2.5 billion a quarter. So when we can confirm all of this thing, that we think we’ll be able to come back with that revenue amount.

And with regards to pricing and so forth, yes, our final agreement was the original price. We do have stipulations in the agreement to protect Baidu shareholders. As you mentioned, there was a Muddy Water report, the Big Four of 2016 came in, did not see anything. The global attorney came in, did not see anything. But to protect us, we do have indemnification in there to get a recovery just in case if something blows up in our head as a result of situation and so forth.

So did I answer your questions?

Alex Yao — JPMorgan Chase & Co. — Analyst

Well, thank you very much.

Herman Yu — Chief Financial Officer

Thank you.

Operator

Thank you. Next question comes from Gregory Zhao from Barclays. Please go ahead.

Gregory Zhao — Barclays — Analyst

Hi management, thanks for taking my question and Happy Chinese New Year. So we know now Baidu has several different business lines, cloud, autonomous driving, mobile, smart devices. So in the daily operation, just want to know, how the management team allocates for a time spend and efforts among all the different segments and what is your current priority?

And a quick follow-up on your ADS system. So you mentioned the partnership with some leading automakers. So in future, what’s your best guesstimate of the pricing of the systems? Do you think the existing products such as Tesla’s SSD is a good benchmark for pricing? Thank you.

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

Greg, in terms of time management, I would say roughly half-half. Half of our time and resources are invested in the mobile ecosystem part and the other half in the AI cloud and intelligent driving and other growth areas. Because it’s a relatively diversified portfolio of businesses, we try to set-up a more flexible mechanisms or incentive structures, so that the team can be more independent and driven. For example, the smart EV company, we have a strategic partnership with a very separate incentive structure for the team. And we recently raised money for our smart device company. So going forward, we will continue to do this.

On the Apollo smart driving services, we will continue to provide technology at a very open and flexible manner. I talked about we offer HD Maps, we offer AVP, we offer ANP and potentially, we offer other combinations of this kind of technology and services. The pricing range could differ based on the period of the contract and products we offer. And it’s growing very quickly, and it’s, I’d say, it’s still evolving very quickly.

Herman Yu — Chief Financial Officer

Yeah, and let me just add a little, Greg. I think Robin was very modest with regards to answering your talent question. Robin talked about how he spends his time. But more importantly, as you may know, over the last two years, we have significantly strengthened our bench strength. So when you look at, for example, the lead of our mobile ecosystem, Dou, he’s a PhD. And we not only have — know him from very young, joining us six, seven years ago. And also, if you look at over the last 12 months, we’ve been aggressively hiring good talents underneath, Dou. If you look at Dr. Wang, again, he’s a PhD, and we have been helping him build his team underneath too. And you look at, for example, our EV company, we’re looking for a CEO who’s out in the industry. So in addition to the times, Robin time and people from group management, we do spend a lot of time building talent. And I think that’s why Robin is versatile, being able to manage all these businesses because a lot of it is on building that middle stream at Baidu for each of the business groups so that they can run more autonomously, as Robin had mentioned, centers and so forth.

Operator

Thank you. And next question comes from Natalie Wu from Haitong International. Please ask your question.

Natalie Wu — Haitong International Securities Group Limited — Analyst

Hi, thanks for taking my question and I wish you a prosperous Chinese New Year, Robin, Herman, and Juan. So my question is regarding the autonomous driving. So Apollo is absolute leader for the third-party service providers in that area. But just curious, what are the closest competitors you can think of regarding ASD, robotaxi, smart city transportation projects, these segments, respectively. Would love to hear management’s thoughts on that. Thank you.

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

You mentioned the competitors from ASD, smart transportation. What’s the third one?

Herman Yu — Chief Financial Officer

MaaS.

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

MaaS, okay.

Natalie Wu — Haitong International Securities Group Limited — Analyst

The smart city transportation project.

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

Yeah, sure. Yeah. In terms of ASD, I think that the main competitors come from the traditional Tier 1 companies. But like I mentioned, we have unique advantages, for example, HD Maps. Basically, the non-Chinese companies are not allowed to provide high-definition maps. And for smart transportation project, there are a number of more traditional smart transportation companies domestically. Their business model is more like selling the hardware and complete the project and go away with it. But our model is more like an operating model. We would continue to optimize the throughput, reduce the traffic jam and improve safety for the overall transportation system, as well as enable autonomous driving and connecting road with vehicles to give them more guidance on the road information and help them to avoid any kind of congestion. So like I mentioned, there might be some other vendors that could compete in these areas. But when you really compare about the effecting of this kind of projects, we are so much ahead.

In terms of MaaS, there are a number of start-ups that have a trial or projects in scattered cities, but it’s in such an early stage. I think the adoption will be pretty much driven by the maturity of the technology. And things we are well ahead in terms of technology development, I think we are only limited by our capability of penetrating the cities, and improving the technology itself, not really limited by any competitors.

Operator

Thank you. Our last question for today comes from Tian Hou from T.H. Capital. Please ask the question.

Tian Hou — T.H. Capital — Analyst

Yeah. Herman, Robin and Juan, [Foreign Speech] Okay. I have two quick questions. One is related to your Apollo autonomous driving. A lot of questions have been asked. So my question is very short. So on one hand, all the modules you are selling through OEMs. On the other hand, you’re going to start your own EV companies. So under what kind of circumstances, some of your technology, you’re going to just keep yourself instead of licensing to others? So that’s number one.

Number two, related to the AI call center solution, so I’m very happy to see that operators and they start to purchase. And I wonder what is the potential for the AI call center solution. Who can be the potential customers and what industries this call center can apply to? So that’s the two questions. Thank you.

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

Yeah. For the first question, Apollo is an open platform. All of our technologies are available to our customers. We will work with them to our best knowledge and best efforts. So anything that we use for ourselves is available to third-party too. It’s just because we have a better understanding of the technology itself. We can better integrate software with hardware and use the feedback loop in a more timely fashion, so that we can improve our technology faster. If you can compare this with the Windows and Surface, right? Surface serves as a benchmark for laptops. That’s pretty much like Apollo for third-party and for our own EV.

On the AI solution for call centers, it actually can be used in a lot of industries. I mentioned the airline industry, the telecom industry, the financial services industry. Wherever there is customer service needs, that our AI call center solution can be applied to. It’s actually being used in a number of different industries. And we are going through Phase 1, Phase 2, Phase 3, so that the experience continue to improve and the knowledge base for that certain sector or for that certain company can be viewed. And the system will become smart and smarter.

Operator

[Operator Closing Remarks]