Baidu, Inc. (BIDU) Q4 2021 Earnings Call Transcript

Baidu, Inc. (NASDAQ: BIDU) Q4 2021 earnings call dated Mar. 01, 2022

Corporate Participants:

Juan Lin — Head of Investor Relations

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

Rong Luo — Chief Financial Officer

Zhenyu Li — Senior Vice President, Intelligent Driving

Dou Shen — Executive Vice President, Mobile Ecosystem

Analysts:

Alicia Yap — Citigroup — Analyst

Piyush Mubayi — Goldman Sachs — Analyst

Alex Yao — J.P. Morgan — Analyst

Gary Yu — Morgan Stanley — Analyst

Eddie Leung — Bank of America Merrill Lynch — Analyst

Jerry Liu — UBS — Analyst

James Lee — Mizuho Securities — Analyst

Presentation:

Operator

Hello and thank you for standing by for Baidu’s Fourth Quarter and 2021 Earnings Conference Call. [Operator Instructions] Today’s conference is being recorded. If you have any objections you may disconnect at this time.

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

Juan Lin — Head of Investor Relations

Hello, everyone, and welcome to Baidu’s fourth quarter and fiscal year 2021 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 Mobile Ecosystem; and Zhenyu Li, our SVP in-charge of Baidu’s 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 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. 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. We delivered a solid result in 2021. Revenues from Baidu Core were up 21% year-over-year in 2021 driven by a 71% increase in non-ad revenue, which accounted for 22% of Baidu Core revenue, up from 16% in 2020. Within the non-ad business, our cloud revenues consistently showed outstanding growth throughout the year and in our estimates, outgrow the cloud market in China. Furthermore, Apollo Go scaled up its operation and delivered key milestones to drive the long-term commercialization of our autonomous ride-hailing services.

Today, I’ll review our operation by walking through our AI Cloud, Intelligent Driving, DuerOS and Mobile Ecosystem business in 2021 and after that I’ll discuss our priorities in 2022. Starting with AI Cloud. We achieved strong revenue growth in 2021. The growth rate of Baidu AI Cloud has accelerated from 2020 on [Phonetic] and we believe it has been meaningfully higher than its peers. We made great strides in several industries, notably transportation, manufacturing, public service sector and energy and utilities. Total revenues from these industries more than doubled in the year, driving our Cloud business growth.

I’ll share with you on some of our latest developments in the above verticals. In the energy and utility sector, state grade has been utilizing our AI Cloud since 2020 to perform early detection of malfunctioning equipment and estimate utility demand to ensure a consistent electricity supply. By now, we have covered almost 90% of its branches nationwide.

In the manufacturing industry, Baidu AI Cloud has expanded into Tongxiang, a major manufacturing hub in China, enabling automated workflow processes and helping to improve operational efficiencies. In Tongxiang, we serve Longxiang [Phonetic] new area, which hosts thousands of enterprises, including some top automakers and electronic companies. More broadly, we observe an increasing adoption of AI in China. According to IDC, PaddlePaddle, Baidu’s open source deep learning platform continues to gain market share. Our internal data show that by the end of last year, PaddlePaddle developer community has grown to 4.1 million and served 157,000 businesses. And in the same timeframe, developers have created 476,000 models based on the platform. Meanwhile, in ACE smart transportation, we continue to expand our footprint geographically. By year-end last year, Baidu ACE has been adopted by 35 cities up from 14 a year ago, based on contract amounts over RMB10 million, 94% of cities that had purchased our solutions in 2020 expanded their collaboration with us in 2021. Revenues from smart transportation have been growing rapidly and more than doubled in 2021 versus the prior year.

Next, in Intelligent Driving. Apollo Go continue to take big step towards scalable operations of its autonomous ride-hailing services. We believe that large-scale operation allows us to identify the problems that are not visible during testing stage and also push the Level 4 autonomous driving technology advancement. In the fourth quarter last year, Apollo Go advanced — Apollo Go provided to 213,000 rides, and once again almost doubled its rides quarter-over-quarter, reaffirming our leadership position in the global autonomous ride-hailing market. Apollo Go is now available in eight cities: Beijing, Shanghai, Guangzhou, Shenzhen, Chongqing, Changsha, Cangzhou and Yangquan. Meanwhile, we have begun to charge fees for the autonomous ride-hailing service on open roads since November 25, 2021 in Beijing and February 18, 2022 in Chongqing and February 27, 2022 in Yangquan.

Baidu has been working hard to improve the safety performance and maximize the efficiency of autonomous driving by synergizing our ACE smart transportation solution, autonomous vehicles, maps and cloud services. Our Beijing project is the case in point, about one year ago we built ACE smart transportation and introduced Apollo Go in Yizhuang region of Beijing. Currently, almost 100 vehicles are providing autonomous ride-hailing services in Yizhuang on a daily basis and we have started charging passengers. At the same time, our ACE smart transportation solution has expanded its coverage almost tenfold in terms of intersections in Yizhuang area over the past year, providing extra support for Apollo Go. We believe that the Beijing project serve as the showcase for other cities to follow and replicate.

As intelligent and connected vehicles are taking the center stage of auto sales, Baidu’s autonomous driving solutions have won increasing acceptance among automakers. We believe that we will gain further traction as more automakers recognize that partnering Baidu is better than investing extensively in developing their in-house solution. Recently, we received nomination letters from BYD, one of China’s largest automotive and technology companies, intending to adopt ASD, in particular ANP and AVP for multiple popular models.

In DuerOS, Xiaodu again was ranked #1 in smart display globally and #1 in smart speaker in China, based on the first nine months shipment data last year according to Strategy Analytics, Canalys and IDC. Xiaodu revenues continue to grow rapidly, at the same time, we are pleased to note that our services revenue already surpassed 10% of Xiaodu revenue last year.

Finally, in Mobile Ecosystem. Solid user growth demonstrated continuous expansion of our Mobile Ecosystem. In December, Baidu App’s MAU accelerated year-over-year growth rate to 14%, reaching 622 million, daily logged-in users on Baidu App already surpassed 80%. Users are not only coming to Baidu to search information, but increasingly to enjoy diversified formats of content and closed loop services accessible using Baidu App’s. Through the search our building blocks, users now can enjoy a full service cycle from information search to fact checking, to interaction with industry participants and to purchasing products and services without leaving Baidu App.

In services, our instant replies to search queries cover over 40,000 industry participants from 19 verticals in the fourth quarter. Total daily instant replies increased about 60% from December to — from September to December. In particular, daily telehealth consultations on Baidu Health grow to 2.4 million in the fourth quarter 2021, that’s up 60% — 62% from last year. Monthly orders for local services such as Moving Services and Home Repair Services within Baidu App multiplied fivefold year-over-year in December.

E-commerce GMV facilitated by Baidu, though still small, grow at a fivefold in the fourth quarter compared to the first quarter of last year. Furthermore, in 2021, we further diversified the formats of video content offerings within Baidu App’s. In 2021, we introduced a fully immersive video experience that combines horizontal and vertical short videos in an endless flow. This and other enhancements have significantly improved short video viewership and driven up ad conversion within Baidu App.

In monetization, Managed Page continue to make progress. Revenue from Managed Page grew by 52% in 2021 and reached 40% of Baidu Core’s advertising. While Baidu Core ad revenues increased by 12% in 2021, macro weakness and COVID-19 resurgence have impacted the ad industry in late 2021. In the fourth quarter, our ad revenue declined by 2% quarter-on-quarter, with year-over-year growth slowing down to 1%.

Going into 2022, China is determined to promote technological innovation and upgrade the traditional industries. Such strategic goals were promoted during China’s 14th Five-Year Plan and re-emphasized by the General Office of State Council in early January of this year. In addition, the Beijing Municipal Government recently released its 2021 Works [Phonetic] Report, emphasizing the target to accelerate the construction of a holistic transportation system containing intelligent vehicles, smart transportation, cloud and maps, as well as leading the advancement of high-level autonomous driving nationally in 2022. Navigating in this favorable operating environment, Baidu will continue to leverage our world-class AI capabilities to grow our non-ad business [Phonetic], which is a clear growth engine for our overall revenue.

For the coming year, we have set the four — the following operational priorities. For AI Cloud, we aim to sustain above industry level revenue growth. We will continue to bring our innovation in AI to wherewith traditional industry and the public service sector, enabling our customers to improve efficiency and boost productivity. We believe we will be able to make further breakthroughs in more verticals.

For Intelligent Driving, we will further scale up the Apollo Go operation to provide ride to more passengers. We will steadily work towards the goals of removing safety drivers and providing fully autonomous ride-hailing services in China. We will continue to expand our partnership with more automakers in ASD, in particular ANP and AVP to enable them to be better positioned in the evolving auto industry. As a result, we expect to further drive up our pipeline. Jidu plans to take orders in the second half of 2022 after launching its first concept production car in Beijing Auto Show April of this year, and aim to deliver mass production in 2023. For Xiaodu, we will seek quality revenue growth and margin improvement. Xiaodu has already completed two rounds of financing.

And for Mobile Ecosystem, we will continue to leverage AI to improve the user experience in search and feed and further build the closed loop services within Baidu App to fulfill user needs. In addition, we focused on a healthy and sustainable business model in order to consistently generate strong cash flow to power our investments in new AI businesses.

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 fourth quarter and the full year 2021 financial results. We closed 2021 with solid financial results. Baidu Core’s revenue was RMB26 billion, increasing 12% year-over-year. In 2021, Baidu Core generated RMB95 billion or $15 billion, 1-5, in revenue, up 21% year-over-year. Non-ad, business growth were robust and reached 26% of Baidu Core revenues in the fourth quarter, up from 18% a year ago, demonstrating how our previous investments in AI has built a new growth engine for Baidu now, as well as for the mid- and long-term. For the full-year 2021, non-ad business accounted for 22% of Baidu Core revenues, up from 16%, 1-6, in 2020.

Within the non-ad business, Baidu AI Cloud is a clear revenue growth driver. Revenues from Baidu AI Cloud increased by 60%, 6-0, year-over-year to RMB5.2 billion in Q4 and was up by 64% year-over-year to RMB15.1 billion in 2021. Non-ad accounting for more than half of Baidu AI Cloud revenues. Our ad benefiting from a multi-cross strategies adopted by many of our customers. Our non-ads business property from Baidu’s strong AI capability, an upgrade of China’s traditional industries. As Robin mentioned earlier, Baidu AI Cloud make great strides in several industries. Total revenues from transportation, manufacturing, public service sectors and energy and utilities industries more than doubled in the year. Looking ahead, we aim to sustain above industry revenue growth for Baidu AI Cloud.

Excluding Baidu AI Cloud, Baidu Core non-ad business improves in Intelligent Driving, as well as other growth initiatives. Intelligent Driving mainly composed of revenue from ASD, including HD Maps, automated valet parking, AVP, and autonomous navigation pilot, ANP, and our autonomous ride-hailing fleet. Xiaodu is an important component of other growth initiatives. Xiaodu continued to achieve solid revenue growth. Ad revenue grew by 12% year-over-year in 2021. In Q4, ads revenue was up 1% year-over-year, yet decreased by 2% quarter-over-quarter due to softness in the macro environment and the COVID-19 resurgence. Our App business was impacted by significant headwinds in sectors such as education, real estate, franchising, healthcare and travel and may remain challenging in the near-term. With that said, our Xiaodu business should remained relatively resilient and should recover once the macro environment starts to improve. In addition, we expect revenue diversification to continue with non-ad business exhibiting strong growth.

IQIYI revenue was RMB7.4 billion in Q4, decreasing 1% year-over-year. iQIYI revenue was RMB30.6 billion in 2021, increasing 3% year-over-year. Cost of revenues was RMB17.3 billion in Q4, up 19%, 1-9, year-over-year, primarily due to an increase in traffic acquisition costs, bandwidth costs, cost of good sold and other costs related to the new AI businesses. Cost of revenues was RMB64.3 billion in 2021, increasing 17%, 1-7, year-over-year, primarily due to an increase in content costs, traffic acquisition costs, bandwidth costs, cost of goods sold and other costs related to the new AI business.

Operating expenses was RMB13.8 billion in Q4, up 29% year-over-year, which was primarily due to an increase in channel spending, promotional marketing and personnel-related expenses. Operating expenses were RMB49.7 billion in 2021, up 32% year-over-year, which was primarily due to an increase in channel spending, promotional marketing and personnel-related expenses. Non-GAAP operating income was RMB4.3 billion in Q4 and non-GAAP operating margin was 13%, 1-3. Non-GAAP Baidu Core operating income was RMB4.8 billion and operating margin was 19%, 1-9. Non-GAAP operating income was RMB19 billion in 2021. Non-GAAP Baidu Core operating income was RMB22.2 billion and non-GAAP Baidu Core operating margin was 23% in 2021.

Adjusted EBITDA was RMB5.8 billion and adjusted EBITDA margin was 17% in Q4. Adjusted EBITDA for Baidu Core was RMB6.2 billion or $974 million and adjusted EBITDA margin for Baidu Core was 24%. Adjusted EBITDA was RMB24.9 billion or $3.91 billion and adjusted EBITDA margin was 20% in 2021. Adjusted EBITDA for Baidu Core was RMB27.7 billion or $4.34 billion and adjusted EBITDA margin for Baidu Core was 29%.

In 2021, we continue to invest in new AI businesses, including AI Cloud, Intelligent Driving and Smart Assistant, while the non-GAAP operating margin for Baidu Core decreased from 2020, our investment resulted in the rapid growth of non-ad revenue. Overall, we expect our ad business to continue generating cash flow to support the rapid growth of our non-advertising AI businesses. For Baidu AI Cloud, we are trying to retain rapid revenue growth for 2020 — for 2022 and beyond.

Cash and short-term investments for Baidu Core as of December 31, 2021 were RMB186.5 billion or $29.27 billion. Free cash flow for Baidu excluding iQIYI was RMB15.4 billion or $2.4 billion in 2021. Baidu Core had approximately 39,600 employees as of December 31, 2021.

A few words on unlocking value of other new businesses. A number of our younger businesses are seeing exciting development. In 2021, we’ve completed fundraising for Xiaodu and Baidu Kunlun. In late January 2022, Jidu closed its Series A financing and raised nearly $400 million.

An update on our share repurchase program, we returned $615 million to shareholders in Q4, bringing the cumulative repurchase of approximately $1.2 billion in 2021. As of year-end 2021, we have returned approximately $2.9 billion to shareholders under the 2020 share repurchase program, which authorized a total of $4.5 billion. Taking into account the practice of other US listed companies that are listed on Hong Kong Exchange, the company has decided not to provide guidance on the company’s revenues going forward.

Operator, with that, let’s now open the call for questions.

Questions and Answers:

Operator

Thank you. [Operator Instructions] Our first question comes from Alicia Yap from Citigroup. Please ask your question.

Alicia Yap — Citigroup — Analyst

Hi. Thank you. Good evening, management. Thanks for taking my questions. And also, congrats on solid results. I wanted to ask, Robin, on these questions. I guess, management has been talking about different business transitions since 2019 and since Baidu is still undergoing a transitional period. How would you assess your achievement and the progress during this transitional period? I remember, if I recall, I think management mentioned a few times in the past the tailwinds of China’s transformations in the traditional industry. So I wonder, as we enter into 2022, how would you quantify some of these opportunities? Thank you.

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

Thank you, Alicia. As you can see, we closed to 2021 with non-ad business accounting for 26% of Baidu Core in Q4 last year and a year ago, it was 18%. Our new AI business have been growing at a pace faster than industry average. 2021 was a year with many challenges and opportunities. Despite the uncertainties caused by macro, by geopolitical tensions and other factors, there is one thing for sure, that is the world is moving towards AI.

As I mentioned in my prepared remarks, Baidu has brought AI to wherewith traditional industries and the public service sector to help them improve efficiency and strengthen their competitiveness. Our enterprise customers increasingly recognize the value we can add to their business and we have made breakthroughs in industries like transportation, manufacturing, energy and utilities. As more automakers recognize the importance of AI, they have indicated to us that they want to use ASD and DuerOS for auto for more and more popular models. That accounts for potentially billions in sales and we expect that trend to continue this year.

But what is more important is our autonomous driving technology and robotaxi service, Apollo Go has build up its operations significantly. If you happen to be in any of the cities we just mentioned during the prepared remark, you’re welcome to try out our service via Baidu App or Apollo Go apps. It serves like an experienced and attentive driver, but in fact, it’s powered by AI. We believe providing more rides to passengers on the open road will help further improve our Level 4 autonomous driving technology, further improve the safety performance and user experience and therefore, further solidify our leadership position.

And going into 2022 in short the backdrop of policy tailwind, we will continue to expand our AI Cloud and make further breakthroughs in Intelligent Driving. At the same time, we will focus on healthy and sustainable development for the Mobile Ecosystem. And AI-generated content could become a big differentiator for us in the years to come. So overall I think AI’s contribution to our growth will become more apparent in 2022.

Operator

All right. Thank you. Our next question comes from Piyush Mubayi from Goldman Sachs. Please ask your question.

Piyush Mubayi — Goldman Sachs — Analyst

Thank you for taking my questions, Robin, Rong Luo, Juan. Congratulations on another solid quarter. Could you share your thoughts on the business outlook for 2022 in general and Q1, in particular? Also, how should we be thinking of margins for the business in 2022?

My second question is on your Cloud business, which is growing very nicely, outgrowing the pace of the industry. What are the drivers that you see for this business for the rest of the calendar year? And also if you could comment on the margin outlook for the Cloud business splitting it by gross margin and operating margin? Thank you very much.

Rong Luo — Chief Financial Officer

Thank you so much, Piyush. I think that’s a very good question. When we look into our business in last year and looking forward. In the year 2021, the revenue from Baidu Core were increased by 21% to RMB95 billion, particularly driven by the Baidu AI Cloud. Baidu AI Cloud grew by 64% to RMB15.1 billion last year and contributed to over 70% of the core non-ad revenues. As we mentioned in the prepared remarks, Baidu AI Cloud made breakthrough in several important verticals. As Robin just mentioned, total revenues coming from transportation, manufacturing, energy and utilities and the public service sectors is more than doubled last year. When customers realize that by being equipped [Phonetic] with our AI capabilities they come stronger. I think that’s part of the reason why we have seen repeated purchase coming from the same customers last year and deepen the penetration in various industries. I think in particular, one thing we need to draw attention is our ACE smart transportation, which started from scratch only few years ago and has maintained strong growth momentum ever since. In year 2021, ACE smart transportation’s revenue achieved triple-digit revenue growth. Our breakthroughs in these verticals have build our confidence to maintain a solid growth momentum for AI Cloud and we aim at above industry level growth in 2022.

One thing I would like to remind you is, actually, our Cloud revenues might fluctuate quarter-over-quarter. And we will suggest you focus on the annual revenue growth, which makes more sense. In the margin wise, we have to say that is Baidu AI Cloud includes the personal cloud services, enterprise and public sector cloud services. Revenue from personal cloud services contributed to a small portion. It has been growing more slowly than overall Cloud revenues by enjoying a relatively healthy margins. Revenue coming from the enterprise and the public sector, including smart transportations has been consistently outgrowing the overall AI Cloud business. From a long-term perspective, we believe that our solutions become more mature and more standardize, our margins of AI Cloud will improve.

Baidu Core ad revenue grew by 12% in 2021 and the margins stayed healthy. We need to know that the ad industry has been facing challenges in the near-term due to the macro environment and the resurgence of the COVID-19. We may see Baidu Core ad revenue growth slow down in Q1 from Q4 2021. Having said that, if the COVID-19 trends don’t get worse post-Q1, then the first quarter should mark the bottom of the — in the ad industry. Overall, we believe that our advertising business could recover once the macro environment that to improve.

I think going forward we will maintain a disciplined approach to balance investments and returns to ensure healthy development for the ad business. Managing healthy growth is always our — one of our priorities. Within the non-app and non-AI Cloud business, Xiaodu is a important component. In 2021, Xiaodu revenue grew [Indecipherable] and we target to sustain solid revenue growth momentum in 2022. Within the non-cloud business, our Intelligent Driving was also achieving some breakthroughs. As Robin mentioned, BYD chose Baidu as a partner to provide Apollo Self-Driving solutions with partnership covers BYD’s multiple hot models across several years. That is one of the example of the promising development for ASD business in Baidu, while the revenue of such partnerships that will be recognized over the few years alongside the shipment of each model. We’re encouraged about the progress we have made and are relatively optimistic about our future business outlook.

In summary, I think we will continue to invest dedicated in AI-enabled businesses, especially in the Intelligent Driving, AI Cloud, which has been developing rapidly. And we believe that all of this will generate the huge growth potential over the long-term.

Thank you, Piyush.

Operator

Thank you. Our next question comes from Alex Yao from J.P. Morgan. Please ask your question.

Alex Yao — J.P. Morgan — Analyst

Thank you management for taking the question and congratulations on Apollo achieving another record-breaking number of rides this quarter. My question is, how will Apollo achieve large-scale autonomous ride-hailing operations in Chinese cities, given extremely complicated road conditions? And also, what are your strategies for Apollo Go to accelerate its operational and technological roadmap? Thank you.

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

I’ll have Zhenyu answer your question.

Zhenyu Li — Senior Vice President, Intelligent Driving

Okay. Thanks, Alex. As Robin mentioned, in 2021, we scaled up our local operation supported by our early mover advantage in L4 autonomous technology. Today, we believe that we are already the largest autonomous ride-hailing service provider in the world evidenced by the number of rides that we have completed. Based on our experience, together with public operations, can generate a larger number of longtail data with better quality and a better match with actual user demand, which is different from small-scale test driving. By combining this data with our simulation system, we enjoy a flying wheel. In fact, that drove the separation of technology integration, hence, improving safety performance and consumer experience and lowering cost.

I think you mentioned the complicated road conditions in China. How can Apollo overcome those challenges and provide autonomous ride-hailing services? I think one distinct feature is our business is a holistic approach which trying to get our ACE smart transportation solution, autonomous vehicles, maps and cloud services to improve the safety performance on China’s communicated urban roadway.

Our Yizhuang, Beijing project is a case in point. Yizhuang, the Economic and Technological Development Area, or Beijing, is a typical Chinese urban road as you may know. Apollo began autonomous driving testing in Yizhuang back in 2018. Since 2020, we have collaborated with Beijing government to construct a high-level autonomous driving and domestications and within four years, Apollo Go had grown from our forecasting to offering large-scale operations and serving passengers in Yizhuang. Lastly, in November, we started up to collect fees. Nowadays, almost 100 vehicles are providing autonomous ride-hailing services in Yizhuang on a daily basis.

On our end [Phonetic], each autonomous ride-hailing vehicle had provided about 20 rides daily in 2021. At the same time, our ACE smart transportation solution has expanded its coverage almost twofold from covering 13 intersections to 300. What is even more exciting is that, Apollo is now conducting fully autonomous driving testing with no one at the driver seat in Yizhuang on a regular basis. We are working steadily towards the growth of removing the safety drivers and providing fully autonomous ride-hailing services in the near future. We believe that removing the number of safety drivers will allow us to significantly reduce our costs and expenses and it will help the business to generate profit in the future.

Lastly, I want to highlight that our autonomous driving business has a navigating and favorable operating environment. The Beijing government have announced plans to expand the autonomous driving region to a large area in 2022. Several large cities such as Guangzhou, Chongqing and Shanghai has proactively adopted our ACE smart transportation solutions and facilitated public operation for Apollo Go autonomous ride-hailing. We believe that in the short future those cities will follow Yizhuang’s lead to embrace our solution-yielding, our holistic approach system. We also are recently expanded the commercial operations of Apollo Go in Beijing, Chongqing, and Yangquan. We have believe that we will continue to benefit from China’s ambition to establish autonomous driving as national pride and the home-grown technology. Thank you.

Operator

All right. Thank you. Our next question comes from Gary Yu from Morgan Stanley. Please ask your questions.

Gary Yu — Morgan Stanley — Analyst

Hi. Good evening, management. Thank you for the opportunity and congratulations on the strong progress you’ve made on AI and Intelligent Driving. I think most of the questions around these areas have been asked. So my question is more related to your marketing or advertising business. So I think you mentioned earlier that we think first quarter will see slower growth but should mark the bottom. So how should we look at the impact on your advertising or marketing revenue from macro, from COVID, from regulations? And when you think about potentially slower growth in the first quarter that recover afterwards, how bad can the first quarter be? And how should we look at the recovery trend for the remaining of the year?

I think my second question also related to that is more longer-term. So another policy tailwind that I think Baidu is facing is with more overness in ecosystem. We may see more potential opportunity from platforms being more kind of into operational. So in video surge in e-commerce, what kind of progress have we made so far and how should we look at the long-term opportunities there? Thank you.

Dou Shen — Executive Vice President, Mobile Ecosystem

Hi, Gary. Thanks for your questions. This is Dou. So for the first question, our ad business is highly correlated with the macro developments. So actually as Julius has already mentioned, the macro economy and the COVID-19 impacts the whole industry and clearly, our business as well in the Q4. These challenges are likely to continue in Q1. So the factors that underperformed in Q4, such as education, real estate, franchising and travel, more likely to be soft as well in Q1. But in the meanwhile, we are cautiously optimistic about the macro developments because we already see many macro economic regulations are being put into places and likely to have positive influence on the — in economy. And so, we already witnessed some early signs of the recovery and the momentum, right, for some industries like healthcare. So we believe once the macro environments begins to improve and our ad business starts to normalize along the economic recovery in the Q1, it could be the trough for our ad business in this year. So in the long run our strategy to build a stronger user base and the commercialization capabilities is also making our ad business and Mobile Ecosystem more resilient than before.

So as Robin already mentioned, right, so we made a stride to enrich both the content in the closed loop services within Baidu App through our efforts on Smart Mini Program and Managed Pages, Baijiahao, the building blocks we have been talked about a lot and before. So in turn, the user experience for both the content and the service consumption and also the commercial conversion, both on ads and non-ads are being enhanced accordingly. Our Mobile Ecosystem then from the mid- to long-term perspective, will become a platform where our users had one stop satisfaction for majority of their needs. So with that, besides ads, we believe the monetization approaches such as live streaming rewards, the commission, the subscription, membership and etc., will grow clearly. So therefore, while we are still investing in many initiatives in our Mobile Ecosystem, now we believe our capability will continue to make our margin healthy and sustainable moving forward.

For your second question about the interoperability, we think it’s very, very important for the whole Internet and will lead to a fundamental open ecosystem, which will benefit every single user of the Internet. So, we all know search by nature is open and Baidu has been making its efforts to strengthen the open nature of our Mobile Ecosystem. So we have made a meaningful progress and we believe there are many more to come. Let me show you a few examples. So content wise, in addition to Baijiahao, we have leveraged the H2 — H5 and the Smart Mini Program to make our users able to access a vast amount of content from China’s top, as well as the longtail apps covering long-form video platforms, the short-form video platforms like Bilibili and the lifestyle platforms like Xiaohongshu, podcasting apps, and a lot — much more long-tail comic book apps with the native app experience.

And as you just mentioned, for the shopping side, as we mentioned earlier, we have made more than 1 billion SKUs from our major partner platforms available for our users. And for services, again, with the Smart Mini Programs, we now can fulfill a variety of user requests spanning over almost 300 service categories from some top platforms such as [Indecipherable] Ctrip and in many vertical platforms like on [Indecipherable] service.

Last but not least, we open sourced our Smart Mini Program framework in the very beginning in order to empower our partners so that the Smart Mini Programs can actually run seamlessly in their apps. Recently, the leading smartphone makers such as Oppo, Vivo, Xiaomi, have adopted Baidu Smart Mini Program framework in their in-house products, which resulted in more than like a 20 million more daily active users for Smart Mini Programs. And we already see — this has been encouraging more and more developers to embrace the ecosystem. And so, we believe that interoperability could bring more market opportunities for, not only Baidu, but also for the entire industry. So we will continue to closely monitor the dynamics and we will do our parts to make mobile [Phonetic] faster.

Thank you, Gary.

Operator

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

Eddie Leung — Bank of America Merrill Lynch — Analyst

Good evening, gents. Most of my questions have been asked. Just curious on your use of cash, including investment plan as far as any potential increasing your buyback program. As for investment, we noticed that quite some of your major peers talking about more disciplined going forward in terms of investment. So wondering whether you have a similar strategy going into 2022? Thank you.

Rong Luo — Chief Financial Officer

Thanks for your question. I think in terms of our corporate strategy, I would like to emphasize that most important investment are always investing in ourselves. If you look into our business today, our growth is clearly driven by non-ad business, which is already 26% of the total revenue now and non-ad mainly composed of revenue of AI Cloud, Intelligent Driving, Xiaodu, and other AI-related growth initiatives, all of these are kind of new business for us and which requires more investment. This AI business represent different stage of growth and they are very important for [Indecipherable] for the long-term revenue growth for [Technical Issues], our investments are pretty much packed with growth of — packed with growth potential. So we will continue to invest dedicated AI on ourselves, in particular in Intelligent Driving and AI Cloud to lay a solid foundation for our future growth. And meanwhile, we will remain open, but also work disciplined in investing in [Technical Issues] which may complement our new business initiatives.

In terms of capital allocation, yes, some of our new business have completed the fundraisings, and which have created more capital for their future development needs. On the other hand, such arrangement, which can better align to manage employees interest. I think going forward, we’ll maintain our open attitude and we are open to bring in more diverse investors including strategic investors to help the companies to grow.

In addition, and you’ve mentioned the share repurchase program, I think we believe that our AI business has been undervalued by the market. For example, the market has not placed sufficient values on our Intelligent Driving businesses, that’s the reason why we keep buying back our shares. As of the end of 2021, we have returned approximately $2.9 billion to the shareholders under the 2020 share repurchase program. I think this reflects the conviction that we have in the direction of our businesses.

Thank you for your question.

Operator

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

Jerry Liu — UBS — Analyst

Hi. Thank you, management. Yeah. I want to go back to the Apollo topic, maybe just from a different perspective. On this call, you guys mentioned some more wins with automakers and especially the new partnership agreement with BYD. So, I just want to ask what are some of the operating metrics that you can provide to help us quantify how big can this opportunity can this business be? How will these partnerships benefits the ADS business going forward? How will it benefit overall revenues? Thank you.

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

Hi, Jerry. This is Robin. In [Technical Issues] connected vehicles are becoming the new attraction for auto sales. Many automakers have come to realize that adopting Baidu’s solution is better than investing in their in-house solutions. That’s why a lot of automakers have been chosen to partner with us. Our in-vehicle infotainment system, DuerOS, for auto has been on market for quite a few years, but our ASD, namely both ANP and AVP has been gaining traction over the past year or so. We’ve seen strong acceptance from the automakers.

As you mentioned, BYD is a very good example. They are one of the largest EV automakers in China, it probably accounts for close to 20% of China’s new EV market last year and their sales volume grow — for new EV grew by over 200% last year. They have selected us to be a partner to supply the autonomous driving solutions, especially ANP and AVP for multiple popular EV models across multiple years. With the increasing adoption of smart EV in China, we believe Baidu’s strong autonomous driving capability put us in a very strong position to win more businesses. At the end of last year, according to our internal estimates, the total projected cumulative sales of ASD and DuerOS for auto from new wins should be about RMB8 billion and that’s unrealized revenue [Technical Issues] was growing very fast over the past two to three years, especially the contribution from ASD has been very strong.

Rong Luo — Chief Financial Officer

Yes. And I try to make it clear about the numbers. We are seeing very promising numbers of our cumulative sales of ASD and DuerOS for auto in the past few years, they grow — their growth is quite promising. But this number which includes the contract size and the nomination letters from customers. I think the auto industries a nomination letter means the supplier is successfully accepted by OEM on a certain project. Following the nomination letters, an OEM typically with a contract with the suppliers. Our estimates make, based on our assumption of the timing of new models, the pricing and the future sales volume, according to the discussion with our customers and some projections also coming from the professional, third parties. And these projects usually last for three to five years, during which time we will recognize that revenue based on the actual installations.

I hope this can give you a better understanding of our ASD business. Thank you.

Operator

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. A couple of follow up questions on autonomous driving. I recently read your recently published book on smart transportation and in this book, specifically you guys elaborated a number of details about the industry landscape including V2X, traffic management, smart EV and autonomous driving. And just looking at the various yields that you mentioned in the book here, what is Baidu’s mid-term [Technical Issues] strategy and long-term development goals? Thanks.

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

Let me start with why I wrote this book. The application of AI technology has given new ideas and new solution to digital transformation of many industries. I think transportation and auto is probably the best example. So in this book, I demonstrated how AI is going to reshape this industry and create enormous value for all of the stakeholders. The ITS, or intelligent transportation system, has two building blocks. One is the intelligent and connected vehicles. The other is the road [Phonetic] side infrastructure. These two works well independently but are much more effective together. The system deeply integrate a wide range of technologies, including AI, 5G in the cloud computing into the transportation and auto industries.

It is dedicated on solving three major issues. First, to minimize the road safety accidents. 94% of the road accidents are caused by human error in driving, and autonomous driving will be much safer. Second, systematically reduce congestion. Based on our experience in certain Chinese cities, Apollo V2X, or vehicle-to-road infrastructure, has helped reduce traffic congestion during peak hours by 20% to 30%. Thirdly, reduce the carbon emission. Road transportation accounts for over 80% of the carbon emissions from transportation sector. Therefore, improving the efficiency of transportation system is critical for sustainability.

AI is receiving the transportation and the mobility industries, creating $1 trillion industry opportunities. In China, there are more than 300,000 road intersections in urban roads and about 150,000 kilometers of highways and tens of millions of parking lots. They have been all in the process of upgrading with AI technology, not to mention the autonomous ride-hailing and smart EV market opportunities.

As I mentioned in the prepared remarks, Baidu has made significant progress in Intelligent Driving. So in the medium- and long-term, we aim to expand the coverage of Apollo Go to 65 cities in 2025 and 100 cities in 2030. And expand our smart transportation into more cities and deepen our penetration in each city. From a more macro point of view, ITS is a microcosm of future digital city operation. I think the digital city operation mode assisted by AI technology will be a dissolution. Through AI new infrastructure we are confident to further contribute innovative solutions to the digital transformation of industry and city.

Thank you.

Operator

All right. Thank you. We have reached the end of the question-and-answer session.

[Operator Closing Remarks]