Baidu (BIDU) Q2 2018 Earnings Conference Call Transcript

Baidu (BIDU 0.98%)
Q2 2018 Earnings Conference Call
Jul. 31, 2018 9:15 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Hello, and thank you for standing by for Baidu's second- quarter 2018 earnings conference call. [Operator instructions] Today's conference is being recorded. If you have any objections, you may disconnect at this time. I would now like to turn the meeting over to your host for today's conference, Sharon Ng, Baidu's director of investor relations.

Thank you, and please go ahead.

Sharon Ng -- Director of Investor Relations

Hello, everyone, and welcome to Baidu's second-quarter 2018 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, Baidu's chief executive officer, and Herman Yu, Baidu's chief financial officer. After our prepared remarks, we will hold a Q&A session.

Please note the discussion today will contain forward-looking statements made under the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from our current expectations. 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 take -- undertake any obligation to update any forward-looking statement, except as required under applicable law. Our earnings press release and this call includes discussions of certain unaudited non-GAAP financial measures. Our press release contains a reconciliation of unaudited non-GAAP measure 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 -- Chief Executive Officer

Hello, everybody, and thank you for joining our call today. We had another strong quarter in Q2, as our core business is exhibiting robust revenue growth, driven by AI-powered monetization capabilities and Baidu feed continuing its strong traffic and revenue momentum. Our AI businesses are also gaining strong traction. Earlier this month, we held Baidu Create, our annual AI Developer conference in Beijing, which drew over 7,300 developers and partners from around the world.

Our goal for Baidu Create is to bring developer together to share ideas on how they can leverage Baidu's AI to grow their business. I'll further elaborate on our announcements at Baidu Create and how we use AI to accelerate the growth of our businesses as we review our Q2 results. Let's begin the quarter with Search and Feed. We continue to push the boundary of Search experience by fulfilling 37% of search queries with top one results, and 38% through Bear Paw account, and over one-sixth of our search page fields returning high-quality videos.

At Baidu Create, we announced the launch of Baidu's smart mini program to take advantage of emerging trend in China, where app with lower frequency are connecting to super apps to bypass the ever rising cost of app preinstalls. Baidu's smart mini program is unique. In that, it allows app developer to quickly convert another platforms mini program into Baidu. App developers have free access to Baidu's AI capabilities.

And once Baidu's open source mini program is set up, the app developer can also plug into any third-party super app in Baidu's network. Baidu's smart mini program offers a seamless native-app experience to other apps, which will extend Baidu's longtail content reach and drive better conversion. In June, average daily active user of Baidu app reached 148 million, up 17% year over year. Total user time spent on Baidu app grew approximately 30% in June year over year.

Feed consumption continue to trend in a healthy manner, with video consumption up 270% year over year. We added over 200 MCNs in the second quarter. For example, People's Daily, a major state-owned news platform in China, joined our content network Baijiahao, making over 2,000 media sources on its platform, representing over 38,000 Baijiahao accounts available to Baidu feed users. We continue to leverage Baidu's strategic advantage to power our feed algorithms with Baidu's AI at massive longtail user insight to provide user with more interesting and wider range of content.

On the monetization front, Baidu's AI has also been the strategic thrust behind our app innovation and app effectiveness, from augmented reality to Bidu app to performance-based app. Dynamic app has been a strong revenue driver, incorporating product and user data from our customers. This quarter, we expanded dynamic app to advertisers in the education and financial services industry beyond e-commerce, travel, auto and real estate. Optimized the cost per click or OCPC continue to be an important component of revenue growth, as we expand beyond game developers to financial services, real estate and education.

For mobile action app, we expanded beyond enabling user to call and chat with the advertiser directly from the app on Baidu, to enabling the user to take advantage of an instant coupon or click to buy. With strong intense data, Baidu is able to continuously provide our customers with this useful, interest to generation and purchase features, which have generated meaningful lift in click through rate. We are also seeing good results from [Inaudible], Baidu's development of deep reinforcement learning to improve app performance. Using deep reinforcement learning, which is reward-based, linking actions to desired results, [Inaudible] can suggest better keywords, photos and videos from Baidu's huge content library to advertiser and increase conversion and overall app effectiveness.

Baidu is an early adopter of AI. Together with massive user intent data and interest graph, we see great opportunities to help advertisers leverage Baidu's large traffic, open platform advantages and highlyeffective performance-based app. Turning to DuerOS. Our IoT operating system, DuerOS, is expanding quite rapidly.

In June, DuerOS installed base reached 90 million, nearly doubled in the last six months. Voice queries onto DuerOS in June surpassed 400 million times, again, doubling over a 3-month period. To drive the adoption of DuerOS, we offer third-party toolkits as well as first-party and second-party smart devices. In June, we launched Xiaodu Smart Speaker, which sold out 10,000 units within the first 90 seconds in one sale online.

Xiaodu Video Smart Speaker, which was last in April with AI Nemo, continues to sell well and have garnered overwhelmingly positive user videos. We are seeing toddlers as young as 4-year-olds and senior citizen becoming an important customer base, reflecting the ease of use of conversational AI powered by DuerOS. In addition to retail, DuerOS is partnering with Intercontinental Hotel Group to bring smart rooms to China, where hotel customer can control their rooms and learn about hotel information through DuerOS conversational AI. Aside from hospitality industry, DuerOS is also making inroads in the auto industry.

Forming partnership in the likes of BMW Group, Daimler AG, Ford Motor, Hyundai, KIA, Chery, BAIC and FAW Group and Byton to allow car owners to activate AI input modalities, such as voice, image and visual and facial recognition to enable closed loop services, including ordering movie tickets and booking hotels. Incidentally, we are seeing fast adoption of voice input in China. Baidu mobile input saw average daily voice input grow almost 150% year over year in June and averaged 335 million times per day in the last week of July. Just like computer and smartphones, software will be a key determining factor for user experience of IoT devices, which means users will launch better AI input mode modality, better search technology and better content ecosystem.

On Apollo, we are moving at China speed. Earlier this month, we worked with King Long Motor to launch the first fully autonomous Level 4 minibus, Apollo, a shuttle bus without steering wheel. Neolix Technology also launched an L4 vehicle powered by Apollo -- minicar for cargo deliveries this month. We are excited about the commercialization of Apollo-powered vehicles, which is -- which is an attachment to Apollo's comprehensive ecosystem from AI technologies to OEM software, to hardware integration, to Tier 1 parts supplier, to IoV-enabled backend infrastructure.

China is the largest auto market in the world. There is 28.9 million new vehicles sold last year, presenting a huge opportunity for Apollo to making driving easier and help provide environmental and traffic solutions. In March last year, I challenged our team to open source Baidu's autonomous driving platform and release a commercially viable vehicle. Within 16 months, our team worked with OEM partners to release two Level 4 vehicles of the assembly line, which is not an easy fete in the automotive industry, where manufacturing delays are common.

Recently, I post another tough challenge to our team, help Baidu users identify quality, reliable natural services. In China, we're currently 31,000 licensed hospitals, but no effective mechanism to identify those unscrupulous services. In the past, Baidu focused on banning bad ads. As a major information source in China, I believe, we should use AI and set up -- and step up efforts to significantly improve the quality of medical content and readout that hospitals, even if there are licensed and operate within the realm of law.

Having access to reliable medical services is a basic necessity to having a quality life. Within a year, I challenged my team to come up with a solution to improve trust to online medical information on Baidu properties. Turning to iQiyi. iQiyi continues to perform well with strong growth in membership and advertising revenue in Q2.

Total subscribing revenue -- total subscribing members reached 67 million in Q2, adding record high of 29 million subscribing member in the past year. Following a large membership base likes a solid foundation for iQiyi to promote its self-produced content. We see iQiyi's award-winning content production, coupled with Baidu's huge traffic and technology as a powerful combination in online entertainment. Our shared synergies provide iQiyi with a unique advantage, particularly as the fastest-growing OTT industry in China, continues to scale and conversational AI with a broader adoption into Chinese household.

In summary, we are pleased with the momentum that we have used, moving forward -- moving toward an AI-first company. We look forward to further updating you on our progress next quarter. With that, let me turn the call over to Herman to go through the financial highlights.

Herman Yu -- Chief Financial Officer

Thank you, Robin. Hello, everyone. Welcome to Baidu's second-quarter 2018 Call. Before I begin Q2's review, let me make a few notes.

All monetary transactions amounts in my discussion are in renminbi, unless stated otherwise. Turning on January 1, we adopted ASC 606, a new revenue accounting standard that nets value-added tax from the revenue and cost of revenue line. To increase comparability with 2018 numbers, 2017 revenue numbers have been adjusted net of value-added tax. We completed the spinoff of our global DU business in addition to Baidu Deliveries and Baidu Games, not in the process of spinning of Du Xiaoman or DXM our financial services business.

For today's discussion on Baidu Core, we have excluded the spun off and two spinoff businesses, including Du Xiaoman to give more visibility on the performance of Baidu Core, not including the spinoff in plan to spinoff our businesses. With that, let's turn to Q2. We had another solid quarter in the second quarter. Total revenues reached CNY 26 billion, up 32% year over year and non-GAAP operating income reached CNY 6.5 billion, up 31% year over year.

Revenue from Baidu Core, excluding spinoffs reached CNY 19 billion, up 30% year over year and non-GAAP operating profit of Baidu Core excluding spinoffs reached CNY 7.7 billion with nonGAAP operating margin reaching 41%. In the second quarter, our sales and marketing expenses came in under budget. We're targeting non-GAAP operating margin in the third quarter to be several points lower than in the second quarter, assuming we're able to invest in the traffic acquisition as planned. Revenue from announced spinoff was slightly above CNY 1 billion in the second quarter.

We expect this portion of the revenue to decline in the future upon the completion of each divestiture. For example, in July, we completed divestiture of Global DU, and as a result, we no longer consolidate its revenue. We're providing this level of revenue detail to give investors more visibility to gauge on Baidu's revenues post the completion of the expected divestitures. Our strategy to transform Baidu interim AI-first company to drive synergy and accelerate long-term growth, while redirecting management attention and resources from noncore businesses to new businesses, has seen good traction.

In the second quarter, feed plus AI businesses together made up almost 20% of Baidu Core revenue excluding spinoffs. Together feed plus AI businesses grew over 150% year over year, AI tie in Search with better user experience and continuously increasing Baidu's ad effectiveness. AI is also timed to grow the fee in new AI businesses, which we believe will shift Baidu's revenue structure, proportionally to higher-growth areas over time. By divesting noncore businesses, we expect the announced spinoffs together will generate approximately USD 1.8 billion in cash, which we plan to repurpose for better return on capital.

In June, we announced a share repurchase program for up to USD 1 billion over the next 12 months. Program-to-date, we have given back to our shareholders approximately USD 187 million. Let me now go through the rest of the financial highlights. Online marketing revenues were CNY 21.1 billion, up 25% year over year.

We have approximately 511,000 online marketing customers, up 9% year over year, and revenue per customer was approximately CNY 42,200, up 16% year over year. Other revenues were CNY 4.9 billion, up 75% year over year, mainly resulting from the robust growth in iQiyi membership and other businesses. Revenue from iQiyi in the second quarter reached CNY 6.2 billion, up 51% year over year. Cost of sales, excluding stock comp, in the second quarter was CNY 12 billion, up 28% year over year.

Content cost in the second quarter was up 68% year over year to CNY 5.2 billion, mainly due to the increased content purchases by iQiyi, and for Baijiahao, Baidu's feeds content network. SG&A expenses, excluding stock compensation in the second quarter was CNY 4.2 billion, up 56% yearover-year, mainly due to the increase in channel and promotional marketing, partly offset by the cutback in Baidu Deliveries and O2O promotions. R&D expenses, excluding stock compensation, in the second quarter were CNY 3.3 billion, up 24% year over year, mainly due to an increase in personnel-related costs. Operating income in the second quarter [Technical Difficulty] was CNY 6.5 billion, up 31% year over year.

Non-GAAP operating income of Baidu Core, excluding spinoffs, was CNY 7.7 billion and non-GAAP operating margin for Baidu Core, excluding spinoffs, was 4.1 -- 41%. Income tax in the second quarter was CNY 1.1 billion compared to CNY 0.6 billion. Effective tax rate was 18% compared to 11% last year, which we benefited from the disposal of certain subsidiaries. Net income attributed to Baidu in the second quarter was CNY 6.4 billion, and diluted EPS was CNY 18.

Non-GAAP net income attributed to Baidu was CNY 7.8 billion, up 57% year over year, and non-GAAP diluted EPS was CNY 21. Adjusted EBITDA in the second quarter reached CNY 7.4 billion and adjusted EBITDA margin reached 29%. Adjusted EBITDA for Baidu Core reached CNY 8.6 billion, and adjusted EBITDA margin was 43%. As of June 30, 2018, cash and short-term investments was CNY 128.3 billion.

For the second quarter, cash flow from operating activities was CNY 7.1 billion, and cash -- capital expenditures were CNY 1.5 billion. Total headcount as of June 30 was approximately 39,700, down 6% year over year. As of June 30, excluding iQiyi, cash and short-term investments was CNY 115.2 billion. For the second quarter, cash flow from operating activities was CNY 7 billion, and capital expenditures were CNY 1.3 billion.

Excluding iQiyi, total headcount as of June 30 was approximately 32,900, down 9% year over year. Turning to third quarter guidance, we expect total revenues to be between CNY 27.37 billion and CNY 28.77 billion, representing a 23% to 30% increase year over year. Excluding the impact from the announced divestitures, including Global DU and Du Xiaoman, Baidu expects revenues to be between CNY 26.56 billion and CNY 27.92 billion, representing a 26% to 33% increase year over year. This forecast is our current and preliminary view and is subject to change.

I will now open the call to questions. Operator, please?

Questions and Answers:

Operator

Thank you. [Operator instructions] Your first question comes from the line of Eddie Leung of Merrill Lynch. Your line is now open.

Eddie Leung -- Bank of America Merrill Lynch -- Analyst

Good morning. Thank you for taking my questions. Quickly, just wonder if you could share more color with us on the programs you have made on news feed, in terms of both usage and monetization? And how does that compare with our competitors? And then just a quick follow-up on your guidance. We have known some scandals related to P2P financing and that seems reasoning? Have we seen any impact on our revenue in the third quarter from these social events?

Robin Li -- Chief Executive Officer

Yes. Eddie, on the news feed progress, as I mentioned during the prepared remarks, things have been growing very, very quickly. And we have seeing growth both in terms of DAUs as well as time spent per user. And the relevancy of those recommended news content or news feed content keep improving.

We believe we have the best user experience now. And comparing to most of the other super apps, I think, we are gaining share. But our news feed is designed to enrich people's life, not really just help them to kill time. So we want our users to learn something valuable anytime they come to the Baidu app.

And that's why we think news feed is actually a part of our core business, and it's an integral part of the search plus feed super app. And we do expect this kind of trend will continue. And we think our news feed already reaches the largest audience among all the comparable products in China. And with more than 600 million monthly user for our search product, we still have a lot of room to grow in terms of the news feed product.

And on the P2P advertisers, we always had a very tight control and high bar for P2P advertiser. We haven't seen any meaningful impact on our revenue as of today, and probably going forward, we wouldn't see any meaningful impact either.

Eddie Leung -- Bank of America Merrill Lynch -- Analyst

Good to hear that. Thank you

Operator

The next question comes from the line of Alicia Yap of Citigroup. Your line is now open.

Alicia Yap -- Citi -- Analyst

Hi. Good morning, Herman, Robin and Sharon. Thanks for taking my questions and congrats on a sold quarter. I do have some follow-ups on the reasons operating environments for the overall news feed and advertising content censorship.

Have we actually seen more step up by the regulators on paying more closely attentions to some of these app contents format and the content that carry the apps? Is this change? Are these regulatory environment temporary? Or should we expect more normalized ad growth for the industry after that? Specifically, any impact for Baidu family on this step up? And then just on the housekeeping question, for the SG&A, there's quite a bit of increase this quarter. Are there any onetime cost associated with the business divestiture? Or is it mainly from the promotional channel cost increase? Thank you.

Robin Li -- Chief Executive Officer

Yes. We always held a very high standard on our content for news feed. We do not want to give user something that's illegal or something that's on the borderline. Again, we want to enrich our user's life, and we want our users learn something valuable.

So we haven't seen any negative impact over the past couple of quarters because our standards have always been higher. On the SG&A?

Herman Yu -- Chief Financial Officer

So on the SG&A, yes, the majority of the growth year over year has been related to promotional activities and also channel costs. There were over CNY 100 million that related to a certain bad debt that we had to reserve for, but I think that will be more of a one-off than a continuing item.

Alicia Yap -- Citi -- Analyst

All right. Thank you.

Operator

Your next question comes from the line of Grace Chen of Morgan Stanley. Please ask.

Grace Chen -- Morgan Stanley -- Analyst

Thank you. Thank you, Robin, Herman and Sharon, for taking my question. My question is about -- in the recent Baidu Create conference, Baidu announced introduction of smart mini program. Can you provide a bit more color about the progress of implementation, feedback from customers, any performance metrics that you can share with us? Such that which verticals have adopted the smart mini program first and what other verticals may present bigger potential? And also, can you elaborate a bit more about how the smart mini program would fit in your overall strategy for search or feed business? And overall...

[Inaudible]What would be the sustainable long-term growth rate of social feed business? And lastly, it will be great if you could give us some guidance in terms of the margins in the second half year, in particular, some guidance for the various cost items, such as traffic acquisition costs, content costs and R&D? Thank you

Sharon Ng -- Director of Investor Relations

Grace, is that right? Your first question was on smart mini program and the progress there?

Grace Chen -- Morgan Stanley -- Analyst

Yes, basically, the first question -- yes, correct. Yes, the first question is smart mini program and in terms of the implementation right now, your feedbacks, and in terms of which verticals they have adopted the smart mini program? And second question is about the guidance for the margins in the second half, in terms of -- especially, in terms of various cost items such as traffic acquisition costs, content costs and R&D? Thank you.

Robin Li -- Chief Executive Officer

OK. Yes. On the smart mini program, we received overwhelmingly positive results from the partner we have contacted with. And our latest version of Baidu app already supports the mini program.

It will give users much better experience and well drive higher conversion in the future. Right now, some of the verticals are already ready, including games and travel-related verticals. And we are implementing other verticals to well continue to evolve very quickly. And we have promised to open source this by the end of this year, which means that other large apps can just plug into the API and be ready to support all kinds of mini programs in the same ecosystem.

So we're seeing a very high-level interest, and we're just implementing all kinds of features. We're already seeing a number of examples -- exemplary partners online, for example, train tickets, the conversion rate is much higher than before.

Herman Yu -- Chief Financial Officer

Hi, Grace, on your question on second half margin, as I mentioned in the prepared remarks, we think that we should see our margin dip several points from second quarter. We've been talking about this since the beginning of the year that we intend to increase our investments in traffic acquisition. I think that's probably the main line. In addition to that, we'll also continue to increase our investment in content acquisition, so that our feed can continue to be able to acquire traffic and push long tail content.

So I think those are the main items that could potentially increase our budget, sales and marketing and also cost of revenues in the content line.

Grace Chen -- Morgan Stanley -- Analyst

Thank you.

Operator

Your next question comes from the line of Thomas Chong of Credit -- Credit Suisse. Your line is open. Please ask.

Thomas Chong -- Credit Suisse -- Analyst

Hi, management. Thanks for taking my question. I've got questions about AI initiatives in DuerOS and Apollo. Can management give us any additional color in terms of the monetization time line? And when should we expect revenue contribution in the coming quarters? And my other question is about on the regulatory front, should we expect there will be more regulations to come up in the search or on the news feed side? Thank you.

Robin Li -- Chief Executive Officer

Yes. On the AI initiatives, both DuerOS and Apollo are growing, very, very quickly. We're seeing tremendous growth or adoption rate from the user who use our IoT devices, and we see a lot of OEMs showing interest to work with us. But this two business lines are in its very early stage.

So we do not exact any meaningful contribution, revenue contribution, in the coming quarters. But having said that, I will say that this two business lines are the most advanced ones among its peers. If anyone starts to be able to generate meaningful revenue, we will be the first one to achieve that goal. Especially for Apollo, I think we enjoy an advantage that the Chinese government is very supportive of this kind of technological innovation and are willing to cooperate on the infrastructure level, which means that they want to install sensors on the roads, so that cars do not need to buy very expensive radar or other type of sensors in order to drive autonomously.

So we are very excited about the future of this few new initiatives. And on the regulatory involvement, for both search and news feeds, we have been in existence in the search business for a very long time, and we're seeing changes or fluctuations from time-to-time. And we think we are able to cope with that going forward. And news feed, we've also been operating this for two years -- a little more than two years.

And we are able to maintain a high standard and close dialogue with the regulator. And we do not see anything changing significantly, going forward.

Thomas Chong -- Credit Suisse -- Analyst

Got it. Thanks, Robin.

Operator

Your next question comes from the line of Juan Lin of 86Research. Pleas ask.

Juan Lin -- 86Research -- Analyst

Hi, good morning, Robin, Herman and Sharon. Congratulations on the strong set of results and thank you for taking my question. My first question is on short video. I wonder whether there is a crackdown against short video apps that are now in compliance with content censorship that has put some weight on the short video supply of our platform and whether that will impact our short video strategy going forward? Also, I wonder what is the current revenue contribution, as the monetization progress for our video content? How does video app compare to news feed ad in terms of the level of monetization? Second question is on tax.

You mentioned that company will step up spending on traffic acquisition for the second half of the year, given that traffic acquisition prices remain pretty high? I wonder whether we're going to adjust our OEM traffic acquisition strategy and the measurement of ROI for traffic acquisition going forward? Thank you.

Robin Li -- Chief Executive Officer

All right, Juan, I'll answer your short video question and Herman will answer the tax question. Short video is growing very, very quickly. We're new to this business, but it has been -- we're seeing tremendous growth over the past few quarters. And video content represents well over half of our total news feed content distribution volume.

And short video is also very positive to our revenue generation, which means that -- it actually makes money from day one if you look at the monetization capability angle. And in terms of regulations regarding to short video, I think, it's the same standard with text and images. And we have sophisticated system to identify our long-data content, and we're able to use AI, use machine learning to really feed her out on our long-data content and sent the most relevant content to our users.

Herman Yu -- Chief Financial Officer

The question, Juan, on tax, I think in terms of overall traffic acquisition cost, the way we look at it is, on tax, in the past, we look at trying to get absolute margins -- gross margin from tax purchases, and we've changed that strategy since the beginning of the year. We believe that maximizing cost rather than maximizing margin will be a better strategy, and we've been doing that since the beginning of the year. So to the extent that we think that there is incremental dollars to be had, we'll continue to acquire tax. With that said, we're also looking at the ROIs coming from tax versus app downloads and trying to grow Baidu app.

And so far, we think that we're able to actually increase Baidu app, spending app installs faster than tech because we see that ROI has been more positive. So I think in the last two quarters, you're seeing us trying to increase our investments in traffic acquisition. Tax we have not increased too significantly. However, under sales and marketing channel cost, you've seen that increase significantly because we've found ways to get pretty good ROI by doing such marketing investments.

Juan Lin -- 86Research -- Analyst

Thank you, Robin. Thank you, Herman.

Robin Li -- Chief Executive Officer

Thank you.

Operator

Your next question comes from the line of Jerry Liu of UBS. Your line is now open

Jerry Liu -- UBS -- Analyst

Hi, guys. Thank you. My question is on advertising. Wanted to ask about revenue growth in the next few quarters.

If we're to maintain our -- roughly our current revenue growth rate, do we see a lot of legs left in dynamic ads and OCPC and some of the initiatives today? And when can we see mini programs start to kick in? Thank you.

Robin Li -- Chief Executive Officer

Yes. As you know, the Internet population in China is not growing as quickly as before, so I think the total high is not getting much larger. But that really means the technology will play a much more important role, both in terms of user experience and in terms of monetization. And regarding to apps, we do see a lot of room in terms of better monetization, technology, including OCPC and including mini programs.

Once the advertiser adopt the mini programs, they should see a much better conversion because the user experience is more like native app instead of just a web page. And user data are connected and the relevancy should be improved. So going forward, over the next few quarters, I think a big revenue driver will be technology innovation on the monetization front.

Sharon Ng -- Director of Investor Relations

Operator, next question please.

Operator

Thank you. The next question is from Han Joon Kim of Deutsche Bank. Your line is now open.

Han Joon Kim -- Deutsche Bank -- Analyst

Great. Congratulations on a strong results. And just had quick questions. I've noticed that the revenue mix from mobile actually decreased for the first time.

So I just wanted to get your perspective on how you see the PC and the mobile mix shifting? And if this is still a one-off for some signs of change in the market? And as a follow-up to your question or topic about No. 1 kind of results having a better impact, does that mean that the No. 1 keyboard basically gets better pricing? And so it dilutes the impact of No. 2 and No.

5? How does the blended eCPM rate kind of shifts when you're No. 1 results becomes much more dominant result out of all the results? Thank you.

Herman Yu -- Chief Financial Officer

Hi, Han Joon, I think you're referring to our mobile revenue. When you're looking yea -over year, our mobile revenue, I think, actually grew as a percentage of total. I think it's just a seasonal fluctuation between Q1 and Q2. And that change was 1%, which I don't think is material.

I don't think I kind of reading through a 1% variation quarter over quarter is too meaningful. I think, overall, we're still seeing a faster growth from mobile site. And I'll have Robin answer the top-line results from our Search.

Robin Li -- Chief Executive Officer

Yes. When we think about how to develop our product, we always consider the user needs first. So we want to try to meet users' need as quickly as possible, providing the right answer as the No. 1 result achieves that.

And in the meantime, I don't think it will hurt monetization significantly, because in a lot of cases such kind of No. 1 result has commercial values too, and users are well served in the main time, and we can make some money out of it. For example, when people are looking for airline tickets, the first results get very well satisfying users' needs without them reading our website, and in the meantime, it's got clear commercial value. So when it comes to the ranking of search results, we always think of the user's interest first, and we think in the long run, user will come back more often and contribute more time to our app, and eventually, we will also be able to monetize safely overall user base better.

Han Joon Kim -- Deutsche Bank -- Analyst

Got it. Great. Makes sense. Thank you.

Operator

The next question is from Wendy Huang of Macquarie. Your line is now open.

Wendy Huang -- Macquarie -- Analyst

Thank you. I just have three housekeeping questions. The first is to follow up on the PC mobile revenue mix. So on the flip side, given that the PC game exposure actually increased, does that imply the PC revenue growth, actually in the quarter, is more than 30%? And also, what's CPC trend for both PC and mobile behind that? And secondly, the -- you disclosed about the Baidu app, DAU and user time spent year-over-year trend.

I just wonder if you can also share a sequential trend or may be the Q1 data for the DAU and time spent? Lastly, on the spinoff business, if my calculation is correct, I think the spinoff of Internet financing and Global DU is about RMB 800 million to RMB 850 million. So what is actually the margin of this spinoff business? And how shall we take in to consideration of this spinoff impact on the margin side in the Q3 as well? Thank you.

Herman Yu -- Chief Financial Officer

Let me answer your first question on the mobile revenue. So mobile revenue as a percentage of total was 76.6%. So we were 1% less than last quarter. But when you compared to last year, we were 73%.

So when you look at the last four quarters and so forth, mobile revenue was still growing. So as I mentioned at the question before, I don't think a 1% variation is something to worry about. I think, overall, we're seeing, if you look at the last four quarters, mobile revenue is actually trending up because fortunately traffic from mobile is also higher.

Robin Li -- Chief Executive Officer

Yes. On the DAU and time spent metric, I think, the trend for Q1 and Q2 was very consistent. As you know, Q1 is seasonally a weak quarter. So in Q2, if we compare to Q1, the sequential growth is very significant.

So it's better to compare Q1 with the year-over-year numbers and Q2 also year-over-year numbers. This numbers, we have said in the last earnings call that both are growing. And comparing to most of the super apps, we are growing faster than both of them.

Herman Yu -- Chief Financial Officer

And then the last question with regards to spinoff revenues and margins, I think that question is going to be hard to answer. Really depends on how -- whether we're able to close the deal during the quarter or at the end of the quarter. In our press release -- earnings release, in the Excel part, we actually laid out what Baidu Core would be without the spinoff. We presented in our prepared remarks, the amount excluding the spinoffs.

So the difference you can see what we're estimating. For the announced spinoffs in Q3, we're anticipating approximately may be CNY 800 million from the spinoff, that's assuming full quarter of our Du Xiaoman financial services. But should we close this deal beforehand, then obviously, we would only have a portion. With regards to the profitability of the spinoff as a whole, we're seeing a profitability, but that is pretty minor compared to all of Baidu.

So I think after the spinoff, we would probably lose between CNY 800 million to CNY 1 billion a quarter. And then with regards to profitability, we'll lose some profitability, but it will not be too significant.

Wendy Huang -- Macquarie -- Analyst

Thank you.

Operator

Our next question comes from the line of Alex Yao of JPMorgan. Please ask.

Alex Yao -- J.P.Morgan -- Analyst

Thank you, management for taking my question. I have a question on the core apps growth outlook. If my math is right, I think, the core apps growth rate for third-quarter revenue guidance is around high-teens to mid-20s. Can you give us a sense of what's driving this core as growth rate, i.e.

pay click growth versus monetization growth? And then is it fair to say majority of the pay clicks growth is driven by the newly added inventory from feeds? And secondly, is Du Xiaoman the last and long-core asset that we're going to spinoff? Thank you. I'll stop here.

Herman Yu -- Chief Financial Officer

I'll take that, Alex. When you say core business, I guess, you're meaning Search. Is that correct?

Alex Yao -- J.P.Morgan -- Analyst

Yes, I mean taking out the video -- the iQiyi business everything else left over?

Herman Yu -- Chief Financial Officer

OK. Yes. So our Search plus feed, I think, overall, is growing pretty significantly. We don't really breakout in terms of how much of that is traffic, how much of that is clicks.

I think it is a mixture. When you're looking at Search in itself, obviously, you're seeing the effectiveness us using different type of AI technologies, coupled with our large pool of data to continue to increase the efficiency of Search. That's how helping drive our revenue. And then with feed, I think, you're seeing both.

You're seeing not only additional traffic, you're seeing increasing user time spent. You're seeing us introducing some of the new search products, monetization product into feed. You're also seeing different formats, for example, like AR that's helping drive some of the display ads that we didn't have before. So there are several dimensions that are driving feeds.

With regards to Du Xiaoman -- what was the question, again?

Alex Yao -- J.P.Morgan -- Analyst

You guys have been spinning off or disposing noncore assets for quite a few quarters. Is Du Xiaoman the last noncore asset you are going to spinoff?

Robin Li -- Chief Executive Officer

Yes. Normally for these business decisions, we will announce it publicly when we have made a decision internally. So thus far, Du Xiaoman is the last one that we have announced, and that's the one that we're -- in the past that we're spinoff. Thank you, Alex

Alex Yao -- J.P.Morgan -- Analyst

Thank you.

Operator

Your next question comes from the line of Piyush Mubayi of Goldman Sachs. Please ask your question.

Piyush Mubayi -- Goldman Sachs -- Analyst

Thank you for taking my question. My question is around DuerOS, which has now reached 90 million installed base. Is there any monetization that we could build into our forecast? That's the direct -- that's the first question. Second, following up on Alex's question, it appears that your guidance suggest a slight slowing down into the third quarter on year-on-year basis for the Core, Herman? I think, if you could just comment on that? Or is it just because your range is wide enough and we're reading too much into that number?

Robin Li -- Chief Executive Officer

Again, on the DuerOS, we are still focusing on expanding the installed base and improve user experience. There is a clear path to revenue and profit, because users will increasingly rely on voice-activated devices for all kinds of information, content and services. So eventually, we'll then worry about monetization, but for the next few quarters, we would not think that DuerOS will contribute a significant portion of our revenue.

Herman Yu -- Chief Financial Officer

And Piyush, on your question with regards to following up on Alex's question on Search plus feed. I think the reason why you're seeing on a year-over-year basis that we're slowing down from second quarter is because of the one-year lap from last year. If we recall the growth rate of our advertising last year, 2017, I think, first quarter we were at a negative. Second quarter, we were going, like, 7% year over year.

And by third quarter, we significantly increased and we were going 22%. As you probably know, we had a medical situation back in 2016. And by the third quarter of last year, basically, our revenue started going over 27%. So we have a higher base, obviously, coming into this year.

So I think it's that one year lap of going to be a more normalized growth rate -- sorry, in third quarter last year, that's causing us this quarter to be like this.

Piyush Mubayi -- Goldman Sachs -- Analyst

Thank you.

Herman Yu -- Chief Financial Officer

OK. Thank you.

Operator

Yes. And we'll take the final question from Tian Hou of T.H. Capital. Your line is now open. Please ask.

Tian Hou -- T.H. Capital -- Analyst

Yeah. Good morning, Herman, Robin, and Sharon. My question is related to your Apollo. So Apollo has started to make it into a cars or minibus and in the Level 4. I think it's a great accomplishment.

So I wonder from here to Level 5, what are some of the milestones you guys are going to do to accomplish that? How long may take so from here to Level 5? That's my question.

Robin Li -- Chief Executive Officer

Yes. As you know, although it's a huge industry, it involves a lot of ecosystem partners, and we're working with many of them on Level 3, Level 4. And we're also working with the government to design better infrastructure or smarter roads for autonomous driving. So that's why you see that the Level 4 minibus actually launched before any passenger cars with Level 3 technologies.

They're going to be used in designated areas at slower speed, which will make sure that the safety is not an issue. So the Apollo ecosystem is a very comprehensive one. We will be selling simulation software. We will be selling HD maps.

We'll be selling ACU, which is Apollo Computing Unit consisting of both hardware and software. We will have solutions for valet parking. And we have a broad spectrum of services offering to our partners. So we will -- as we move forward, we'll be able to monetize from both Level 3 and Level 4, and probably some other related areas.

Tian Hou -- T.H. Capital -- Analyst

Thank you, Robin.

Robin Li -- Chief Executive Officer

Thank you, Tian.

Operator

[Operator signoff]

Duration: 62 minutes

Call Participants:

Sharon Ng -- Director of Investor Relations

Robin Li -- Chief Executive Officer

Herman Yu -- Chief Financial Officer

Eddie Leung -- Bank of America Merrill Lynch -- Analyst

Alicia Yap -- Citi -- Analyst

Grace Chen -- Morgan Stanley -- Analyst

Thomas Chong -- Credit Suisse -- Analyst

Juan Lin -- 86Research -- Analyst

Jerry Liu -- UBS -- Analyst

Han Joon Kim -- Deutsche Bank -- Analyst

Wendy Huang -- Macquarie -- Analyst

Alex Yao -- J.P.Morgan -- Analyst

Piyush Mubayi -- Goldman Sachs -- Analyst

Tian Hou -- T.H. Capital -- Analyst

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