Baidu (BIDU) Q1 2022 Earnings Call Transcript – The Motley Fool

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Baidu (BIDU 1.41%)
Q1 2022 Earnings Call
May 26, 2022, 8:00 a.m. ET


  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:


Hello, and thank you for standing by for Baidu first quarter 2022 earnings conference call. [Operator instructions] Today’s conference is being recorded. [Operator instructions] I would now like to turn the meeting over to your host for today’s conference, Juan Lin, Baidu’s director of investor relations.

Juan LinDirector of Investor Relations

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

Please note that the discussion today will contain forward-looking statements made under the safe provision of the U.S. Private Securities Ligation 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 future and uncertainties feature to our latest annual reports 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 and 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 LiCo-Founder and Chief Executive Officer

Hello, everyone. We delivered solid first-quarter results, driven by the continued strength of our new AI business. More specifically, revenues from Baidu AI cloud increased by 45% year over year. We achieved new wins for Apollo Self Driving, or ASD, from automakers during the quarter, validating our confidence in the auto solution monetization of that.

Apollo Go made ground-breaking headway. We won the first permit in China for driverless ride-hailing services on open roads in April, further fortifying our unquestionable leadership in the robotaxi market. Like many other companies in China, since mid-March, our business has been negatively impacted by measures to stem the spread of COVID-19. Specifically, the recovery of our ad business and the implementation of some cloud projects have been delayed.

In the near term, the challenges related to the virus continue to cause uncertainties to the macro environment, and pressure our business operation. Looking beyond the near-term turbulence, we believe both China’s economy and Baidu’s business will remain promising for the medium to long term. We expect our ad business to recuperate once overall economic buoyancy returns. In the meantime, to enable our long-term growth, we will continue to invest proactively and prudently in our new AI businesses, including Baidu AI cloud, Apollo Go, and ASD.

Most notably, our new AI businesses are well aligned with China’s priorities in tech innovation, green transition and digital economy. These themes have been repeatedly emphasized by top officials at national events, including the recent meeting convened by Chinese People’s Political Consultative Conference, boosting the applications of AI in China and, with that, the long-term growth prospects of Baidu. We see great opportunities to use technology to accelerate the development of the real economy. Organizations in various sectors, such as energy and utilities, manufacturing, finance and the public sector have come to realize that not only they need digitize what they do, they can also use all kinds of AI technologies to enhance their competitiveness through cost reduction and efficiency improvement.

So the demand for digitization and AI come at the same time. That presents an unique opportunity for us to deliver Baidu AI cloud solutions in a seamless way. In addition, Baidu ACE smart transportation supports our contributions to the green economy. According to China Academy of Transportation Science of the Ministry of Transport, Baidu ACE projects have helped Baoding city reduce its carbon dioxide output by 24.4 thousand tons annually, which is equivalent to planting more than 240 thousand trees.

As more and more cities adopt Baidu ACE smart transportation, we believe we will make increasing contribution to reduce carbon emissions with AI technologies, and fulfil our commitments to the environment and society. Now, let’s review the first-quarter operational highlights. Baidu AI cloud maintained its fast growth momentum, benefiting from the digital and intelligent transformation of China’s traditional industries and the public service sector as well as our cutting-edge AI technologies. Over the past quarters, we have achieved rapid revenue growth with an emphasis on the quality of growth.

With the integration of Cloud and AI, we have built a wide range of AI-powered applications and tools that can generate more replicable and scalable AI solutions in industries such as the public service sector, energy and utilities, healthcare as well as transportation. By doing so, we are working hard to shorten our project implementation time, and we believe we will be able to also improve our margins over the long term. One example is how we bring AI to the public service sector. Last year, we talked about how we used AI to build a smart city, together with the Lijiang municipality, helping improve the city’s safety, efficiency, convenience, and environmental quality.

By serving larger cities such as Lijiang, Baidu AI cloud has standardized a set of AI solutions that many other cities or districts can adopt and adapt. This year, Guandu, one of the seven districts of Kunming city, began adopting our AI solutions to keep the region safe and clean. Compared to the Lijiang project, we managed to reduce the deployment time of our smart city project by 50%. Another example is in the energy and utilities sector, we empowered Quanzhou Water company to deploy our AI solutions for predicting water consumption and automatically adjusting water supply.

By serving Quanzhou, we have established a set of AI solutions for the water industry, quickly driving our business scaling. In March, we won a project from the water company of the Baiyun district of Guangzhou, one of the largest cities in China. On top of offering similar solutions to Quanzhou, we will also build additional AI solutions to help the customer improve wastewater treatment and flood control in the region. Given the expanded work scope in Baiyun district of Guangzhou, this contract amount will be multiple the size of the Quanzhou project.

Turning to ACE smart transportation, by the end of the first quarter, Baidu ACE has been adopted by 41 cities, up from 16 cities a year ago and 35 cities a quarter ago, based on the contract amount of over RMB 10 million. Leveraging our AI capabilities to synergize a vast amount of real-time data from multiple sources, Baidu ACE has helped increase traffic management efficiency. According to a senior official from the Beijing high-level automated driving demonstration area, the traffic flow at the intersections has improved by 28%, thanks to our ACE smart transportation solutions in the Yizhuang region. Going forward, we continue to aim at above-industry growth for our AI cloud business and target long-term quality revenue and sustainable growth, despite the near-term headwinds caused by the COVID-19 control measures.

Moving to intelligent driving, we continued to grow our deals pipeline with auto OEMs for the provision of our ASD solutions, in particular, for Apollo Navigation Pilot, or ANP. According to our internal estimates, recently, the total projected cumulative sales of auto solution, including ASD and DuerOS for Auto, surpassed RMB 10 billion. After winning a partnership with BYD at the beginning of the year, in April, we received a nomination letter from Dongfeng Motor, which is a top three domestic automaker. Dongfeng intends to adopt our ANP, AVP, and HD Maps in one of its popular auto models.

With smart driving and smart connectivity gaining popularity and considering in-house development is costly and time consuming, automakers are increasingly interested in adopting our intelligent driving solutions to capture this new trend. As a result, we expect our ASD pipeline to keep growing in the future. Apollo Go achieved a major new milestone with the award of the first driverless ride-hailing permits in China on public roads. On April 28, 2022, the Beijing high-level automated driving demonstration area took the lead nationally when it specified the criteria and granted permits for providing driverless ride hailing services on open roads in the Yizhuang region of Beijing.

Apollo Go became the first company to receive the permits. We believe this approval indicates a regulatory openness to taking a further step toward a fully driverless mobility future, allowing Apollo Go to further scale up its operation. In 2018, we became the first company to launch road testing for autonomous driving in Yizhuang. In the fourth quarter of 2020, we won the project to build ACE smart transportation and introduced our autonomous ride-hailing services in this designated area of Beijing.

By doing so, we have taken a more holistic approach to intelligent mobility, which synergized our ACE smart transportation solutions, autonomous vehicles, maps, and cloud services. This approach has allowed us to better overcome the complexity and high density of urban traffic in Beijing. Last year, Apollo Go was authorized to conduct driverless testing on open roads and provide paid autonomous ride-hailing services. This April, we were allowed to provide driverless ride-hailing services on open roads to passengers, without a safety driver behind the steering wheel.

These rapid developments reflect the government’s recognition of our proprietary technologies and operational capabilities. In the future, we plan to replicate the Yizhuang case to other cities. Most recently, we were authorized to conduct driverless testing on open roads in Chongqing, following the permit for Apollo Go to charge passengers on open roads three months ago. We are happy to note that Apollo Go continues to hold a leading position in the global autonomous ride-hailing market.

During the first quarter, it provided 196K rides, up over 11 times from a year ago. The number of rides dropped by 8% quarter over quarter, mainly due to the COVID-19 control measures since the beginning of this year and weak seasonality. In terms of geographic coverage, Apollo Go further advanced into ten cities in China. While expanding our services, Baidu has worked hard to meet the technical challenges of China’s complex traffic environment.

It is important to note that, by serving passengers on a daily basis and on a much wider scale, we have detected problems that had been unnoticeable during the testing phase, further speeding up the development of our autonomous driving technology. Looking ahead, we are confident in maintaining our absolute market leadership in intelligent driving, as demonstrated by the ongoing growth of ASD deals pipeline and scaling of the Apollo Go operation. Now, briefly updating you on DuerOS, Xiaodu retains the top rankings in smart display and smart speaker shipments that we have cited in previous quarters and revenues continue to grow rapidly. Moving to mobile ecosystem, Baidu app’s users and traffic growth remained solid.

In March, MAU increased by 13% year over year to 632 million, and daily logged-in users continue to trend up, reaching 83%. Both in-app search queries and daily content distributed by feed achieved double-digit year-over-year growth. Baidu smart mini program MAUs reached the 500 million mark, up 22% from a year ago. While our mobile ecosystem continued to thrive, we persist in our efforts to innovate and improve user experience.

In videos, daily short videos distributed by Baidu app, including both search and feed, enjoyed accelerated year-over-year growth to over 25% in March, enabled by the fully immersive video experience we introduced at the end of last year. In services, over 100,000 industry participants signed up for our instant replies feature in March, up from about 44,000 in December. Total daily instant replies increased by almost six times year over year in March, up about 20% from last December. As China’s mobile Internet matures, apps and mobile platforms are eager to acquire traffic at affordable cost.

We have observed that many vertical leaders, in particular, local service providers, such as Meituan, Waimai, and Maoyan, chose to deepen their collaborations with Baidu app, by tailor-making their offers to our users. This has resulted in notable increases in user engagement and transactions for their smart mini programs on Baidu. In e-commerce, GMV facilitated by Baidu search, though still small, grew by about 14 times year over year in the quarter. The abovementioned innovations and steps forward are the latest in our transformation from information search to delivering closed-loop user experiences, which enables us to strengthen our mobile ecosystem around search.

Going forward, we will continue to work hard on maintaining stable margins for the mobile ecosystem, and fund our investments in the new AI businesses, despite the near-term headwinds. With that, let me turn the call over to Rong to go through the financial highlights.

Rong LuoChief Financial Officer

Thank you, Robin. Now, let me walk you through the details of our first-quarter financial results. Baidu’s Q1 revenue was RMB 28.4 billion or $4.5 billion, up 1% year over year. Baidu Core’s Q1 revenue reached RMB 21.4 billion or $3.4 billion, up 4% year over year.

Non-advertising for Baidu Core reached RMB 5.7 billion, up 35% year over year and accounted for 27% of Baidu Core’s revenue, up from 21% a year ago. AI cloud revenue was RMB 3.9 billion, up 45% year over year. Cloud contributed almost 70% of the non-ad revenues, and remained a key revenue growth engine. Our IaaS business benefited from multi-cloud strategies adopted by many of our customers, in particular, customers in the Internet industry.

Our business for enterprises and the public sector is the driving force for cloud revenue, again achieving rapid revenue growth in key sectors, such as energy and utilities, the public service sector and transportation. Revenues from Xiaodu remained solid in the quarter. Baidu Core ad revenue was RMB 15.7 billion, decreasing 4% year over year. The performance of our ad business is highly correlated with macro, having been impacted by the COVID-19 related control measures.

In fact, many of our top industries, such as travel, franchising, real estate, and healthcare, have suffered from reduced offline activities. On the flip side, when people are staying at home due to the COVID-19resurgence, they tend to spend more time on our platform. In particular, they come to Baidu app and check reliable information about the COVID-19 situation, which has positively contributed to our user and traffic growth. As Robin said, we expect our ad business to recover once the macro environment improves thanks to our widely diversified customer base that covers many industries in the Chinese economy.

iQIYI revenue was RMB 7.3 billion, decreasing 9% year over year. iQIYI average daily number of total subscribing members reached 101 million for the quarter, and membership revenue was up 4% YoY, mainly due to a refined membership strategy and improved monetization capabilities. Cost of revenues was RMB 15.5 billion, up 4% year over year, primarily due to an increase in cost of goods sold, traffic acquisition costs, bandwidth costs and other costs related to new AI business, offset by a decrease in content costs. Operating expenses were RMB 10.3 billion, decreasing 1% YOY, primarily due to a decrease in channel spending, promotional marketing and bad debt expenses.

Non-GAAP operating income was RMB 4.0 billion, or $630 million, and non-GAAP operating margin was 14%. Non-GAAP operating income for Baidu Core was RMB 3.7 billion, or $581 million, and non-GAAP operating margin for Baidu Core was 17%. Adjusted EBITDA was RMB 5.5 billion, or $867 million, and adjusted EBITDA margin was 19%. Adjusted EBITDA for Baidu Core was RMB 5.1 billion, or $805 million, and adjusted EBITDA margin for Baidu Core was 24%.

Cash and short-term investments for Baidu Core, as of March 31, 2022, was RMB 185.8 billion, or $29.3 billion. Free cash flow for Baidu excluding iQIYI was RMB 1.1 billion, or $175 million. Baidu Core had approximately 38,000 employees, as of March 31, 2022. Operator, with that, let’s now open the call to questions.

Questions & Answers:


[Operator instructions] Our first question comes from the line of Alicia Yap, Citigroup. Please ask a question.

Alicia YapCiti — Analyst

Hi. Thank you, management. Thanks for taking my questions. Congratulations on the solid set of results in the tough environment.

My question is on the outlook. So wonder can management give us some color what should we expect for your revenue trend in the second quarter and also the rest of the year? So in particular, when do you expect the inflection point for your advertising business to happen, given most of the offline spending is correlated with macro? And then secondly, noticed that your first quarter operating margin came in stronger and better than the market expected. Could you give us some color how we should think about the margin outlook for the second quarter and also the rest of the second half? Lastly, if I may just, in light of the latest macro environment, wondering if there is any change of Baidu long-term strategy and the growth outlook. Thank you.

Rong LuoChief Financial Officer

Thank you, Alicia. This is Julius. Let me take your first question. I think as Robin has mentioned in his prepared remarks, starting from mid-March, our ad and cloud businesses have been negatively impacted by the rapid development of Omicron, which is different from the previous variants.

Omicron has spread faster and affected many cities, including top cities in China like Shanghai and Beijing. Such impact has already lasted over two months and is still ongoing in China. And this is lasting much longer than any previous round of resurgence. So the COVID situation is more severe than early March.

For many of our customers, business activities have been significantly disrupted and our ad business has been negatively impacted. Also, we had to reduce the business travel because of the COVID-19 restrictions. This also caused a negative impact to our 2B and 2G businesses, especially AI cloud servicing enterprises and the public sector, because we had to postpone some of the deployment of AI cloud projects. So taking into consideration all of these factors, we think compared to the first quarter, the second quarter will be more challenging for us as well as for the industry.

On the one hand, we have relatively limited visibility for the second half of this year at this stage, which should largely depend on how the pandemic develops. On the other hand, we are also happy to see that recently, the Chinese government has released clear signals to support the economic development and the digital economy at the top level. So we will continue to closely monitor the development of the virus and the macro condition. Here, I would like to emphasize that Baidu’s online advertising is widely diversified and covers many industries in the Chinese economy.

We believe once there’s a rebound of the Chinese economy, our advertising business will definitely benefit from such recovery. And given the current macroeconomic uncertainties, we will be more disciplined with our spending and investment. For example, we will be very prudent in spending on sales and marketing. With that said, on one side, we continue to see a lot of growth potential in the AI-enabled new businesses, so we are determined to continue investing in these areas, such as AI cloud and intelligent driving, and these businesses have been developing so fast during the past quarters.

And on the other side, for the mobile ecosystem, the overall mobile Internet market in China is maturing. So we will balance our investment and growth in these areas and we will be disciplined with our investments here.

Robin LiCo-Founder and Chief Executive Officer

On your long-term strategy question, despite the near-term challenges, Baidu’s long-term vision for our businesses remains unchanged. We believe that our mobile ecosystem provides a unique value proposition to our users and ad customers. AI will raise the bar again and again for information access in the years to come. We will also continue to innovate and provide closed-loop — search users with closed-loop services within Baidu app.

As you see that our non-ad revenue now accounted for 27% of Baidu Core, that is up from 21% a year ago. And within non-ad, we believe our new AI businesses, like Baidu AI cloud and intelligent driving, are well geared with China’s goal in technology innovation, digital economy and green transition. These businesses have made enormous progress over the past quarters and are well-positioned to capture the total addressable markets. Baidu AI cloud continues to drive the digital and intelligent transformation of China’s traditional industries and the public service sector.

So you see that our cloud revenues from enterprises and the public sector consistently outgrow that of our peers. Intelligent and connected vehicles are becoming the new attraction in auto sales. Many automakers have come to realize that adopting Baidu’s solutions is better than investing heavily in developing their in-house solutions. And Apollo Go already holds a leading position in the global autonomous ride-hailing market.

And we just won the first permits in China for driverless ride-hailing services on open roads in Beijing. And in May, we were allowed to conduct driverless testing in Chongqing. So you can see our vision and strategy remains the same. We are an AI company with strong Internet foundation.

There is a lot of synergy between all of our businesses and our technology innovation. So with that, we are very confident in Baidu’s long-term growth potential.


The next question comes from Lincoln Kong, GS. Please ask a question.

Lincoln KongGoldman Sachs — Analyst

So my first question is that we saw earlier, media reported the Chinese People’s Political Consultative Conference had a meeting in Beijing last week, and Robin, you’re one of the attendees from the Internet companies. So we are quite curious to learn what’s your takeaway from the meeting, and have you made any proposal in the meeting? And my second question is about the mobile. So we noticed that user growth was pretty strong for the Baidu app, so can you help us understand the underlying drivers of your user growth for the mobile ecosystem? And how should we think about the user growth potential going forward?

Robin LiCo-Founder and Chief Executive Officer

Yes. Regarding to the CPPCC meeting, Many senior government officials attended that meeting. It was mainly focusing on supporting the healthy and sustainable development of digital economy. All the attendees of the conference could clearly feel the government’s support and openness for technology innovation and their willingness and determination to promote the development of China’s digital economy.

Very notably, investment in R&D is highly appreciated and encouraged. I basically talked about two points. One, I called out the importance of using AI to improve the efficiency for China’s massive infrastructure, be it in transportation, utility, energy or telecommunications. Today, China already has a very comprehensive infrastructure in these areas, but they have not yet been powered by AI or simply saying they are not smart enough.

Take the transportation industry as an example. Most of China’s traffic lights are not powered by real-time data from multiple sources, and AI-powered V2X has not yet become fully available here. Given the current transportation networks, many local governments have to implement strict restrictions on purchasing and using vehicles, restraining domestic consumption because of this. AI-enabled traffic lights and V2X will help improve efficiency and reduce accidents.

So according to our estimate, intelligent transportation systems could help improve traffic efficiency by 15% to 30%. This is not just an estimate, we actually have proven this in a number of cities in China. So if we apply this kind of efficiency gain to the entire transportation system, that’s like a 2.4% to 4.8% of additional annual GDP for the city. So I believe that intelligent transformation could significantly lift productivity, efficiency and competitiveness for these industries and also for the entire nation.

In my prepared remarks, I also shared some examples of how Baidu AI cloud help our customers to run their complex workloads in many industries. And secondly, I also called for further regulatory support for tech innovation. For example, a more comprehensive industry regulation for autonomous driving on open roads and in complex road conditions. Autonomous driving technology is reshaping the auto industry.

To a certain extent, China leads in autonomous and fully driverless technologies. The adoption of autonomous driving vehicles in China will increase the efficiency by reducing traffic jams and accidents. But before that, we need to make necessary adjustments to the current transportation laws and consider the profound changes that autonomous driving and even fully driverless cars can bring to China’s transportation system. So to be more specific, we need to set up regulatory standards for fully driverless vehicles to be issued license plates, get on open roads and remove safety drivers and charge passengers.

Also, we need guidelines on how to identify responsibilities when accidents happen. These proposals have been well received by the officials who attended the meeting.

Rong LuoChief Financial Officer

Yes. [Inaudible] This is Julius. I will take your question about mobile ecosystems. I think same as Robin just talked about in the prepared remarks.

In March, Baidu app MAU was up 13% year over year and Baidu smart mini program MAU reached 500 million mark. Our platform is widely recognized as a go-to-place for high-quality information and knowledge. Let me show one example. Actually, the control measures against the COVID-19 resurgence have made many students study online from home.

We are seen that they come to Baidu app to search for authoritative and reliable class-related information and knowledge. Lately, we have been seeing a significant increase of such search queries. The daily search queries for education-related keywords on mobile have increased about 30% year over year. So far, we received — that’s the number in the second quarter.

More importantly, I think, we as a company will also continue to innovate in search and continue to improve user experiences. First priority, we will continue to use AI to improve our search experiences, driving consistent increase in daily searches per user. I think search is technology-driven with a high entry barrier, and technology is in our corporate DNA. In the second place, we continue to improve the closed-loop experience — the closed-loop services to our search users.

And we provide users with product listings, services, and connect them to the industry participants for professional advice through our building blocks. I think, for example, the e-commerce GMV facilitated by Baidu Search grew by about 14 times year over year in the quarter. Also, obviously, the monthly orders for local services within Baidu app increased by over 200% year over year in March. Now the users are not only coming to Baidu app to search information, but increasingly to also want to enjoy the closed-loop services over here.

In the third place, we also made promising progress in adopting the short videos into our search results and we are working very hard to capture the opportunity. In addition to these new product features, we also work on enriching our video content portfolio by using AI to cost-effectively generate the video content. Looking ahead, we will work hard to continue improving user experiences and maintain healthy user growth.


Your next question comes from Gary Yu, Morgan Stanley. Please ask a question.

Gary YuMorgan Stanley — Analyst

Congratulations on a very resilient set of results. I have some follow-up questions regarding the AI cloud business. The first one is on the outlook for the coming quarters. This is particularly because some of your peers have indicated some slowdown in cloud revenue growth.

So just wanted to see how we should expect Baidu AI cloud growth going forward. The second question is also related to that, which is, is there any update on the strategy and progress in terms of building standardized solutions? Because I think this is important to improve your AI cloud margin going forward. So just wanted to see what’s the progress there and how should we look at margins going forward.

Robin LiCo-Founder and Chief Executive Officer

Gary, let me answer your questions starting from home. Baidu AI cloud grew 45% year over year to RMB 3.9 billion in Q1, and it contributed almost 70% of our core total non-ad revenue. Baidu AI cloud basically includes two parts; one is the personal cloud, the other is the cloud for enterprise and the public sector. The rapid growth in cloud has been driven by the enterprise and public service sector, for example, energy, utilities, smart transportation, smart cities and more.

Last quarter, revenues from this portion grew much faster than the overall AI cloud revenue. We are confident that revenues from enterprise and public service sector will continue to drive the growth of Baidu AI cloud in the coming quarters. As I mentioned earlier, we did notice that since mid-March, this new round of COVID-19 developed quickly across many cities in China. And as a result, we had to reduce business travel and postpone the deployment of some AI cloud projects.

That being said, we think such impact is just temporary. Looking beyond COVID impact, we are confident about the unique positioning of our AI cloud. The integration of cloud and AI enables our customers from many industries to make significant productivity and efficiency gains through AI. The market potential is huge, and we are just at the beginning of capturing huge opportunities arising from the transformation in China’s traditional industries and public service sector.

In terms of margin, Baidu AI cloud is still loss-making at the operational level, but we do have positive gross margin and profit — gross profit. For our personal cloud, although its revenue growth has been slower than the enterprise and public sector, it should continue to generate decent margins going forward. And for the cloud business for enterprise and public sector, the growth driver for our overall AI cloud revenue, this part of the business also enjoys a positive gross margin. A few quarters ago, we have already set as our priority the health of the business to make sure that we grow revenue both at speed and with quality.

We proactively identified key industries other than the Internet sector to explore the opportunities in AI PaaS and SaaS. And at the same time, as we accumulate more experience in each industry, we try our best to standardize our products and solutions to further scale our business. Traffic light at an intersection in the city of Baoding is not much different from a traffic light in the city of Guangzhou. So we can at least standardize the product for our solutions industry by industry first.

And in the longer term, I do think we can build a strong foundation to solve problems in different industries using more standardized solutions or technology. The recent developments in AI, especially in large models, be it in language models or vision, have given us new hope to solve all kinds of problems using one large standard deep learning platform. Now going forward, if we look beyond the COVID impact for the cloud business, we continue to aim at high revenue growth and remain focused on quality and sustainable revenue growth. Margin should gradually improve from there.


Next question comes from James Lee, Mizuho. Please ask a question.

James LeeMizuho Securities — Analyst

Congratulations on Apollo Go, on achieving the breakthrough of driverless operations here. Two questions relating to that. First is, how do you expect the driverless technology to improve the curve of cost efficiency? Is that pretty consistent with what you guys laid out at the Analyst Day last year? Or are you ahead of schedule here? Second, can you also elaborate your plans on scaling up the driverless autonomous ride-hailing service?

Robin LiCo-Founder and Chief Executive Officer

Yes. As I mentioned earlier, scaling up operations allows us to improve level four autonomous technologies faster and facilitates our goal of ultimately providing fully driverless ride-hailing services in a much wider region. The number of rides provided by Apollo Go has been growing exponentially. Also, such scalable operation makes us the largest autonomous ride-hailing service provider in the world.

In Q1 alone, we provided almost 200,000 rides. With the data gathered from such large-scale operations in real-life driving scenarios, we gain a lot of operational experience. To be more specific, serving passengers every day has allowed us to identify problems that are not visible during the testing phase. I’m highly confident that serving passengers in real word will not only speed up our operations expansion, but also accelerate technology advancement.

And I think our strong driverless technologies and capabilities will allow us to receive more regulatory green lights. This is very important for us to further accelerate our operation. Our priorities remain unchanged: scaling up our operation, improving our autonomous driving technologies and reducing the costs and expenses are our top priorities. Baidu is proud to be the first company to receive permits to offer ride-hailing services on open roads in China’s capital without a safety driver behind the steering wheel.

That means a lot to us because, first, on the regulation front, it is the first time that the government allows the removal of a safety driver from the driver’s seat on public roads, in particular in an area of 60 square kilometers in Beijing, with a highly complex driving environment. This marks a regulatory breakthrough in China’s autonomous ride-hailing industry, reflecting the government’s open attitude toward a fully driverless operation in the future. And secondly, it demonstrates our strong driverless technology and capabilities, as we are the first to be granted the permits and we started to use them right away. On the cost side, labor cost is one of the largest cost items, so one of the most critical steps to limit costs in autonomous ride hailing is to remove the safety driver in the car and have a remote safety driver managing multiple vehicles simultaneously.

This will build a strong foundation to allow us eventually to remove the safety staff from the cars and achieve fully driverless ride hailing. With the newly granted permits, we are much closer to achieving that goal. Once we are authorized to remove the safety staff on the passenger seat completely, our cost per mile will be reduced significantly. Scaling up also helps to reduce the manufacturing cost per vehicle.

And right now, we are on the way to make our sixth generation robotaxi. In the future, we aim to further expand our fleet of driverless ride-hailing vehicles on open roads to more cities. We believe we will achieve the goal to provide safer, cheaper and more convenient mobility service to the public. So in short, to answer your question, despite all the disruptions caused by COVID-19, starting March of this year, I think we are on track to achieve our goal of fully driverless robotaxi service.


The next question comes from Tian Xiao Hou, T.H. Capital. Please ask a question.

Tian Hou

Congratulations on a good set of results. My question is related to Apollo Self Driving business. So you mentioned that there were more wins following your partnership with BYD this year. Could you please share some — the outlook for the backlog numbers for 2022? Last quarter earnings, you mentioned the backlog is about RMB 8 billion.

So I just want to get some update on that. The second one is related to the trends. Could you please elaborate the cooperation with Dongfeng? In particular, how does the revenue model work? That’s the question.

Rong LuoChief Financial Officer

Let me take this question. I think the intelligent and connected vehicles are becoming more and more popular among consumers and, therefore, also becoming new attraction in auto sales today. And our Apollo Self Driving business, which we call ASD for short, derived from our world-class — world-leading level four autonomous driving technologies. So many automakers come to us, try to use our auto solutions, in order to capture the big trend of the vehicle intelligence and connectivity, especially, some larger automakers like BYD and Dongfeng Motor.

They started to use our ASD solutions, in particular, ANP solutions, we call Apollo Navigation Pilot, which is our high-value solution for intelligent driving. We believe working with big automakers can also allow us to refine our product experiences and strengthen our competitive advantages in this market. With the increasing adoption of the smart EVs in China, we believe Baidu’s strong autonomous driving capabilities can also put us in a very strong position to win more business. According to our internal estimates, recently, the total projected cumulative sales of our auto solutions recently surpassed RMB 10 billion.

Just for your reference, the same number — the same metric we talked about at last quarter was about RMB 8 billion. And the growth was driven primarily by the pipeline deals from larger automakers. This amount has been growing very fast over the past two to three years, and the contribution from ASD has been expanding very quickly. Again, I would like to make it clear that this number is our preliminary estimates, which include the contracts signed and nomination letters that we received from customers.

Our estimates also are made based on the assumption of the timing of the new models, the pricing of them and the future sales volume of them. In general, we are happy to see the ASD business pretty much on track to deliver more milestones in the future.


Your next question comes from Natalie Wu from Haitong International. Please ask a question.

Natalie WuHaitong International Securities — Analyst

Congratulations on a very solid quarter. So my question is regarding the recent executive reshuffle — regarding the news of your executive reshuffle recently, mainly for your MEG and cloud business. So just wondering, may I ask the major reasons behind it, what kind of the strategic or operational change will it bring to the cloud and MEG — and mobile business?

Robin LiCo-Founder and Chief Executive Officer

Yes. We do mentioned reshuffle from time to time. I believe our executive reshuffle program helps expand the capability of individuals to excel within Baidu. It demonstrates that we have already established a strong and agile team, which is able to make adjustments in a dynamic market environment.

Many large companies have used this kind of program to develop leaders for their organizations and drive strategy execution, in particular, in a dynamic world. In fact, Baidu develops, coaches and promotes talents internally. Shen Dou, Haifeng Wang and Jackson have all risen to senior positions within Baidu. Dou joined us in 2012, I believe, and demonstrated his capabilities in various management roles in Baidu.

He made significant contributions to strengthening our mobile ecosystem. Baidu AI cloud is already the revenue growth engine for us, as we are benefiting from the digital and intelligent transformation of China’s traditional industries and the public service sector. I trust Dou’s capabilities to head the business and keep our momentum at full speed. We believe having a dedicated senior executive to lead the business will allow us to better capture the huge market potential.

And as for Haifeng, our CTO, he will be able to spend more time on our long-term technology vision and drive synergies between AI and all of our businesses. Jackson joined us in 2019. In the past few years, he served in various financial management roles in the mobile business and was highly involved in its daily operation. He already built a deep understanding of our mobile business.

Our mobile ecosystem is a cash cow for Baidu and will continue generating strong profits. I believe Jackson is highly capable of helping us execute our strategy, given his strong financial management and operational background. In short, with this strong homegrown team, we believe Baidu is fully capable to execute its business strategy in all areas going forward.


Your last question comes from Miranda Zhuang, Bank of America Securities. Please ask a question.

Miranda ZhuangBank of America Merrill Lynch — Analyst

Congratulations on the results. My question is about Jidu. So we saw the news that Jidu is about to launch a new car model soon. Can management give us more additional color on how is the current model different from other EV start-ups and traditional OEMs cars? And what’s the Jidu’s pipeline for this year and next year? Given the disruption to the supply chain from the COVID, are you still on track with the previous plan to take orders in second half this year and start mass production next year?

Robin LiCo-Founder and Chief Executive Officer

Yes. Miranda, Jidu plans to introduce its first model for mass production in early next month. The market that Jidu targets is family passenger vehicles with the price above RMB 200,000. We believe it is a very big and promising market in which Jidu has a lot of room for growth.

We are all very excited about the features that Jidu will have installed and the value Jidu can offer to consumers when it becomes available. For Jidu, the key point is not being electric, but being intelligent. We believe Baidu is the best in intelligent driving technology, which Jidu will leverage in the upcoming models. So Jidu’s key selling point for upcoming model will be more on the software side as well as the seamless integration of hardware and software.

This model will be equipped with Baidu’s leading autonomous driving solutions, like ANP, AVP, as well as our advanced infotainment system like DuerOS for auto. And the team has filed many patents during the development stage. Jidu car will be much more like an auto robot than any other car on the market. On the pipeline side, plans to introduce its first concept production car on June 8 and take orders for its first model in the second half this year and deliver the vehicle starting in 2023.

Despite the COVID stuff, despite the majority of the team based in Shanghai, I think we are pretty much still on track. So this is in line with our expectation when we started this business. We’re also very happy to see that Jidu plans to launch its second model at the end of this year, then to start taking orders in 2023 and deliver the vehicles in 2024. So we believe Jidu, equipped with our industry-leading intelligence driving capabilities, will be well-positioned in the EV market.


[Operator signoff]

Duration: 64 minutes

Call participants:

Juan LinDirector of Investor Relations

Robin LiCo-Founder and Chief Executive Officer

Rong LuoChief Financial Officer

Alicia YapCiti — Analyst

Lincoln KongGoldman Sachs — Analyst

Gary YuMorgan Stanley — Analyst

James LeeMizuho Securities — Analyst

Tian Hou

Natalie WuHaitong International Securities — Analyst

Miranda ZhuangBank of America Merrill Lynch — Analyst

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