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Baidu, Inc. (BIDU) Q3 2018 Earnings Conference Call Transcript

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Baidu, Inc. (NASDAQ: BIDU)

Q3 2018 Earnings Conference Call

Oct. 30, 2018 , 9:15 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Hello, and thank you for standing by for Baidu's Third Quarter 2018 Earnings Conference Call. At this time, all participants are in a listen-only mode. After management's prepared remarks, there will be a question-and-answer session. Today's conference is being recorded. And 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, Ms. Sharon Ng, Baidu's Director of Investor Relations. Thank you.

Sharon Ng -- Director of Investor Relations

Hello, everyone, and welcome to Baidu's third 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 that the discussion today will contain forward-looking statements made under the Safe Harbor provisions of the US Private Securities Litigation Reform Act of 1995. Forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from our current expectations. Potential risks and uncertainties include, but are not limited to those outlined in our public filings with the SEC, including our Annual Report on Form 20-F. Baidu does not undertake any obligation to update any forward-looking statements except as required under applicable law.

Our earnings press release and this call include discussions of certain unaudited non-GAAP financial measures. Our press release contains a reconciliation of the unaudited non-GAAP measures to the unaudited most directly comparable GAAP measures and is available on our IR website at ir.baidu.com.

As a reminder, this conference is being recorded. In addition, a webcast of this conference call will also be available on Baidu IR website.

Now, I'll turn the call over our CEO, Robin.

Robin Li -- Chairman and Chief Executive Officer

Hello, everybody. And thank you for joining our call today. We delivered solid revenue growth in the third quarter driven by AI powered approach, continued robust growth from Baidu feed, as well as strong and increasingly significant growth from new AI businesses, such as ABC cloud. Baidu has made incredible progress on strengthening our mobile foundation over the past two years, with our efforts to improve the user experience or Baidu's family of apps with AI, such as search, maps, mobile keyboard and launching feed is AI powered algorithms.

QuestMobile, a third party research firm, recently cited Baidu's family of apps together generate 980 million monthly active users, putting Baidu in the top three of MAUs in China in its autumn report on mobile Internet. Our own internal data actually indicate that the MAUs of the Baidu family apps reached 990 million in September and growing 28% year-over-year, excluding overlaps and many users have multiple touch points with us.

With massive reach on mobile in hand, we are well positioned for the shift in Internet usage in China. App developers are placing greater reliance on super apps to direct user traffic and provide native app integration, by-passing the need for new users to download their apps, Internet connectivity on home devices is seeing accelerated growth this year and the auto industry is beginning to experiment with connected net -- Internet via voice assistant. This trends play to Baidu's strengths and put us in a sweet spot for new Internet gateways.

Our use of AI to strengthen Baidu's core business is also generating new use cases and opening Baidu app to exciting new markets, such as AI as a service. We are seeing AI extend beyond the Internet into everyday life and this presents Baidu with large new market opportunities in the 2C, 2B and 2G markets.

Let's begin Q3, the search and feed. In core search, top one now comprises of over 40% of our search queries, and video search is becoming ever more popular with daily queries in the 10s of million, doubling from last year. This AI powered features, not only differentiate Baidu's search experience, but also enable us to introduce features like smart answer or smart screen. For example, a user of Huawei, Oppo or Vivo smart phone with Baidu AI may take a photo of a plant or a pet. And the phone screen will return the card with information about the species in the photo. Smart answer can also identify and provide information about the celebrities, points of interest and so forth.

IDC recently reported that smartphone shipments in China declined 11% year-over-year in the first half of this year, making it more difficult for less frequented apps to continue traffic acquisition from app free installations. Many programs have become a new source of traffic without requiring merchants to have native apps. We launched the invite-only phase of our Smart Mini Programs in July and monthly active users wrapped up it quickly by-passing -- surpassing 100 million in September. We have received a favorable feedback from users, developers and our network partners, and program registration was open to the public at the end of September. We are on track to open source our Smart Mini Programs, which enable apps to join our host Union and around Smart Mini Programs. Our Smart Mini Programs opened approach by design, make the information in Baidu's Smart Mini Program network searchable.

Moving onto Baidu apps. In September, average daily active users of Baidu apps reached 151 million, up 19% year-over-year and time spent on feed grows 68% year-over-year. In the two short years that we launched Baidu feed, we have added 276 MCNs and over 1.5 million content publishers, up from 1 million, two quarters ago.

Twin-engine search plus feed, offering couple of bits unmatched AI powered recommendation technology deep inside of our massive user base, make Baidu app a compelling offering. The twin-engine app, not only provides better user experience, but also generate better unit economics. Excluding ITE, Baidu distribute over 2 billion video views per day. The strong demand for video content on Baidu's platform places us in a good position to offer more variety of video feed.

We are replicating the Baidu apps formula to develop video only feed apps. For example, we began experimenting with Haokan this year and in September, Haokan reached a DAU of 12 million. According to QuestMobile, Haokan was the fastest growing app from June to September among all mobile apps in China with a DAU of more than 5 million.

On monetization, the strong traffic growth of our feed, as well as video traffic contributing to Baidu's revenue growth. In addition, our industry leading use of AI to power app monetization, such as dynamic app, mobile action app and optimize the cost per click. Continues to position Baidu at a compelling source of performance-based traffic.

Baidu is pushing the boundary of innovation with cutting edge technologies to better meet our customers' need. For example, using blockchain and visual search to combat fit goods and generate more revenue for our customers. Hairy crabs from the Yangcheng Lake in Jiangsu Province apprised four-season delicacy in China. This year, we worked a bit hairy crabs fisheries from the Yangcheng Lake to set up a Smart Mini Program to enable consumers to verify product's authenticity via the Baidu app. Blockchain ensure a tag or a card's uniqueness, while visual search provides a matching reading to ensure that the product was not switched. The combination of the two technologies have significant commercial value for merchants of big ticket items, sold online.

Baidu have made significant strides to proactively improve the quality of healthcare information and consumers are increasingly depended on Baidu for healthcare related services. We are developing a search solution to organize healthcare information into a structured format. So that users can more easily compare services across healthcare providers.

Our solution will verify the identity of licensed medical institutions and use AI to monitor the information quality on the lending pages, as well link to such structured data, instead of third party websites. Although this efforts to improve user experience may impact our revenue in the near term, as users get used to, to the new information structure, we believe, this will ultimately lead to better traffic conversion for healthcare providers.

Turning to DuerOS, Baidu's voice assistant. DuerOS continues to gain traction, as we focus on user experience such as improving natural language processing, which enables in this conversation. And building out DuerOS scales (ph) ecosystem. We're seeing people across China from Tier 1 to lower tier that is from toddlers to senior citizens use DuerOS powered devices to perform voice search, watch videos, listen to music, make video calls and control IoT devices in their homes.

In September, DuerOS installed base reached 141 million, up from 100 million in July and voice queries on DuerOS continued its rapid rise surpassing 800 million times, which roughly doubled every quarter for the past seven quarters. DuerOS skills store now has a community of over 24,000 developers and over 800 skills available, such as education, cooking and game genres such as VIPKID, cooking recipes and digital pass respectively. DuerOS partners continue to expand from TVs to smart speakers to smart watches. In addition to homes, DuerOS also expanding its partnership in the IoV environment. For example, UCAR, better known as Shenzhou Zuche, car rental and ride hailing service provider, while installing DuerOS on its fleet of new vehicles.

Turning to Apollo. We are gaining valuable experience in commercial operations with Level 4 vehicles. The Xiamen King Long produced Apolong, a Apollo based fully autonomous mini-bus is currently running in over 10 locations throughout China. Well, learning that end customers are requesting to purchase wholesale annual maintenance plans and that the passengers are waiting to pay for ride on the Apolong mini-buses. For example, Guangzhou Sunflower Garden charges RMB20 a ride for adults and RMB10 for children.

Smart City utilizing AI to improve urban living presence. Baidu is a great opportunity to serve the 2G market and bring Baidu AI to every day lives. The municipality of Changsha have just signed with bus to the first municipality in China to test robo-taxi and our connected road solutions powered by Apollo. We are also in discussions with Beijing and Shanghai, whose population is almost equivalent of three New York cities to provide AI powered of city management solutions to help with urban safety, traffic congestion and public parking. Leveraging Baidu Brain, Baidu Cloud and autonomous driving technologies to improve urban living.

Turning to ABC cloud; Baidu Cloud continue to grow robustly and recently recognized by third-party market research firm analysis as the fastest growing and among the top three, most technologically advanced cloud storage providers in China. And by the way, ABC Cloud Summit in Shanghai last month, we announced new enterprise solutions with advanced AI capabilities to serve the transportation, education and financial services industries.

Our AI as a service approach aims to help customers increase productivity and improve operational efficiency. For example, a Chinese telco choose Baidu's ABC cloud with AI as a service to power their call center. Baidu cloud was chosen for our differentiated AI technology in speech recognition, natural language processing and knowledge graph, enabling analyst conversation and sparing customers the tedious experience of IVR menus.

Using Baidu's enterprise AI Solution, the call center saw dramatic improvement in customer service quality. With average call time falling 70%, and Baidu's AI solution handling millions of call per month. At Baidu World and in Beijing tomorrow we will share many more case studies illustrating Baidu's enterprise AI solutions now serving over one dozen industries.

Turning to iQIYI; in the third quarter iQIYI added a record 13.5 million subscribers, reaching a total of 80.7 million subscribers, driven by top quality content and blockbuster originals like story of Yanxi Palace. iQIYI continues to rank number one across reach and engagement metrics in the third party -- in the third quarter according to third-party market research firm. Also during the quarter, iQIYI co-launched a hybrid OTT box with Beijing Gehua CATV network, featuring DuerOS voice assistant, video search and children's mode. The hybrid OTT box, enables users to access both iQIYI videos and cable TV from one box, an industry first. Partnerships such as this help DuerOS and iQIYI extend presence into the fast-growing OTT market and exemplify the unique value proposition that Baidu and iQIYI can offer, working in tandem.

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 third quarter 2018 call. Before I begin the third quarter review, let me make a few notes. All monetary amounts used in my discussion are in RMB unless stated otherwise.

Starting on January 1, we adopted ASC 606, a new revenue accounting standard that nets value added tax from revenue and cost of revenue line items. To increase comparability with 2018 numbers, 2017 numbers have been adjusted net of VAT. We completed the spinoff of Du Xiaoman, Baidu's financial services during the third quarter, which was the last of the announced spinoffs.

For today's discussion on Baidu Core, we're providing revenue and operating income numbers excluding the spinoff businesses to give more visibility on the performance of Baidu Core without the spinoffs, and allow for easier comparison for future quarters. Please refer to our press release for more information on Baidu Core financials.

With that, let's turn to Q3. We had a solid quarter in Q3. Total revenues reached RMB28.2 billion, up 27% year-over-year, non-GAAP operating income was RMB5.7 billion, up 2% year-over-year, non-GAAP net income to Baidu was RMB6.7 billion, up 47% year-over-year; and non-GAAP net margin was 24% Revenue from Baidu Core, excluding spinoff revenues were RMB20.6 billion, up 27% year-over-year. Non-GAAP operating profit of Baidu Core excluding spinoffs were RMB7.7 billion, up 12% year-over-year, and non-GAAP operating margin is 37%, compared to 42% from the previous year.

As we previously highlighted, our plan this year is to increase investment in content purchase for BJH accounts and increased marketing expenditures for the Baidu app. This helps Baidu achieve several benefits. Number one, shifting Baidu search to our own properties improve the user experience for search and saves on TAC (ph); two, feed as a complementary (ph) business for search, the two together drives better unit economics for marketing purposes; and three, with more and more apps rely on our super apps to generate traffic, strengthening the Baidu app as we rollout Baidu Smart Mini Program will increase our app monetization potential.

Although content and marketing costs are expensed as incurred, we believe we will be able to recover more dollars from these investments to further increase the scale of Baidu app. We are already seeing time spent on fee in the Baidu app growing 68% year-over-year in September. But to ensure good budget management, we have a sophisticated tracking system in place to keep a close watch on our marketing investments. As Robin elaborated, we are making strong targets in our strategy to solidify our mobile foundation in (inaudible) and AI, and we stay committed to Baidu's future.

As of September 30, 2018, Baidu has returned 487 million to our shareholders -- $487 million to our shareholders under the 2018 share repurchase program announced in June.

Let me now go through the rest of the quarter's financial highlights. Online marketing revenues were RMB22.5 billion, up 18% year-over-year. We had approximately 522,000 online marketing customers, up 7% year-over-year, and revenue per customer was approximately RMB43,100, up 12% year-over-year. Other revenues were RMB5.7 billion, up 80% year-over-year, mainly resulting from the robust growth in iQIYI membership and other businesses. Excluding spinoff revenue of a $1 billion -- of a 1 billion in the third quarter, revenue from Baidu Core was RMB21.6 billion, up 27% year-over-year, revenue from iQIYI reached RMB6.9 billion, up 48% year-over-year.

Cost of sales, excluding stock compensation, was RMB14.2 billion, up 36% year-over-year, content cost was up 73% year-over-year to RMB6.7 billion, mainly due to increased content purchases by iQIYI and to a much lesser extent from Baijiahao or BJH accounts, Baidu's fee content network. Other operating expenses, excluding stock compensation, was RMB8.4 billion, up 35% year-over-year, mainly due to the increase in channel and promotional marketing of Baidu apps and other apps and the increase in R&D personnel-related costs.

Other income in the third quarter was RMB4.4 billion, down 6% year-over-year. Non-GAAP operating income was RMB5.7 billion, up 2% year-over-year. As mentioned, excluding spinoffs, non-GAAP operating income from Baidu Core was RMB7.7 billion, up 12% year-over-year and non-GAAP operating margin for Baidu Core was 37%. Net income attributed to Baidu in the third quarter was RMB12.4 billion, diluted earnings per ADS was RMB35.

Non-GAAP net income attributable to Baidu was RMB6.7 billion, up 47% year-over-year, and non-GAAP diluted earnings per ADS was RMB19. The year-over-year increase was partially due to the change in non-controlling interest as losses from iQIYI were not allocable to proprietors prior to the IPO. Non-GAAP net income attributable to Baidu Core was RMB8.4 billion, up 57% year-over-year.

Adjusted EBITDA in the third quarter reached RMB6.8 billion and EBITDA margin reached 24%. Adjusted EBITDA for Baidu Core reached RMB9 billion and adjusted EBITDA margin reached 42%. As of September 30, 2018, cash and short-term investments was RMB104.5 billion, free cash flow was RMB9.1 billion. Total headcount as of September 30, 2018 was approximately 40,700, up 2% year-over-year. Excluding iQIYI, cash and short-term investments was RMB94.8 billion, free cash flow was -- to Baidu Core was 8.3 billion and total headcount for Baidu Core was approximately 32,300, down 3% year-over-year.

Turning to fourth quarter guidance. Total later half of Q3, iQIYI's brand advertising and Baidu's brand advertising, to a lesser extent, began to feel the impact of recent policy changes related to certain verticals, such as gaming, financial services and so forth, as well as general uncertainties from a potential trade war. We expect this trend to continue into the fourth quarter. In addition, our proactive effort to improve the structure of healthcare information may impact our ad revenues in the near future.

Based on the above, we expect total revenues to be between RMB25.48 billion and RMB26.72 billion representing a 15% to 20% increase year-over-year. Excluding spinoff revenue of 1 billion for the fourth quarter of last year, this guidance assumes Baidu's fourth quarter revenues will grow between 20% to 26% year-over-year. These forecasts are current and preliminary view, and are subject to change.

I will now turn the call over to the operator. Thank you.

Sharon Ng -- Director of Investor Relations

Operator, we're ready for first question.

Questions and Answers:

Operator

The question-and-answer session of this conference call will start in a moment. In order to be fair to all callers, who wish to ask questions, we will take one question at a time from each caller. If you have more than one question, please request to join the question queue again after your first question has been addressed. (Operator Instructions)

And the first question is from the line of Alicia Yap, your line is now open, from Citigroup.

Alicia Yap -- Citigroup -- Analyst

Hi. Good morning, Robin, Herman and Sharon. Thanks for taking my questions. I wanted to ask, if management could share with us your view, when comparing the news feed ad versus the search advertising in light of these softening advertising environment or potentially more at budget cut. Which one is actually likely to be more resilient and which one is more vulnerable to the budget cut? In addition to iQIYI, which on previous call, no doubt it was impacted by the online games sector, wonder how big the exposure of Baidu mobile news feed ad is related to the online games? And if management, obviously, expecting the economic conditions in these softening, any measure that Baidu plans to do to mitigate the downturn or do you think Baidu will be more in mute to any slowdown? Thank you.

Robin Li -- Chairman and Chief Executive Officer

Hi, Alicia. This is Robin. Your question regarding to resilience on our feed ad and search ad, I would say first that both search and feed ads are primarily performance ads, which means that our advertisers always find that the performance on our platform is better and is the worthwhile for them to spend money. I think, the brand ads, the display ads are impacted more due to macro conditions. And having said that, I would say that, the feed is probably less resilient than search, because the percentage of the feed ad could be brand related, but on the other hand, as you know, that the feed is growing faster than search.

And the new regulations on games, did have an impact on our revenue. We have a number of advertisers from the game industry, they are affected significantly. But game is not a very large industry for Baidu's advertising base. So we -- to a certain extent affected, but it's not a top five industry for us.

Herman Yu -- Chief Financial Officer

Yes. To give more color, Alicia, for -- I think, going into Q4, if there has been various policies in China so game would probably be one of the industries that would be impacted by those several other ones. We could be impacted, for example from real estate and interior design, some from our lifestyles and online commerce and so forth, some on financial service. So it's not any particular industry that's impacting us heavily, for the Baidu Core business, it's just each of these industries, while it's spread around several industries, a little bit here, a little bit there added together did cause us to probably grow not as fast as we were like in Q4. But we also need to remember that when its recurring -- we also need to remember that when we compare for our Q4 that of last year, over 1 billion was related to the spinoff. So we got a -- have a lower base to recognize that.

Alicia Yap -- Citigroup -- Analyst

Sure. Can I just follow-up on next year? Are we expecting further slowdown that we should probably take more into consideration, for now, expecting next year would be slower?

Robin Li -- Chairman and Chief Executive Officer

Alicia, we don't really give forward-looking guidance for next year. It's very hard for us to predict as the macro economy over the next year. What we have staying is that, for the next couple of quarters that the current macro environment is like this.

Alicia Yap -- Citigroup -- Analyst

Okay. Thank you, Robin. Thank you, Herman.

Robin Li -- Chairman and Chief Executive Officer

Thank you.

Operator

Thank you. And the next question that we have is from the line of Eddie Leung from Merrill Lynch. Your line is now open.

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

Good morning. Just a question on traffic and competition. I think, Robin, you mentioned that is getting less efficient to acquire traffic to fire the mobile channels given you are slowing down in handset growth. But are you -- since I -- recently we have seen a couple of your competitors, probably since early of this year, pretty aggressively buying traffic, I mean, competitors, direct competitors on the search side. So just wondering how you see the competitive landscape going? Because you like couple of our third-party sources showing, it seems like that quite a bit of MAU, and although they are still a much smaller than you guys, just we are wondering how you think about these phenomenon? Thanks.

Robin Li -- Chairman and Chief Executive Officer

Yes. Sure, Eddie. I think, there are two types of companies that one is platform companies like us. We own super apps, we will continue to aggressively invest in channel to do all kinds of pre-installation or marketing to further solidify our position as the super app or as the platform. But for most other companies, who had a native app or had a website, but hoping to establish their native app as the gateway to their services.. It's getting tougher, because consumers just don't want to install that many apps on their phones, and the number of mobile Internet users are not growing that fast. So we expect most of that, the companies, will increasingly rely on large platforms like us to get traffic through either Baijiahao or Smart Mini Programs. I think, they will shift their developing resources from native apps to Smart Mini Programs and Baijiahao infrastructure.

That advantage Baidu has is that we are very strong in AI technology. We have a DNA of using technology to distribute content and services. So our core competence is really find those -- to find the most efficient way to distribute content and services and to deliver the best conversion for our advertisers and merchants. As you mentioned, we do have competition in this area via other Internet platforms. They are trying to attract more users, more traffic, more advertisers and that's, again, our strength is technology. We have unmatched capability to distribute the content services more efficiently and drive conversion better than anyone else.

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

Got it. Thank you.

Operator

Got it. Thank you.

Thank you. The next question is from the line of Gregory Zhao from Barclays. Your line is now open.

Xiaoguang Zhao -- Barclays -- Analyst

Hi. Robin, Herman and Sharon. Thanks for taking my question. So my first question still about your advertising. So can you share with us the top ranking icons, the top five or top three advertising categories in this quarter and how that compared to the last quarter and last year? And based on your key (ph) account and SME advertising account. So which account is seen more an impact from the regulation on the policy impact?

And a quick follow-up is, in the e-commerce category, your advertising show very strong growth last year. So we still have less than two weeks right before this year's single-step promotions, as you can share some early like this -- a color for metrics for this year's Singles Day? Thank you.

Robin Li -- Chairman and Chief Executive Officer

Yeah. So Greg, I'll take the first one. We actually, our -- because of the size of our advertising, we actually spend widely among all the industries. Our top industry in advertising will include things like medical, would include retail as a general term, both e-commerce and other type of retail businesses, would include education, especially those post-college. These are just some of the top advertising industries we have.

Herman Yu -- Chief Financial Officer

Yes. I think that the regulatory environment change affects both the key accounts and SME. It's more industry specific than size specific. And regarding to the e-commerce market or that upcoming Double 11 shopping festival, we do expect solid growth again. And I think both that the e-commerce platforms as well as the merchants and retailers really active in promoting their products during this period and we stand to benefit from the advertising dollars they spend on our platform.

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

Thank you very much.

Operator

Thank you. The next question is from the line of Grace Chen from Morgan Stanley. Your line is now open.

Grace Chen -- Morgan Stanley -- Analyst

Hi. Thank you. Thank you for taking my question. Could you share with us your strategy for 2019. For this year, we made it clear that we focus more on topline growth and share gains. So we invest more aggressively in content and marketing expenses, in the results we're seeing very good revenue growth even margin are trending down in the recent quarters. What's your strategy for the next year, specifically your plan for content spending, marketing expenses and what's the implication on margin for the next year? Thank you.

Robin Li -- Chairman and Chief Executive Officer

I think our strategy for next year will pretty much stays the same. We will continue to invest for growth and we will continue to solidify our mobile foundation and lead in the AI. New businesses such as the DeurOS, Apollo, all requires a continued investment and the fast growth from video and other apps. We'll also require marketing dollars to continue to fulfill their momentum. Herman?

Herman Yu -- Chief Financial Officer

Yes. Just as Robin said, I think, with regards to our margins, I think, we explained it pretty well in the prepared remarks. There is really two issues here. Number one is, the revenue guidance that we have in Q4, is growing less than the Group Q3 rate. So that's going to impact our margin a little bit. For example, in Q4, you see our Baidu Core business, it's probably down around 800 million on a quarter-over-quarter basis. If you assume midpoint of Q4 and then on top of that, you should expect that our cost of good, cost of sales plus the operating OpEx, we've been growing at over RMB1 billion per quarter. So that's going to dampen our margin. So that's one reason for dampening our margin.

The other to consider is the fact that we are heavily investing in the app to create super app. So in the past couple of quarters, we've been focusing on Baidu app. Now that we have seen a pattern of success, we are also going into different video apps. Haokan being the one that we try in Q3 and you can see how our DAU have a significant growth in Q3 and the fact that our QuestMobile sectors has to -- the fastest growing on app with DAU over 5 million. So we're going to continue to invest in that and because of that particular financial model, you're not going to be able to match expenses with revenue, because expenses occurs during the quarter, while the revenue is over several quarters after the investment, as users come back. So that is changing. So we have to factor in that as we look at 2019 margins. But all in all, while we do have a tracking system, that tells us over the two years, how the users generate revenue and when we see positive only when we see a positive ROI, do we double or increase the marketing spending for that particular app. Hope that helped.

Grace Chen -- Morgan Stanley -- Analyst

Yes. Thank you.

Operator

Thank you. The next question we have is from the line of Juan Lin from 86Research. Your line is now open.

Juan Lin -- 86Research -- Analyst

Hi. Good morning, Robin, Herman and Sharon. Thanks for taking my questions. My first question is related to our business outlook. On the outlook you mainly refer to regulations impacting certain industries. I'm wondering have you seen the early sign of market slowdown impacting of the (ph) Baidu's spending sentiments for the next few quarters. Hope is I got it correctly, you also mentioned the restructure and cleanup of medical ad, could you elaborate the reasons and details for that changes and whether there is risk for further adjustment of your screening process of your screening process of advertisers and other industries down the road?

My second question is related to DuerOs. Given that DuerOs has already accumulated very high installed base, queries and partner. Could you please remind us on the monetization roadmap plan for DuerOs. In particular, when shall we expect DuerOs to contribute meaningful revenue? Thank you.

Robin Li -- Chairman and Chief Executive Officer

Okay. On the possible massive slowdown, right now, what we have saying is that confidence level from the private sector, from the (inaudible) are not that high, but that the actual impact is not obvious yet. If that -- if let's say, during the next couple of months, this confident level changes, things will change to the positive direction, but we don't know exactly what's going to happen. The medical ads, that the cleanup is an ongoing process. It's like many other industries, and it's like fighting with fake news on the Internet. It's a battle between the platform and those merchants who want to find of (inaudible) ways to take advantage of our platform. So this is the ongoing part.

And, in particular for this quarter and next few quarters, we are basically -- we, designing the sponsored search system. So that starting from the medical industry, we will not allow advertisers to direct the link to their own website. We will host all the information on the Baidu servers in a more structured format. So that we have better control on what they can say and what kind of information they present to the consumers. So we believe this will be beneficial to that end-users and eventually drive better comparison for the healthcare providers.

DuerOs monetization, as I mentioned, it's been growing very, very rapidly. We expect the growth to continue in 2019. And meaningful core monetization should start from 2020.

Juan Lin -- 86Research -- Analyst

Thank you, Robin. Very helpful.

Operator

Thank you. Next question is from the line of Piyush Mubayi from Goldman Sachs. Your line is now open.

Piyush Mubayi -- Goldman Sachs -- Analyst

(Technical Difficulty) and Herman, Sharon. Robin, there have been rumors recently of a potential international search engine entering China. I wonder whether you would be able to talk through the advantages that you think you have in the face of a company like that. And in the same vein, we, looking at several Chinese companies exploring opportunities internationally, I know you've done those and looked at those in the past. And I wondered if you could take us through how your experience has been and relate that to the potential entry of a search engine into the China market? That's my first question.

And second, and a very short question. From a macro slowdown perspective, which period in your operating history does this remind you of at this stage? Thank you.

Robin Li -- Chairman and Chief Executive Officer

Okay. Yes. If you look at the overall Chinese Internet landscape, Mubayi, you probably cannot find any single US-based company that has meaningful market share here. Well, that's four reasons, first, China is a very large market; and secondly, it's a very fast growing, fast changing market, things changes every day and you need to make new decisions every day. I don't think non-China based company has that kind of competency to really compete in this market. The search or e-commerce or social or whatever you can think, you just cannot find anything that's meaningful in this market.

And secondly, on our international expansion or the international expansion for Chinese Internet companies, both us and many other Chinese companies are expanding overseas, and we are learning how to do business outside of China. What we have learnt is that, it's very difficult to get into a new market, where there is a status quo. There is an existing dominant player, and you play that the same rule, that's very difficult. What we have saying is that if we can come up some kind of new products, we have a chance to win over the users there and make money.

Take Japan, as an example, we own the largest input method engine cost synergy in Japan, and a lot of people, lots of Japanese consumers are familiar with this brand and synergy is also profitable and growing. And that it's also related to our core technology in terms of search and AI. We enable users to do voice input, which requires good speech recognition technology in Japanese. So going forward, we'll continue to find new opportunities, new markets, new products to try to gain traction in international markets.

On the macro, people will probably most likely think of 2008, when the financial crisis happened. But this time, I think it's different. I think right now it's about that -- more about the traditional industry, more about end up toward confidence and that can change very quickly. I don't think just the fundamental fabric of the Chinese economy is in question. So I think longer term I am still very optimistic about the future of Baidu and the future of China.

Piyush Mubayi -- Goldman Sachs -- Analyst

Thank you, Robin.

Operator

Thank you. Next question is from the line of Natalie Wu from CICC. Your line is now open.

Natalie Wu -- CICC -- Analyst

Hi. Good morning. Thanks for taking my question, Robin, Herman and Sharon. Just following up with the landing page change as relates to with merchant account for healthcare industry. Rob, you mentioned that, it will bring along some short-term pain, in your prepared remarks. I'm just wondering is it only related with mobile side and core such product, right? Just and also how is that going to impact for your fourth quarter guidance? And you've also mentioned that this kind of the change is to start from a medical sector. I'm just wondering is there any follow-up for the other top verticals for your advertisers. And if yes, can you give us some color about your plan for that? Thank you.

Robin Li -- Chairman and Chief Executive Officer

Okay. Herman will address the Q4 impact. And let me elaborate on the landing page strategy change more. If you look at other type of services on the Internet, it's actually quite natural for platforms to you structure the data instead of directing consumers to a third party website. It's just the nature of the search or due to the legacy of the search, people naturally think that they do a search here, they find all kinds of different length and they pick one of the lengths they -- that brought to a different website, where search engines have no controls. This is not the best user their experience in the mobile age. That's why in the beginning of that prepared remarks, I said, 40% of our top one results now can satisfy users' needs and many of the top one results are actually structured data. It's not a website linked to third party content. If you look at in the online travel industry, if you try to find information about the particular hotel, you typically do not go to -- go from an online agency like Ctrip and to the website of a -- hotel's official website. You actually find structured data about users comment and their price and all sort of things on this Ctrip app or on the Ctrip website and for restaurant like if you go to Dianping or Meituan. You also find all kinds of related information in a structured manner. You are not directed to the official website of that restaurant.

And healthcare should be similar, I think, in the future we should provide structured data for healthcare providers. So that consumers have an easier way to navigate around all kinds of information and make their choices. This is a transition. Transition always affects revenue by the longer term. I think this is the win-win-win situation. The platform has better control on the content, users have a more transparent way to find information and services they're interested in and healthcare providers get better conversion. Herman?

Herman Yu -- Chief Financial Officer

Yes. Natalie, your question is what's the impact for Q4. Let me try to answer it this way. So, when you look at our guidance, excluding spinoff, for Q4 right now is between 20% to 26% and the midpoint is 23%, right. When you look at Q3, for example, our actual result was 27%. So assuming we're trying to reach 27%, we're 4% (ph) off, 4% slower using our midpoint versus Q3. So when you look at last year Q4, we're talking about RMB21 billion. So we're talking about maybe a little bit RMB800 million light.

So I can't break out for you that RMB800 million, how much is medical, how much is all the other industry. What I can tell you is that, that the 800 million is lighter than what we would have that we could do for Q4 assuming it's equivalent to the growth rate in Q3, is that it would be spread out between this Haokan initiative and we think that it's probably going to be impacted by some other industry that we already seeing such as games such as real estate, interior decoration, such as lifestyle, such as financial services, and maybe a few other. So you can see RMB800 million is not significant of our overall revenues when you have so many different industries and so many different policies impacting that. So a little bit here, a little bit there, hard to really quantify at this point, how much of each of these factors will be. We just think that overall, it should be around that range.

Natalie Wu -- CICC -- Analyst

Got it. Thank you. Any follow-up plan for copying this kind of the change to other top verticals?

Robin Li -- Chairman and Chief Executive Officer

Eventually, Yes. Right now we are focusing on the healthcare industry, right now.

Natalie Wu -- CICC -- Analyst

Got it. Thank you very much.

Herman Yu -- Chief Financial Officer

I do recognize this is an issue, and Natalie, because as Robin mentioned, a structured data has better conversion. The risks of structured data is initially when you change the format of that information, users have to get used to. So in the front end, you might do some revenue -- have some revenue impact, because users are looking at this and they are familiar with better quality information. But as they get used to it, in the back end they actually would have higher conversion rate. So it's a timing issue. So as we look at this medical, maybe a few other quarters down the line when we see, better conversion rates and so forth, we might go into other industry. But net-net, it doesn't mean that whenever we go into an Industry, it's going to have a significant impact on revenues.

Robin Li -- Chairman and Chief Executive Officer

We'll have to see.

Operator

And presenters we have the next question from the line of Jerry Liu from UBS. Your line is now open.

Jerry Liu -- UBS -- Analyst

Hi. Thank you. Yes. I just have two quick questions. The first one is, when we look at the macro impact, that the regulatory impact in the fourth quarter, are we assuming on a month-to-month basis some further deterioration from August to September to October. What do we see for the next few months?

And then the second question is on Smart Mini Programs. When should we expect some ramp in monetization? And when can we see that tailwind for the search and feed business? Thank you.

Herman Yu -- Chief Financial Officer

Okay. Hi, Jerry. I'll answer the first one. With regards to, how we do a forecast for Q4, we try to keep -- gather the information from my sales team and also from our channels. So it's not so much of month-to-month, but overall, as Robin mentioned, part of it is policy that we have seen, so that would be on a historical trend, another it's really a general sentiment of customers or by channels and so forth. So the total, the totality of that assessment goes into our Q4. So I would say, based on the information that we have right now is what we think the impact would be for Q4.

Robin Li -- Chairman and Chief Executive Officer

On the Smart Mini Program. You can face profit as the mobile version of website for native apps itself it's not a business (ph) model. It's not a new business model. It's an enhancement to the existing Baidu multiple ecosystem. People get better experiences when they are navigating around that Mini Program. But having said that, I think that this will help to enhance monetization, because and improve conversion because users have better experiences when they land on the Smart Mini Program, and the user accounts are typically connected through the Baidu account and the Mini Programs user account and things like payment or seamless experience, and even better data, because our strength in technology, we can find the best match between the user queries or the user intent and the Smart Mini Programs' offerings. So we have the best matching and Smart Mini Programs ensure better user experience and better conversion. So longer term this will enhance our monetization capability, but itself is not a new business model.

Herman Yu -- Chief Financial Officer

Yes. Just to add a little bit, Jerry, that the assumptions behind this is there are lot of search links today, the HTML file, right. So if someone is searching, direct the traffic to the other sites, whereas what Robin just described is, it allows to have a closer transaction within the app. So if you're in Baidu app, research for something, you go to Mini Programs, you can actually transact, do all the things you want to do with that particular Mini Programs, and you come back to the Baidu app. So it's still within the whole Baidu app ecosystem. They are not really leading to another site. So it is that user experience. It seamlessly allows you to do transaction, and also allows the users to go back and forth in different areas of Baidu app.

Jerry Liu -- UBS -- Analyst

Got it. Thanks.

Operator

Thank you. And the next question is from the line of Ms. Karen Chan from Jefferies. Your line is now open.

Karen Chan -- Jefferies -- Analyst

Thank you, Robin, Herman and Sharon. So my first question is, whether management can give us an update on the revenue contribution from mobile news feed ad in the third quarter? And given, we saw a very strong quarter-over-quarter growth of 20% on average in 2018, wondering how we should think about going into 2019, given the current visibility? And also just a follow-up question on -- can management say the approximate revenue contribution from healthcare currently compared to a year ago? Thank you very much.

Herman Yu -- Chief Financial Officer

Hi, Karen. Yes. So the question was on our fee revenue. When you look at our fee revenue, what we disclosed last quarter and in this quarter is a little bit more, is that historically last quarter fee plus all the AI businesses were less than 20%. So this quarter we see it up a few more percentages now making up over 20-some percent fee plus the AI businesses. Yes. And then with regards to healthcare revenues and so forth, we have about 30% of our advertising revenue from medical and it's been declining steadily over the last few quarters.

Karen Chan -- Jefferies -- Analyst

Thank you.

Operator

Thank you. Ladies and gentlemen, we are now approaching the end of the conference call. Thank you for your participation in today's conference. You may now disconnect. Good day.

Duration: 64 minutes

Call participants:

Sharon Ng -- Director of Investor Relations

Robin Li -- Chairman and Chief Executive Officer

Herman Yu -- Chief Financial Officer

Alicia Yap -- Citigroup -- Analyst

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

Xiaoguang Zhao -- Barclays -- Analyst

Grace Chen -- Morgan Stanley -- Analyst

Juan Lin -- 86Research -- Analyst

Piyush Mubayi -- Goldman Sachs -- Analyst

Natalie Wu -- CICC -- Analyst

Jerry Liu -- UBS -- Analyst

Karen Chan -- Jefferies -- Analyst

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