Baidu Announces Fourth Quarter and Fiscal Year 2018 Results

BEIJING,Feb. 22,2019 -- Baidu,Inc. (NASDAQ: BIDU) ("Baidu" or the "Company"),the leading Chinese language Internet search provider,today announced its unaudited financial results for the fourth quarter and fiscal year ended December 31,2018[1].

"We are excited to enter the new year on strong footing with Baidu 2018 revenues reaching RMB 102 billion[2],up 28% annually. The growth rate of Baidu App DAUs has been accelerating over the past year,up 24% year over year to 161 million in December 2018,while Haokan short video app grew to 19 million DAUs from 1 million a year ago," stated Robin Li,CEO of Baidu. "2018 was a pivotal year for Baidu,as we worked on deploying AI technologies beyond search to feed,voice assistant,AI solutions and autonomous driving,to enable more users,customers and partners to benefit from Baidu's AI."

"The diversification of Baidu's business from mobile internet into the smart home,smart transportation,cloud and autonomous driving markets will require heavy investments," said Herman Yu,CFO of Baidu. "Nevertheless,these investments taken together give Baidu a balanced portfolio for short-term,medium-term and long-term returns,and we hope to see these investments bear fruit and accelerate Baidu's revenue growth in the coming years."

Fourth Quarter 2018 Financial Highlights

Total revenues were RMB 27.2 billion ($3.96 billion),increasing 22% year over year,or 28% year over year excluding the impact of announced divestures[3]. Total revenues of Baidu Core were RMB 20.5 billion ($2.98 billion),increasing 14% year over year,or 20% year over year excluding the impact of announced divestures.

Operating income was RMB 1.1 billion ($162 million),decreasing 77% year over year,and operating margin was 4%,compared to 21% in Q4 2017. Operating income of Baidu Core was RMB 4.4 billion ($645 million),decreasing 26% year over year,and operating margin was 22%,compared to 33% in Q4 2017.

Non-GAAP operating income was RMB 2.7 billion ($386 million),decreasing 54% year over year,and non-GAAP operating margin was 10%,compared to 26% in Q4 2017. Non-GAAP operating income of Baidu Core was RMB 5.8 billion ($837 million),decreasing 17% year over year,and non-GAAP operating margin of Baidu Core was 28%,compared to 38% in Q4 2017.

Net income attributable to Baidu was RMB 2.1 billion ($303 million),decreasing 50% year over year,and diluted earnings attributable to Baidu per ADS was RMB 6 ($0.86),decreasing 52% year over year. Net income attributable to Baidu Core was RMB 4.1 billion ($589 million),decreasing 22% year over year.

Non-GAAP net income attributable to Baidu[4] was RMB 4.6 billion ($672 million),and non-GAAP diluted earnings per ADS[5] was RMB 13 ($1.92),decreasing 17% year over year. Non-GAAP net income attributable to Baidu Core was RMB 6.5 billion ($939 million),decreasing 1% year over year.

Fiscal Year 2018 Financial Highlights

Total revenues were RMB 102.3 billion ($14.88 billion),increasing 28% from 2017,or 31% year over year excluding the impact of announced divestures. Total revenues of Baidu Core were RMB 78.3 billion ($11.38 billion),increasing 22% from 2017,or 26% year over year excluding the impact of announced divestures.

Operating income was RMB 15.5 billion ($2.26 billion),decreasing 1% from 2017. Operating margin was 15%,compared to 20% in 2017.

Non-GAAP operating income was RMB 20.2 billion ($2.94 billion),increasing 7% from 2017. Non-GAAP operating margin was 20%,compared to 24% in 2017. Non-GAAP operating income of Baidu Core was RMB 27.9 billion ($4.06 billion),increasing 23% year over year,and non-GAAP operating margin of Baidu Core was 36%,similar to 2017.

Net income attributable to Baidu was RMB 27.6 billion ($4.01 billion),increasing 51% from 2017,and diluted earnings attributable to Baidu per ADS was RMB 78 ($11.35),increasing 49% from 2017. Net income attributable to Baidu Core was RMB 33.6 billion ($4.89 billion),increasing 52% year over year.

Non-GAAP net income attributable to Baidu was RMB 23.3 billion ($3.39 billion),increasing 35% from 2017,and non-GAAP diluted earnings per ADS was RMB 66 ($9.64),increasing 34% from 2017. Non-GAAP net income attributable to Baidu Core was RMB 28.5 billion ($4.14 billion),increasing 37% year over year.

Other Highlights

Corporate

Baidu World was held in November 2018,with the conference theme "Yes,AI do" to highlight Baidu's efforts in bringing AI to everyday life in markets,such as smart home,cloud and autonomous driving.

Baidu was the exclusive red envelop giveaway sponsor of the 2019 CCTV Chinese New Year Gala,which drove traffic to new highs for Baidu's family of apps,including Baidu App (flagship search plus feed),Haokan (short video),Quanmin (flash video),Baidu Maps and Baidu Drive.

Baidu completed US$1.25 billion in bond offerings in the fourth quarter,consisting of US$850 million of 4.375% notes due 2024 and US$400 million of 4.875% notes due 2028,the proceeds from which will mostly be used to repay existing indebtedness.

Search and Feed

Baidu App daily active users ("DAUs") reached 161 million in December 2018,increasing 24% year over year.

Baijiahao,or BJH accounts,Baidu feed's content network,grew to 1.9 million publishers in December 2018,and includes People's Daily,Xinhua News Agency,CCTV and multiple provincial media sources

Baidu Smart Mini Program monthly active users ("MAUs") reached 147 million in December 2018,up 30% sequentially. Also in December,Baidu Smart Mini Program was open sourced to network partners.

Haokan (short video) and Quanmin (flash video) DAUs reached 19 million and 4 million,respectively,in December 2018. According QuestMobile,Quanmin and Haokan were the two fastest growing apps among the Top 10 short video apps in China,across key metrics of total daily time spent,DAUs and MAUs over the three months ending December 2018.

DuerOS

In December 2018,DuerOS voice assistant installed base surpassed 200 million,up 45% sequentially,and voice queries on DuerOS reached 1.6 billion,representing a sequential CAGR of over 100% for the last seven quarters.

The DuerOS skills store has released over 1,000 skills in wide-ranging genres,such as Douyu (live video),Dragonfly FM (online radio) and CITIC Academy (online literature),and has a community of 27,000 developers.

DuerOS for Apollo now enables Smart Mini Programs for Baidu App to operate in the DuerOS skills store in vehicles,positioning DuerOS as the cross-platform voice assistant preferred by users and software developers.

Baidu released two smart devices powered by DuerOS in November 2018—Xiaodu Smart Speaker Pro (MSRP US$45) and Xiaodu Smartphone Car Mount (MSRP US$15),the latter serves as a smartphone charger with far-field microphones that allow users to operate DuerOS skills via conversational AI.

Xiaodu Smart Speaker and Xiaodu Smart Display were the best-selling smart speakers on JD.com,Pinduoduo and GOME.com (a leading electronics retailer in China) during the 2018 Double 11 Shopping Festival.

In the hospitality sector,DuerOS voice assistant is powering Baidu's smart display to offer personal concierge in over 2,000 rooms across a score of hotels in China,particularly in 5-star hotels,including the recently opened InterContinental Shanghai Wonderland.

In December 2018,DuerOS and Xiaodu Smart Display received the prestigious 2018 China Red Star Design Award from the China Industrial Design Association,recognizing the two for innovation in user interaction and user design.

Apollo

In January 2019,Baidu released Apollo v3.5,which supports complex urban-road autonomous driving. At CES,Baidu also introduced Apollo Open Platform,which is available to the developer community,and Apollo Enterprise,which encompasses solutions to support commercial production,including DuerOS for Apollo,valet parking,assisted highway driving and intelligent maps.

Apollo has been granted over 50 licenses for open-road testing for autonomous vehicles,including in Beijing,Tianjin,Chongqing,Changsha and Baoding municipalities,as well as the Fujian province. The Company believes Apollo has received the largest number of open road testing licenses in China to date.

Apollo signed strategic partnerships with First Automotive Works (FAW) and Volvo Car Corporation in November 2018 to support the commercial production of autonomous L4 passenger vehicles.

Apollo has garnered over 135 OEMs,Tier 1 parts suppliers and other strategic partners to date,including recent additions of Volkswagen Automobile,China Unicom,Kalray,Quanta Computer and StarNeto Technology.

Cloud and Others

On the eve of Chinese New Year,the day of the 2019 CCTV Chinese New Year Gala,Baidu Cloud infrastructure smoothly handled 20.8 billion user interactions,with peak volume reaching 10 million hits per second.

Baidu launched OpenEdge,an open source edge computing platform,which allows developers to build light,secure and scalable edge applications,bringing AI processing to edge devices,like smart home devices,wearables and other IoTs. Baidu also unveiled two edge computing hardware solutions: BIE-AI-Box,a kit for in-vehicle computer vision designed in partnership with Intel,and BIE-AI-Board,a chipboard for mobile detection co-developed with NXP Semiconductor.

Over 1 million developers have used Baidu's AI Open Platform,which provides developers with access to Baidu's comprehensive AI capabilities,including speech recognition,natural language processing and computer vision,from Baidu Cloud to build their products and solutions.

Baidu is working with the Hainan province to broaden the adoption of blockchain by offering XuperChain,Baidu's blockchain technology,to a wide range of industries. XuperChain helps multiple parties execute transactions without the need for a trusted,central authority,addressing challenges commonly faced in information security,copyright verification,supply chain financing,online trading and other areas. XuperChain currently processes more than 55,000 transactions per second,far exceeding the industry average.

Baidu is working with the Beijing Internet Court to develop an electronic-evidence platform using XuperChain. As of December 2018,over 93 million patents were stored and protected on XuperChain's copyright protection system.

iQIYI

iQIYI added 36.6 million subscribers in 2018 to reach 87.4 million at year end,further solidifying their leadership in original entertainment blockbuster content.

Baidu and iQIYI co-launched a hybrid OTT TV box with Sichuan Cable TV,enhancing the home entertainment experience through AI. This follows an earlier release of Gehua Little Fruit OTT TV box.

In December 2018,iQIYI completed the offering of US$750 million of 3.75% convertible senior notes due 2023,the proceeds from which,net of capped call fees,will be used to expand and enhance iQIYI's content offerings and strengthen its technologies,as well as for working capital and other general corporate purposes.

Fourth Quarter 2018 Results

Total revenues reached RMB 27.2 billion ($3.96 billion),or 28% year over year excluding the impact of announced divestures. Online marketing revenues were RMB21.2 billion ($3.08 billion),increasing 10% year over year. Baidu had approximately 529,000 active online marketing customers[6],increasing 15% year over year. Revenue per online marketing customer was approximately RMB 40,100 ($5,800),decreasing 4% year over year. Other revenues were RMB 6.0 billion ($872 million),increasing 104% year over year,which was mainly due to the robust growth in iQIYI membership services,cloud and other businesses.

Revenue from Baidu Core reached RMB 20.5 billion ($2.98 billion),or 20% year over year excluding the impact of announced divestures,while revenue from iQIYI reached RMB 7.0 billion ($1.02 billion),increasing 55% year over year.

Content costs were RMB 7.3 billion ($1.07 billion),increasing 96% year over year,mainly due to increased investments in iQIYI content and,to a lesser extent,in content for BJH accounts,Baidu feeds' content network.

Traffic acquisition cost was RMB 3.4 billion ($491 million),increasing 34% year over year,as a result of increasing TAC revenue and revenue derived from online TV and offline digitalized screens.

Bandwidth costs were RMB 1.8 billion ($258 million),increasing 27% year over year,mainly due to increasing demand from feed,video and cloud.

Other cost of revenues,which includes depreciation,operational costs and share-based compensation,was RMB 3.1 billion ($453 million),increasing 27% year over year.

Selling,general and administrative expenses were RMB 5.9 billion ($864 million),increasing 64% year over year,primarily due to increased investment in channel and promotional marketing,as well as in personnel related expenses.

Research and development expenses were RMB 4.5 billion ($659 million),primarily due to the increase in personnel related expenses.

Operating income was RMB 1.1 billion ($162 million),decreasing 77% year over year. Operating income of Baidu Core was RMB 4.4 billion ($645 million),decreasing 26% year over year. Non-GAAP operating income was RMB 2.7 billion ($386 million),decreasing 54% year over year. Non-GAAP operating income of Baidu Core was RMB 5.8 billion ($837 million),decreasing 17% year over year.

Total other loss was RMB 60 million ($9 million),compared to total other income of RMB 314 million in Q4 2017,mainly due to the loss from equity method investments.

Income tax expense was RMB 484 million ($70 million),compared to RMB 929 million in Q4 2017. Effective tax rate was 46%,compared to 18% last year,primarily due to iQIYI not being able to recognize tax benefit from its losses in the current period.

Net loss attributable to noncontrolling interests was RMB 1.5 billion ($220 million),which mainly consisted of losses from iQIYI allocated to noncontrolling interests subsequent to its IPO.

Net income attributable to Baidu was RMB 2.1 billion ($303 million),decreasing 50% year over year. Diluted earnings per ADS amounted to RMB 6 ($0.86). Net income attributable to Baidu Core was RMB 4.1 billion ($589 million),decreasing 22% year over year. Non-GAAP net income attributable to Baidu was RMB 4.6 billion ($672 million),decreasing 17% year over year. Non-GAAP diluted earnings per ADS amounted to RMB 13 ($1.92). Non-GAAP net income attributable to Baidu Core was RMB 6.5 billion ($939 million),decreasing 1% year over year.

Adjusted EBITDA was RMB 4.0 billion ($577 million) and adjusted EBITDA margin was 15%. Adjusted EBITDA to Baidu Core was RMB 6.9 billion ($1.00 billion) and adjusted EBITDA margin to Baidu Core was 34%.

As of December 31,2018,cash,cash equivalents,restricted cash and short-term investments were RMB 141.5 billion ($20.57 billion). Excluding iQIYI,cash,restricted cash and short-term investments were RMB 128.7 billion ($18.71 billion),as of December 31,2018. Free cash flow was RMB 5.9 billion ($852 million). Excluding iQIYI,free cash flow was RMB 5.5 billion ($801 million).

Fiscal Year 2018 Results

Total revenues reached RMB 102.3 billion ($14.88 billion),increasing 28% year over year,or 31% year over year excluding the impact of announced divestures. Online marketing revenues were RMB 81.9 billion ($11.91 billion),increasing 19% year over year. Baidu had approximately 856,000 active online marketing customers,increasing 10% year over year. Revenue per online marketing customer was approximately RMB 95,800 ($13,900),an 8% increase from 2017. Other revenues reached RMB 20.4 billion ($2.96 billion),increasing 86% year over year,cloud and other businesses.

Revenue from Baidu Core reached RMB 78.3 billion ($11.38 billion),or 26% year over year excluding the impact of announced divestures,while revenue from iQIYI reached RMB 25.0 billion ($3.63 billion),increasing 52% from 2017.

Content costs were RMB 23.5 billion ($3.42 billion),increasing 75% year over year,mainly due to increased investment in iQIYI content and,Baidu feeds' content network.

Traffic acquisition costs were RMB 11.4 billion ($1.66 billion),increasing 18% year over year.

Bandwidth costs were RMB 6.5 billion ($944 million),increasing 17% year over year.

Other cost of revenues,was RMB 10.3 billion ($1.51 billion),increasing 7% year over year.

Selling,general and administrative expenses were RMB 19.2 billion ($2.80 billion),increasing 46% year over year,primarily due to increased investment in channel and promotional spending.

Research and development expenses totaled RMB 15.8 billion ($2.29 billion),primarily due to the increase in personnel related expenses.

Operating income was RMB 15.5 billion ($2.26 billion),decreasing 1% from 2017. Operating income of Baidu Core was RMB 23.8 billion ($3.46 billion),increasing 21% year over year. Non-GAAP operating income was RMB 20.2 billion ($2.94 billion),increasing 7% year over year. Non-GAAP operating income of Baidu Core was RMB 27.9 billion ($4.06 billion),increasing 23% year over year.

Total other income was RMB 11.8 billion ($1.72 billion),increasing 111% from 2017,mainly due to gains from the disposal of Du Xiaoman,(financial services),and fair value gains on private company investments in accordance with ASC 321,adopted on January 1,2018.

Income tax expense was RMB 4.7 billion ($690 million),compared to RMB 3.0 billion in 2017. Effective tax rate was 17%,compared to 14% in 2017,primarily due to iQIYI not being able to recognize tax benefit from its losses in the current period.

Net income attributable to Baidu was RMB 27.6 billion ($4.01 billion),increasing 51% year over year. Diluted earnings attributable to Baidu per ADS amounted to RMB 78 ($11.35). Net income attributable to Baidu Core was RMB 33.6 billion ($4.89 billion),increasing 52% year over year. Non-GAAP net income attributable to Baidu was RMB 23.3 billion ($3.39 billion),a 35% increase from 2017. Non-GAAP diluted earnings per ADS was RMB 66 ($9.64). Non-GAAP net income attributable to Baidu Core was RMB 28.5 billion ($4.14 billion),increasing 37% year over year.

Adjusted EBITDA reached RMB 24.3 billion ($3.54 billion) and adjusted EBITDA margin was 24%. Adjusted EBITDA to Baidu Core reached RMB 31.5 billion ($4.58 billion) and adjusted EBITDA margin to Baidu Core was 40%.

Free cash flow was RMB 27.2 billion ($3.96 billion). Excluding iQIYI,free cash flow was RMB 24.9 billion ($3.62 billion).

Financial Guidance

For the first quarter of 2019,Baidu expects revenues to be between RMB 23.5 billion ($3.42 billion) and RMB 24.7 billion ($3.60 billion),representing a 12% to 18% increase year over year,or 18% to 24% excluding revenues from announced divestures.

Previously announced divestures together generated approximately RMB 1.1 billion in Q1 2018,and no revenue from announced divestures is expected in the Q1 2019,as these transactions have been consummated. This forecast reflects Baidu's current and preliminary view,which is subject to substantial uncertainty.

Conference Call Information

Baidu's management will hold an earnings conference call at 8:15 PM on February 21,2019,U.S. Eastern Time (9:15 AM on February 22,Beijing/Hong Kong Time). Dial-in details for the earnings conference call are as follows:

International:

+65 67135090

China

4006208038

US:

+1 8456750437

UK:

+44 2036214779

Hong Kong:

+852 30186771

Passcode for all regions:

5693149

A replay of the conference call may be accessed by phone at the following number until March 1,2019:

International:

+61 2 8199 0299

Passcode:

5693149

Additionally,a live and archived webcast of this conference call will be available at http://ir.baidu.com.

About Baidu

Baidu,Inc. is the leading Chinese language Internet search provider. Baidu aims to make a complex world simpler through technology. Baidu's ADSs trade on the NASDAQ Global Select Market under the symbol "BIDU." Currently,ten ADSs represent one Class A ordinary share.

Contacts

Investors Relations,Baidu,Inc.

Tel: +86-10-5992-4958

Email: ir@baidu.com

Safe Harbor Statement

This announcement contains forward-looking statements. These statements are made under the "safe harbor" provisions of the U.S. Private Securities Litigation Reform Act of 1995. These forward-looking statements can be identified by terminology such as "will," "expects," "anticipates," "future," "intends," "plans," "believes," "estimates," "confident" and similar statements. Among other things,the outlook for the first quarter of 2019,quotations from management in this announcement,as well as Baidu's and other parties' strategic and operational plans,contain forward-looking statements. Baidu may also make written or oral forward-looking statements in its periodic reports to the U.S. Securities and Exchange Commission,in its annual report to shareholders,in press releases and other written materials and in oral statements made by its officers,directors or employees to third parties. Statements that are not historical facts,including but not limited to statements about Baidu's beliefs and expectations,are forward-looking statements. Forward-looking statements involve inherent risks and uncertainties. A number of factors could cause actual results to differ materially from those contained in any forward-looking statement,including but not limited to the following: Baidu's growth strategies; its future business development,including development of new products and services; its ability to attract and retain users and customers; competition in the Chinese Internet search market; competition for online marketing customers; changes in the Company's revenues and certain cost or expense items as a percentage of its revenues; the outcome of ongoing,or any future,litigation or arbitration,including those relating to intellectual property rights; the expected growth of the Chinese language Internet search market and the number of Internet and broadband users in China; Chinese governmental policies relating to the Internet and Internet search providers and general economic conditions in China and elsewhere. Further information regarding these and other risks is included in the Company's annual report on Form 20-F and other documents filed with the Securities and Exchange Commission. Baidu does not undertake any obligation to update any forward-looking statement,except as required under applicable law. All information provided in this press release and in the attachments is as of the date of the press release,and Baidu undertakes no duty to update such information,except as required under applicable law.

Non-GAAP Financial Measures

To supplement Baidu's consolidated financial results presented in accordance with GAAP,Baidu uses the following non-GAAP financial measures: non-GAAP operating income/loss,non-GAAP operating margin,non-GAAP net income attributable to Baidu,non-GAAP diluted earnings per ADS,adjusted EBITDA,adjusted EBITDA margin and free cash flow. The presentation of these non-GAAP financial measures is not intended to be considered in isolation or as a substitute for the financial information prepared and presented in accordance with GAAP.

Baidu believes that these non-GAAP financial measures provide meaningful supplemental information regarding its performance and liquidity by excluding certain items that may not be indicative of its recurring core business operating results,such as operating performance excluding not only non-cash charges,but also other items that are infrequent or unusual in nature. The Company believes that both management and investors benefit from referring to these non-GAAP financial measures in assessing its performance and when planning and forecasting future periods. These non-GAAP financial measures also facilitate management's internal comparisons to Baidu's historical performance and liquidity. The Company believes these non-GAAP financial measures are useful to investors in allowing for greater transparency with respect to supplemental information used by management in its financial and operational decision making. A limitation of using these non-GAAP financial measures is that these non-GAAP measures exclude certain items that have been and will continue to be for the foreseeable future a significant component in the Company's results of operations. These non-GAAP financial measures presented here may not be comparable to similarly titled measures presented by other companies. Other companies may calculate similarly titled measures differently,limiting their usefulness as comparative measures to the Company's data.

Non-GAAP operating income represents operating income excluding share-based compensation expenses.

Non-GAAP net income attributable to Baidu represents net income attributable to Baidu excluding share-based compensation expenses,the gain or loss associated with the issuance of shares by Baidu's equity method investees at a price higher or lower than the carrying value per share,accretion relating to equity method investments,disposal gain or loss,impairment of long-term investments,fair value change of long-term investments,as adjusted for related income tax effects. Non-GAAP diluted earnings per ADS represents diluted earnings per ADS calculated based on non-GAAP net income attributable to Baidu. Adjusted EBITDA represents operating income excluding depreciation,amortization (excluding the amortization of licensed copyrights and produced content of iQIYI) and share-based compensation expenses. Free cash flow represents net cash provided by operating activities less capital expenditures.

For more information on non-GAAP financial measures,please see the tables captioned "Reconciliations of non-GAAP financial measures to the nearest comparable GAAP measures."

[1] This announcement contains translations of certain RMB amounts into U.S. dollars at specified rates solely for the convenience of the reader. Unless otherwise noted,all translations from RMB to U.S. dollars are made at a rate of RMB6.8755 to US$1.00,the effective noon buying rate as of December 31,in The City of New York for cable transfers of RMB as certified for customs purposes by the Federal Reserve Bank of New York.

[2] Starting from January 1,Baidu adopted the new revenue accounting standard ASC 606,which reclassifies value added tax from the cost of revenues to net against revenues. To increase comparability of operating results and help investors better understand our business performance and operating trends,2017 net revenues have been used to calculate all percentage changes in revenues,percentage changes in revenues per online marketing customer,operating margin,and adjusted EBITDA margin. 2017 net revenues are defined as gross revenues under legacy GAAP after the deduction of value added taxes,which is presented on the same basis as 2018 and going forward.

[3] From 2017 through Q3 2018,certain non-core businesses were divested,including Baidu Mobile Games,Baidu Deliveries,Global DU businesses and Du Xiaoman (financial services),which together generated approximately RMB 4.1 billion and RMB 3.1 billion in revenues in 2017 and 2018,respectively.

[4] Non-GAAP net income attributable to Baidu represents net income attributable to Baidu excluding share-based compensation expenses,the gain or loss associated with the issuance of the shares by our equity method investees at a price higher or lower than our carrying value per share,impairment of long-term investments and fair value change of long-term investments,as adjusted for the tax effects on non-GAAP adjustments.

[5] Non-GAAP diluted earnings per ADS represents diluted earnings per ADS calculated based on non-GAAP net income attributable to Baidu.

[6] The number of active online marketing customers and revenue per online active customer exclude group-buying and delivery related businesses,which is consistent with prior reporting.

Baidu,Inc.

Condensed Consolidated Statements of Income

Three Months Ended

Twelve Months Ended

December 31,

September 30,

December 31,

(In millions except for share,per share (or ADS) information)

2017

2018

2018

2018

2017

2018

2018

RMB

RMB

RMB

US$

RMB

RMB

US$

Unaudited

Unaudited

Unaudited

Unaudited

Audited

Unaudited

Unaudited

Revenues:

Online marketing services

20,418

22,481

21,197

3,083

73,146

81,912

11,914

Others

3,138

5,722

5,998

872

11,663

20,365

2,962

Total revenues (2017 revenues include VAT,see note 1 for details)

23,556

28,203

27,195

3,955

84,809

102,277

14,876

Operating costs and expenses:

Content costs

3,754

6,736

7,344

1,068

13,398

23,487

3,416

Traffic acquisition costs

2,518

3,090

3,375

491

9,657

11,419

1,661

Bandwidth costs

1,400

1,695

1,775

258

5,558

6,492

944

Others

3,774

2,697

3,117

453

14,449

10,346

1,505

Cost of revenues (note 2)

11,446

14,218

15,611

2,270

43,062

51,744

7,526

Selling,general and administrative (note 2)

3,632

5,641

5,943

864

13,128

19,231

2,797

Research and development (note 2)

3,704

3,916

4,529

659

12,928

15,772

2,294

Total operating costs and expenses

18,782

23,775

26,083

3,793

69,118

86,747

12,617

Operating income

4,774

4,428

1,112

162

15,691

15,530

2,259

Other income:

Interest income

917

1,258

1,490

217

3,154

4,451

647

Interest expense

(400)

(479)

(574)

(84)

(1,615)

(1,883)

(274)

Foreign exchange income(loss),net

(113)

(54)

(50)

(7)

(482)

(122)

(18)

Income (loss) from equity method investments

204

419

(390)

(57)

(63)

(79)

(11)

Other (loss) income,net

(294)

7,877

(536)

(78)

4,598

9,428

1,371

Total other income (loss)

314

9,021

(60)

(9)

5,592

11,795

1,715

Income before income taxes

5,088

13,449

1,052

153

21,283

27,325

3,974

Income taxes

929

2,053

484

70

2,995

4,743

690

Net income

4,159

11,396

568

83

18,288

22,582

3,284

Less: net income (loss) attributable to noncontrolling interests

-

(1,000)

(1,513)

(220)

(13)

(4,991)

(726)

Net income attributable to Baidu

4,159

12,396

2,081

303

18,301

27,573

4,010

Earnings per ADS (1 Class A ordinary share equals 10 ADSs ):

-Basic

12.50

35.53

5.96

0.87

52.75

78.64

11.44

-Diluted

12.38

35.26

5.93

0.86

52.41

78.03

11.35

Earnings per share for Class A and Class B ordinary shares:

-Basic

125.02

355.27

59.55

8.66

527.51

786.36

114.37

-Diluted

123.81

352.57

59.32

8.63

524.08

780.27

113.49

Weighted average number of Class A and Class B ordinary shares outstanding:

Basic

34,783,969

34,891,733

34,909,960

34,725,123

34,898,589

34,589

Diluted

35,123,903

35,158,747

35,044,338

35,338

34,952,391

35,171,043

35,043

(1) Starting on January 1,valued added tax has been reclassified from cost of revenues to net against revenues. To increase comparability of operating results and help investors better understand our business performance and trends,2017 net revenues have been presented as follows. 2017 net revenues are defined as gross revenues under legacy GAAP after the deduction of value added taxes,which is presented on the same basis as 2018.

Three Months Ended

Twelve Months Ended

December 31,

2017

2018

2018

2018

2017

2018

2018

RMB

RMB

RMB

US$

RMB

RMB

US$

Unaudited

Unaudited

Unaudited

Unaudited

Audited

Unaudited

Unaudited

Gross revenues

23,556

29,876

28,799

4,189

84,809

108,357

15,760

Less: value added taxes

1,327

1,673

1,604

234

4,768

6,080

884

Net revenues

22,229

28,203

27,195

3,955

80,041

102,277

14,876

(2) Includes share-based compensation expenses as follows:

Cost of revenues

46

58

71

10

183

224

33

Selling,general and administrative

298

545

587

85

973

1,725

251

Research and development

633

636

884

129

2,088

2,727

397

Total share-based compensation expenses

977

1,239

1,542

224

3,244

4,676

681

(3) All translations from RMB to U.S. dollars are made at a rate of RMB6.8755 to US$1.00,in The City of New York for cable transfers of RMB as certified for customs purposes by the Federal Reserve Bank of New York.

Baidu,Inc.

Condensed Consolidated Balance Sheets

December 31,

(In millions except for share information)

2017

2018

2018

RMB

RMB

US$

Audited

Unaudited

Unaudited

ASSETS

Current assets:

Cash and cash equivalents

11,084

27,638

4,020

Restricted cash

252

2,189

318

Short-term investments

89,381

111,626

16,235

Other invested securities

18,350

-

-

Accounts receivable,net

4,571

6,015

875

Loans and interest receivable,net

23,938

-

-

Amounts due from related parties

168

785

114

Other assets,current

3,425

6,841

995

Total current assets

151,169

155,094

22,557

Non-current assets:

Fixed assets,net

12,475

17,903

2,604

Intangible assets,net

5,467

9,181

1,335

Goodwill

15,806

18,536

2,696

Long-term investments,net

56,283

80,454

11,702

Loans and interest receivable,net

3,467

-

-

Amounts due from related parties

9

4,297

625

Deferred tax assets,net

1,532

2,324

338

Other assets,non-current

5,520

9,777

1,422

Total non-current assets

100,559

142,472

20,722

Total assets

251,728

297,566

43,279

LIABILITIES AND EQUITY

Current liabilities:

Short-term loans

1,244

3,046

443

Amounts due to the third-party investors

38,486

-

-

Accounts payable and accrued liabilities

27,523

35,381

5,147

Customer advances and deposits

6,785

7,338

1,067

Deferred revenue

788

1,883

274

Deferred income

568

523

76

Long-term loans,current portion

10

84

12

Notes payable,current portion

6,500

6,871

999

Amounts due to related parties

153

1,727

251

Total current liabilities

82,057

56,853

8,269

Non-current liabilities:

Deferred income

73

54

8

Deferred revenue

-

1,309

190

Amounts due to related parties

-

4,360

634

Long-term loans

6,701

7,456

1,084

Notes payable

29,111

42,735

6,216

Convertible Notes,non-current

-

4,712

685

Deferred tax liabilities

3,375

4,099

596

Other non-current liabilities

39

236

34

Total non-current liabilities

39,299

64,961

9,447

Total liabilities

121,356

121,814

17,716

Redeemable noncontrolling interests

11,022

716

104

Equity

Class A Ordinary Shares,par value US$0.00005 per share,825,000,000 shares authorized,and 27,614,978 shares and 27,733,692 shares issued and outstanding as at December 31,2017 and December 31,2018

-

-

-

Class B Ordinary Shares,35,400,and 7,201,254 shares and 7,254 shares issued and outstanding as at December 31,2018

-

-

-

Additional paid-in capital

12,088

33,441

4,864

Retained earnings

102,328

129,246

18,798

Accumulated other comprehensive income

930

210

31

Total Baidu,Inc. shareholders' equity

115,346

162,897

23,693

Noncontrolling interests

4,004

12,139

1,766

Total equity

119,350

175,036

25,459

Total liabilities,redeemable noncontrolling interests,and equity

251,279

Baidu,Inc.

Selected Information

Three Months Ended

Twelve Months Ended

December 31,

(In millions,unaudited)

2017

2018

2018

2018

2017

2018

2018

RMB

RMB

RMB

US$

RMB

RMB

US$

Baidu Core

19,109

21,606

20,520

2,985

67,681

78,271

11,384

iQIYI

4,817

6,914

7,028

1,022

17,378

24,989

3,634

Intersegment eliminations & adjustments

(370)

(317)

(353)

(52)

(250)

(983)

(142)

Total revenues (Note 1)

23,876

Baidu Core

18,043

21,985

63,903

78,545

6,022

16,396

24,634

Intersegment eliminations & adjustments

(359)

(317)

(353)

(52)

(258)

(983)

(142)

Total net revenues (Note 1)

22,229

28,955

80,041

102,876

Baidu Core

6,012

7,015

4,433

645

19,715

23,808

3,463

iQIYI

(856)

(2,591)

(3,325)

(484)

(3,953)

(8,306)

(1,208)

Intersegment eliminations & adjustments

(382)

4

4

1

(71)

28

4

Operating income

4,259

Baidu Core

33%

32%

22%

22%

31%

30%

30%

iQIYI

(19%)

(37%)

(47%)

(47%)

(24%)

(33%)

(33%)

Operating margin (Note 1)

21%

16%

4%

4%

20%

15%

15%

Baidu Core

6,937

8,050

5,754

837

22,776

27,928

4,062

iQIYI

(804)

(2,387)

(3,104)

(452)

(3,719)

(7,750)

(1,126)

Intersegment eliminations & adjustments

(382)

4

4

1

(122)

28

4

Non-GAAP operating income

5,751

5,667

2,654

386

18,935

20,206

2,940

Baidu Core

38%

37%

28%

28%

36%

36%

36%

iQIYI

(18%)

(35%)

(44%)

(44%)

(23%)

(31%)

(31%)

Non-GAAP operating margin (Note 1)

26%

20%

10%

10%

24%

20%

20%

Baidu Core

5,190

14,309

4,050

589

22,108

33,605

4,888

iQIYI

(612)

(3,140)

(3,477)

(506)

(3,737)

(9,110)

(1,325)

Intersegment eliminations & adjustments(Note 2)

(419)

1,227

1,508

220

(70)

3,078

447

Net income attributable to Baidu

4,010

Baidu Core

29%

66%

20%

20%

35%

43%

43%

iQIYI

(13%)

(45%)

(49%)

(49%)

(23%)

(36%)

(36%)

Net margin (Note 1)

19%

44%

8%

8%

23%

27%

27%

Baidu Core

6,513

8,357

6,458

939

20,836

28,471

4,141

iQIYI

(560)

(2,939)

(3,243)

(472)

(3,470)

(8,703)

(1,265)

Intersegment eliminations & adjustments (Note 2)

(387)

1,267

1,406

205

(122)

3,556

516

Non-GAAP net income attributable to Baidu

5,566

6,685

4,621

672

17,244

23,324

3,392

Baidu Core

36%

39%

31%

31%

33%

36%

36%

iQIYI

(12%)

(43%)

(46%)

(46%)

(21%)

(35%)

(35%)

Non-GAAP net margin (Note 1)

25%

24%

17%

17%

22%

23%

23%

Baidu Core

7,870

8,982

6,887

1,002

26,695

31,503

4,582

iQIYI

(634)

(2,150)

(2,877)

(418)

(3,239)

(7,091)

(1,031)

Intersegment eliminations & adjustments

(382)

(43)

(40)

(7)

(122)

(97)

(13)

Adjusted EBITDA

6,854

6,789

3,970

577

23,334

24,315

3,538

Baidu Core

44%

42%

34%

34%

42%

40%

40%

iQIYI

(14%)

(31%)

(41%)

(41%)

(20%)

(28%)

(28%)

Adjusted EBITDA margin (Note 1)

31%

24%

15%

15%

29%

24%

24%

(1) Starting on January 1,valued added tax has been reclassified from cost of revenues to net against revenues. To increase comparability of operating results and help investors better understand the Company's business performance and trends,2017 net revenues were used to calculate operating margin,non-GAAP net income margin and adjusted EBITDA margin. Net revenues for 2017 are defined as gross revenues under legacy GAAP after the deduction of value added taxes,consistent with 2018 presentation.

(2) Primarily related to net loss attributable to iQIYI noncontrolling interests

Baidu,Inc.

Reconciliations of Non-GAAP Financial Measures to the Nearest Comparable GAAP Measures

Three months ended

Twelve Months Ended

December 31,

(In millions except for ADS and per ADS information,unaudited)

2017

2018

2018

2018

2017

2018

2018

RMB

RMB

RMB

US$

RMB

RMB

US$

Operating income - Baidu Core

6,012

7,015

4,433

645

19,715

23,808

3,463

Add: Share-based compensation expenses

925

1,035

1,321

192

3,061

4,120

599

Non-GAAP operating income - Baidu Core

6,937

8,050

5,754

837

22,776

27,928

4,062

Add: Depreciation of fixed assets

901

885

1,082

157

3,457

3,418

497

Add: Amortization of intangible assets

32

47

51

8

462

157

23

Adjusted EBITDA - Baidu Core

7,870

8,982

6,887

1,002

26,695

31,503

4,582

Operating loss - iQIYI

(856)

(2,591)

(3,325)

(484)

(3,953)

(8,306)

(1,208)

Add: Share-based compensation expenses

52

204

221

32

234

556

82

Non-GAAP operating loss - iQIYI

(804)

(2,387)

(3,104)

(452)

(3,719)

(7,750)

(1,126)

Add: Depreciation of fixed assets

92

81

93

14

348

312

46

Add: Amortization of intangible assets

78

156

134

20

132

347

49

Adjusted EBITDA - iQIYI

(634)

(2,150)

(2,877)

(418)

(3,239)

(7,091)

(1,031)

Operating income - Baidu

4,259

Add: Share-based compensation expenses

977

1,676

681

Non-GAAP operating income - Baidu

5,940

Add: Depreciation of fixed assets

993

966

1,175

171

3,805

3,730

543

Add: Amortization of intangible assets

110

156

141

20

594

379

55

Adjusted EBITDA-Baidu

6,538

Net income attributable to Baidu core

5,190

14,309

4,050

589

22,108

33,605

4,888

Add: Share-based compensation expenses

925

1,319

192

3,118

599

Add: Loss associated with the dilution of or accretion relating to equity method investments,net of tax

87

45

179

26

652

451

66

Add: Disposal loss(gain),net of tax

5

(6,697)

282

41

(5,456)

(6,388)

(930)

Add: Impairment of long-term investments,net of tax

306

298

185

27

471

566

82

Add: Fair value change of long-term investments,net of tax

-

(633)

443

64

-

(3,881)

(564)

Non-GAAP net income attributable to Baidu core

6,513

8,357

6,458

939

20,836

28,471

4,141

Net loss attributable to iQIYI

(612)

(3,140)

(3,477)

(506)

(3,737)

(9,110)

(1,325)

Add: Share-based compensation expenses

52

204

221

32

234

556

82

Add: Loss associated with the dilution of or accretion relating to equity method investments,net of tax

-

-

-

-

-

-

-

Add: Disposal loss(gain),net of tax

-

-

-

-

-

-

-

Add: Impairment of long-term investments,net of tax

-

-

-

-

33

-

-

Add: Fair value change of long-term investments,net of tax

-

(3)

13

2

-

(149)

(22)

Non-GAAP net loss attributable to iQIYI

(560)

(2,939)

(3,243)

(472)

(3,470)

(8,703)

(1,265)

Net income attributable to Baidu

4,010

Add: Share-based compensation expenses

977

1,151

1,444

210

3,454

648

Add: Loss associated with the dilution of or accretion relating to equity method investments,569)

282

41

(5,456)

(5,684)

(827)

Add: Impairment of long-term investments,net of tax

338

298

185

27

503

566

82

Add: Fair value change of long-term investments,net of tax

-

(636)

450

65

-

(4,036)

(587)

Non-GAAP net income attributable to Baidu

5,392

Diluted earnings per ADS

12.38

35.26

5.93

0.86

52.41

78.03

11.35

Add: Accretion of the redeemable noncontrolling interests

(0.54)

-

0.01

-

(0.05)

0.37

0.05

Add: Non-GAAP adjustments to earnings per ADS

4.00

(16.25)

7.24

1.06

(3.02)

(12.09)

(1.76)

Non-GAAP diluted earnings per ADS

15.84

19.01

13.18

1.92

49.34

66.31

9.64

Weighted average number of ADS used in computing non-

GAAP diluted earnings per ADS

351,239,027

351,587,467

350,443,377

350,377

349,523,907

351,710,430

351,430

Net cash provided by operating activities - Baidu Core

8,722

10,361

8,409

1,223

28,817

33,083

4,812

Less: Capital expenditures

(1,011)

(2,026)

(2,900)

(422)

(3,757)

(8,160)

(1,187)

Free cash flow - Baidu Core

7,711

8,335

5,509

801

25,060

24,923

3,625

Net cash provided by operating activities - iQIYI

1,053

994

528

77

4,011

2,884

419

Less: Capital expenditures

(177)

(193)

(178)

(26)

(1,022)

(612)

(89)

Free cash flow - iQIYI

876

801

350

51

2,989

2,272

330

Net cash provided by operating activities - Baidu

9,775

11,355

8,937

1,300

32,828

35,967

5,231

Less: Capital expenditures

(1,188)

(2,219)

(3,078)

(448)

(4,779)

(8,772)

(1,276)

Free cash flow - Baidu

8,587

9,136

5,859

852

28,049

27,955

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