Baidu Announces Third Quarter 2019 Results

BEIJING,Nov. 7,2019 -- Baidu,Inc. (NASDAQ: BIDU) ("Baidu" or the "Company"),the leading Chinese-language Internet search provider,today announced its unaudited financial results for the third quarter ended September 30,2019[1].

"Baidu App traffic continues to grow robustly with DAUs reaching 189 million,up 25% year over year,in September and Baidu's in-app search continues to gain market share. Our focus to combine search and feed and expand Baidu App's content and services offerings is improving user experience and drawing publishers and service providers to place more content and services on Baidu's hosted platform,which in turn draws more users. This positive reinforcing cycle has been a contributing factor to Baidu Core's operating margin rising 1,400 basis points from the prior quarter," said Robin Li,Chairman and CEO of Baidu. "On Baidu's new AI businesses,DuerOS voice assistant continues to experience strong momentum with monthly voice queries surpassing 4.2 billion in September,up over 4.5 fold year over year. On Apollo,we are excited about our progress in early-stage commercialization of smart transportation with the release of Apollo-powered robotaxi pilot program to the public in Changsha,Hunan in September."

"Baidu delivered a solid third quarter with total revenues reaching RMB 28.1 billion,up 7% sequentially on top of the 9% sequential growth from the prior quarter,in spite of the softening macro environment,industry-specific policy changes and self-directed healthcare initiative," said Herman Yu,CFO of Baidu. "Our disciplined approach to spending,focusing on investment returns across the board,sheds light on the strong and improving margin contribution from in-app search and feed."

Financial Highlights

Baidu Inc.

For the three-month ended

(in millions,except for per ADS information,unaudited)

September 30,

2018

June 30,

2019

September 30,

2019

YOY

YOY[2]

QOQ

September 30,

2019

RMB

RMB

RMB

US$

Total revenues

28,203

26,326

28,080

(0%)

3%

7%

3,929

Operating income

4,428

233

2,355

(47%)

911%

329

Operating margin

16%

1%

8%

Non-GAAP operating income

5,744

1,955

3,691

(36%)

89%

516

Non-GAAP operating margin

20%

7%

13%

Net income (loss) attributable to Baidu

12,396

2,412

(6,373)

-

-

(892)

Net margin

44%

9%

(23%)

Non-GAAP net income attributable to Baidu

6,751

3,635

4,387

(35%)

21%

614

Non-GAAP net margin

24%

14%

16%

Diluted earnings (loss) per ADS

35.26

6.57

(18.37)

-

-

(2.57)

Non-GAAP diluted earnings per ADS

19.20

10.11

12.61

(34%)

25%

1.76

Net loss attributable to Baidu for Q3 2019 was RMB 6.4 billion,which included a non-cash impairment loss of RMB 8.9 billion on equity investments that have experienced an other-than-temporary decline in valuation (see further discussion under Total other loss section). Non-GAAP net income attributable to Baidu,excluding share-based compensation,fair value changes of equity investments and other adjustments,for Q3 2019 was RMB 4.4 billion.

Baidu Core

For the three-month ended

(in millions,

2019

YOY

YOY2

QOQ

September 30,

2019

RMB

RMB

RMB

US$

Total revenues

21,606

19,540

21,010

(3%)

2%

8%

2,939

Operating income

7,015

2,109

5,191

(26%)

146%

726

Operating margin

32%

11%

25%

Non-GAAP operating income

8,078

3,485

6,224

(23%)

79%

871

Non-GAAP operating margin

37%

18%

30%

Net income (loss) attributable to Baidu

14,309

3,731

(4,287)

-

-

(600)

Net margin

66%

19%

(20%)

Non-GAAP net income attributable to Baidu

8,400

4,740

6,310

(25%)

33%

883

Non-GAAP net margin

39%

24%

30%

Other Highlights

Corporate

Baidu reported its ESG progress for Q3 2019,noting: 1) Baidu AI has helped reunite approximately 7,900 missing persons with their families; 2) over 300 charitable organizations in China have joined Baidu's Charity Platform,and 3) Baidu will push charitable information and services to individuals in need by leveraging its machine learning capabilities and user insights.

Baidu has returned $397 million to its shareholders under the 2019 Share Repurchase Program and $778 million under the 2018 Share Repurchase Program,which expired in June 2019,for a total return to shareholders of approximately $1.2 billion as of October 31,2019.

Mobile Ecosystem

Baidu App's average daily active users ("DAUs") reached 189 million,in September 2019.

Baijiahao ("BJH accounts"),Baidu's newsfeed network,grew to 2.4 million publisher accounts,up 57% year over year in September 2019. BJH accounts allow publishers to share content to Baidu's newsfeed and search.

Baidu Smart Mini Program's monthly active users ("MAUs") reached 290 million,up 157% year over year.

DuerOS

Monthly voice queries on DuerOS,a leading voice assistant for the Chinese language,surpassed 4.2 billion,up over 4.5 fold year over year,in September 2019.

Xiaodu smart speakers powered by DuerOS ranked first in China's smart speaker shipments in Q2 2019,according to leading technology market analytics firms,Canalys,IDC and Strategy Analytics. Xiaodu Smart Display ranked first globally in smart display shipments for the same period,according to IDC.

DuerOS skills store now offers over 3,200 skills in wide ranging genres,including ABC Reading (education),Kuaishou (live streaming),Mango TV (online video),Douyu (game broadcasting) and Tile Matching Puzzle (casual game). DuerOS developer community has expanded to over 36,000 members.

Upgraded DuerOS on Xiaodu smart speakers enables hand gesture control and full-duplex continued conversation (multi-round conversation without wake words) through eye gesture detection.

Apollo

In September 2019,China's first robotaxi pilot program was made available to the public in Changsha,Hunan,with an initial fleet of 45 autonomous driving vehicles powered by Apollo. The city of Changsha installed Baidu's V2X solutions to help Apollo-powered vehicles map out traffic conditions in their parameters,overcoming blind spots and increasing traffic efficiency and safety.

Baidu recently received 15 autonomous driving licenses in Wuhan,Hubei,and 30 licenses in Cangzhou,Hebei,increasing Baidu's total autonomous driving licenses to 150,which accounts for more than half of the total autonomous driving licenses granted in China.

Cloud,AI Platform & Others

Baidu Cloud's ABC Summit was held in August 2019,introducing new AI enterprise solutions to optimize visual,speech processing and other AI capabilities and enable more efficient cloud services and easier maintenance. At the ABC Summit,Baidu Cloud AI enterprise solutions were showcased to speed up assembly line inspection of high tech components,automate the processing and tagging of videos into video clips,and improve customer service with "digital" employee in the mobile app of a local commercial bank.

Baidu's AI Open Platform is seeing strong adoption with over 1.5 million developer base in September,more than doubling from last year. Through Baidu's AI Open Platform on Baidu Cloud,developers can utilize Baidu's comprehensive AI capabilities,including speech recognition,natural language processing and computer vision,as well as gain access to Baidu's open-sourced deep learning platform PaddlePaddle.

In September 2019,Baidu Maps enhanced its voice feature,allowing users to customize Baidu Maps' voice with their own voice by recording 20 sentences. Over 280 million Baidu users have used Baidu Maps' voice feature as of September 2019,doubling from the previous year.

iQIYI

iQIYI subscribers reached 105.8 million,up 31% year over year,in September 2019,further strengthening iQIYI's foundation to produce entertainment-based blockbuster originals.

Third Quarter 2019 Results

Total revenues reached RMB 28.1 billion ($3.93 billion),flat from last year and up 3% year over year,excluding the impact of announced divestures2,and increasing 7% quarter over quarter. Online marketing revenues were RMB20.4 billion ($2.86 billion),decreasing 9% year over year and increasing 6% quarter over quarter. Other revenues were RMB 7.6 billion ($1.07 billion),increasing 34% year over year,driven mainly by the strong growth in iQIYI membership,cloud services and smart devices.

Revenue from Baidu Core reached RMB 21.0 billion ($2.94 billion),decreasing 3% year over year,or increasing 2% year over year,excluding the impact of announced divestures2,and increasing 8% quarter over quarter. Revenue from iQIYI reached RMB 7.4 billion ($1.04 billion),up 7% year over year. iQIYI membership revenue grew 30% year over year,offset by online advertising revenue declining 14% year over year.

Content costs were RMB 7.0 billion ($985 million),increasing 4% year over year. iQIYI's content costs increased 3% year over year,which rose slower than iQIYI's revenue growth.

Traffic acquisition costs were RMB 3.2 billion ($453 million),increasing 5% year over year,as a result of increasing TAC prices and expansion into connected offline screens and other areas.

Bandwidth costs were RMB 2.0 billion ($284 million),increasing 20% year over year,mainly due to increasing demand from newsfeed,video and cloud services.

Other cost of revenues,which includes depreciation,cost of goods sold,sales taxes and surcharges,share-based compensation and other costs,was RMB 4.1 billion ($570 million),increasing 51% year over year,mainly due to higher cost of goods sold and depreciation expense.

Selling,general and administrative expenses were RMB 4.7 billion ($652 million),decreasing 17% year over year,primarily due to decreased investment in channel and promotional marketing.

Research and development expenses were RMB 4.7 billion ($656 million),primarily due to an increase in personnel related expenses.

Operating income was RMB 2.4 billion ($329 million) and operating margin was 8%. Baidu Core operating income was RMB 5.2 billion ($726 million),and Baidu Core operating margin was 25%.

Non-GAAP operating income was RMB 3.7 billion ($516 million),and non-GAAP operating margin was 13%. Non-GAAP Baidu Core operating income was RMB 6.2 billion ($871 million),and non-GAAP Baidu Core operating margin was 30%.

Total other loss was RMB 9.5 billion ($1.33 billion),mainly due to loss from equity investments that have experienced an other-than-temporary decline in valuation,compared to total other income of RMB 9.0 billion for Q3 2018,which was mainly due to disposal gains from Du Xiaoman and Global DU businesses. In Q4 2015,following a transaction where the Company exchanged shares of its majority-owned subsidiary Qunar for a minority investment in Trip.com,the Company deconsolidated Qunar,recorded its investment in Trip.com at the closing-date market value and recognized a non-cash accounting gain of RMB 24.4 billion. Since then,the market value of Trip.com shares has declined,and the continued low market price has caused the Company to recognize a non-cash impairment loss of RMB 8.9 billion in Q3 2019. In October 2019,the Company sold down the holding in Trip.com,which decreased from approximately 19% of their outstanding shares to 12% of the Trip.com's outstanding shares.

Income tax expense was RMB 934 million ($131 million),which included a tax withholding for potential dividend distribution to offshore entities,compared to RMB 2.1 billion in Q3 2018.

Net loss attributable to Baidu was RMB 6.4 billion ($ 892 million),and diluted losses per ADS was RMB 18 ($2.57). Net loss attributable to Baidu Core was RMB 4.3 billion ($600 million). Non-GAAP net income attributable to Baidu was RMB 4.4 billion ($614 million),and non-GAAP net margin was 16%. Non-GAAP diluted earnings per ADS amounted to RMB 13 ($1.76). Non-GAAP net income attributable to Baidu Core was RMB 6.3 billion ($883 million),and non-GAAP net margin for Baidu Core was 30%.

Adjusted EBITDA was RMB 5.1 billion ($716 million) and adjusted EBITDA margin was 18%. Adjusted EBITDA to Baidu Core was RMB 7.5 billion ($1.05 billion) and adjusted EBITDA margin for Baidu Core was 36%.

As of September 30,2019,cash,cash equivalents,restricted cash and short-term investments were RMB 137.4 billion ($19.22 billion),and cash,restricted cash and short-term investments excluding iQIYI were RMB 123.5 billion ($17.27 billion). Free cash flow was RMB 7.6 billion ($1.06 billion). Free cash flow excluding iQIYI was RMB 7.5 billion ($1.05 billion).

Financial Guidance

For the fourth quarter of 2019,Baidu expects revenues to be between RMB 27.1 billion ($3.78 billion) and RMB 28.7 billion ($4.02 billion),representing -1% to 6% increase year over year,which assumes that Baidu Core revenue will grow between 0% to 6% year over year. This forecast reflects Baidu's current and preliminary view,which is subject to substantial uncertainty.

Conference Call Information

Baidu'smanagement will hold an earnings conference call at8:15 PM on November 6,U.S. Eastern Time (9:15 AM on November 7,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:

6438309

A replay of the conference call may be accessed by phone at the following number until November 14,2019:

International:

+61 2 8199 0299

Passcode:

6438309

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 the complicated 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: +86-10-5992-8888

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 fourth 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 and newsfeed 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 and newsfeed 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 (loss) attributable to Baidu,non-GAAP net margin,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 and amortization of intangible assets resulting from business combinations.

Non-GAAP net income attributable to Baidu represents net income attributable to Baidu excluding share-based compensation expenses,amortization of intangible assets resulting from business combinations,disposal gain or loss,impairment of long-term investments,fair value change of long-term investments,adjusted for related income tax effects. Baidu's share of equity method investments for these non-GAAP reconciling items,amortization of intangible assets not on the investees' books,accretion of their redeemable noncontrolling interests,and the gain or loss associated with the issuance of shares by the investees at a price higher or lower than the carrying value per shares,adjusted for related income tax effects,are also excluded.

Non-GAAP diluted earnings per ADS represents diluted earnings per ADS calculated by dividing non-GAAP net income attributable to Baidu,which is adjusted for accretion for the redeemable noncontrolling interests,by the weighted average number of ordinary shares expressed in ADS. Adjusted EBITDA represents operating income excluding depreciation,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] Unless otherwise noted,all translations from RMB to U.S. dollars are made at a rate of RMB 7.1477 to US$1.00,the exchange rate in effect as of September 30,2019 as set forth in the H.10 statistical release of the Board of Governors of the Federal Reserve System. Translations are provided solely for the convenience of the reader.

[2] Excluding revenue from divested businesses,which was approximately RMB1.0 billion for the three months ended September 30,2018.

Baidu,Inc.

Condensed Consolidated Statements of Income (Loss)

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

Three Months Ended

September 30,

June 30,

September 30,

2018

2019

2019

2019

RMB

RMB

RMB

USD(2)

Revenues:

Online marketing services

22,481

19,237

20,434

2,859

Others

5,722

7,089

7,646

1,070

Total revenues

28,203

26,326

28,080

3,929

Operating costs and expenses:

Content costs

6,736

5,817

7,037

985

Traffic acquisition costs

3,090

3,424

3,238

453

Bandwidth costs

1,695

2,048

2,029

284

Others

2,697

4,827

4,074

570

Cost of revenues(1)

14,218

16,116

16,378

2,292

Selling,general and administrative(1)

5,641

5,243

4,657

652

Research and development(1)

3,916

4,734

4,690

656

Total operating costs and expenses

23,775

26,093

25,725

3,600

Operating income

4,428

233

2,355

329

Other income (loss):

Interest income

1,258

1,205

1,687

236

Interest expense

(479)

(805)

(788)

(110)

Foreign exchange income (loss),net

(54)

216

29

4

Income (loss) from equity method investment

419

429

(729)

(102)

Other income (loss),net

7,877

193

(9,683)

(1,355)

Total other income (loss),net

9,021

1,238

(9,484)

(1,327)

Income (loss) before income taxes

13,449

1,471

(7,129)

(998)

Income tax expense

2,053

416

934

131

Net income (loss)

11,396

1,055

(8,063)

(1,129)

Less: net income (loss) attributable to noncontrolling interests

(1,000)

(1,357)

(1,690)

(237)

Net income (loss) attributable to Baidu

12,396

2,412

(6,373)

(892)

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

-Basic

35.53

6.84

(18.37)

(2.57)

-Diluted

35.26

6.57

(18.37)

(2.57)

Earnings (loss) per share for Class A and Class B ordinary shares:

-Basic

355.27

68.38

(183.74)

(25.71)

-Diluted

352.57

65.69

(183.74)

(25.71)

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

Basic

34,891,733

34,996,791

34,793,154

34,154

Diluted

35,158,747

35,044,719

34,154

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

Cost of revenues

58

99

70

10

Selling,general and administrative

545

503

336

47

Research and development

636

1,022

810

114

Total share-based compensation expenses

1,239

1,624

1,216

171

(2) All translations from RMB to U.S. dollars are made at a rate of RMB7.1477 to US$1.00,2019 as set forth in the H.10 statistical release of The Board of Governors of the Federal Reserve System.

Baidu,Inc.

Condensed Consolidated Balance Sheets

(In millions except for share information,unaudited)

December 31,

2018

2019

2019

RMB

RMB

USD

ASSETS

Current assets:

Cash and cash equivalents

27,638

14,564

2,038

Restricted cash

2,189

2,611

365

Short-term investments

111,626

120,233

16,821

Accounts receivable,net

6,015

6,598

923

Amounts due from related parties

785

1,202

168

Other assets,current

6,841

9,603

1,344

Total current assets

155,094

154,811

21,659

Non-current assets:

Fixed assets,net

17,903

19,021

2,661

Intangible assets,net

9,181

8,950

1,252

Goodwill

18,536

19,103

2,673

Long-term investments,net

80,454

78,489

10,981

Amounts due from related parties

4,297

4,180

585

Deferred tax assets,net

2,324

1,793

251

Operating lease right-of-use assets

-

7,161

1,002

Other assets,non-current

9,777

9,351

1,308

Total non-current assets

142,472

148,048

20,713

Total assets

297,566

302,859

42,372

LIABILITIES AND EQUITY

Current liabilities:

Short-term loans

3,046

3,510

491

Accounts payable and accrued liabilities

35,381

35,094

4,910

Customer deposits and deferred revenue

9,221

10,899

1,525

Deferred income

523

505

71

Long-term loans,current portion

84

363

51

Notes payable,current portion

6,871

5,356

749

Amounts due to related parties

1,727

1,804

252

Operating lease liabilities

-

2,224

311

Total current liabilities

56,853

59,755

8,360

Non-current liabilities:

Deferred income

54

38

5

Deferred revenue

1,309

994

139

Amounts due to related parties

4,360

4,466

625

Long-term loans

7,456

7,774

1,088

Notes payable

42,735

39,096

5,470

Convertible senior notes

4,712

12,518

1,751

Deferred tax liabilities

4,099

4,242

593

Operating lease liabilities

-

4,379

613

Other non-current liabilities

236

298

42

Total non-current liabilities

64,961

73,805

10,326

Total liabilities

121,814

133,560

18,686

Redeemable noncontrolling interests

716

978

137

Equity

Class A Ordinary Shares,par value US$0.00005 per share,825,000,000 shares authorized,and 27,733,692 shares and 27,448,619 shares issued and outstanding as at December 31,2018 and September 30,2019

-

-

-

Class B Ordinary Shares,35,400,and 7,201,254 shares and 7,254 shares issued and outstanding as at December 31,2019

-

-

-

Additional paid-in capital

33,441

37,262

5,213

Retained earnings

129,246

121,001

16,929

Accumulated other comprehensive income

210

(164)

(23)

Total Baidu shareholders' equity

162,897

158,099

22,119

Noncontrolling interests

12,139

10,222

1,430

Total equity

175,036

168,321

23,549

Total liabilities,redeemable noncontrolling interests,and equity

297,372

Baidu,Inc.

Selected Information

(In millions except for per ADS information,unaudited)

Three months ended

September 30,2018 (RMB)

Three months ended

June 30,2019 (RMB)

Three months ended

September 30,2019 (USD)

Baidu Core

iQIYI

Elim & adj(3)

Baidu,Inc.

Baidu Core

iQIYI

Elim & adj(3)

Baidu,Inc.

Total revenues

21,606

6,914

(317)

28,203

19,540

7,110

(324)

26,326

21,010

7,397

(327)

28,080

2,939

1,035

(45)

3,929

YOY

(3%)

7%

(0%)

YOY excluding revenue from divested businesses(1)

2%

3%

QOQ

8%

4%

7%

Operating costs and expenses:

Cost of revenues (2)

6,804

7,655

(241)

14,218

9,453

6,981

(318)

16,116

8,502

8,176

(300)

16,378

1,190

1,144

(42)

2,general and administrative (2)

4,428

1,292

(79)

5,641

3,898

1,346

(1)

5,243

3,320

1,350

(13)

4,657

464

189

(1)

652

Research and development (2)

3,359

558

(1)

3,080

655

(1)

4,734

3,997

703

(10)

4,690

559

98

(1)

656

Total operating costs and expenses

14,591

9,505

(321)

23,775

17,431

8,982

(320)

26,093

15,819

10,229

(323)

25,725

2,213

1,431

(44)

3,600

YOY

8%

8%

8%

Cost of revenues

25%

7%

15%

Selling,general and administrative

(25%)

4%

(17%)

Research and development

19%

26%

20%

Operating income (loss)

7,015

(2,591)

4

4,428

2,109

(1,872)

(4)

233

5,191

(2,832)

(4)

2,355

726

(396)

(1)

329

YOY

(26%)

9%

(47%)

QOQ

146%

51%

911%

Operating margin

32%

(37%)

16%

11%

(26%)

1%

25%

(38%)

8%

Add: total other income (loss),687

(539)

(127)

9,021

1,664

(426)

-

1,238

(8,657)

(827)

(9,484)

(1,211)

(116)

-

(1,327)

Less: income tax expense (benefit)

2,059

(6)

-

2,053

410

6

-

416

918

16

934

129

2

-

131

Less: net income (loss) attributable to NCI

334

16

(1,350)

(4)

(1,000)

(368)

23

(1,012)

(4)

(1,357)

(97)

13

(1,606)

(4)

(1,690)

(14)

2

(225)

(4)

(237)

Net income(loss) attributable to Baidu

14,309

(3,140)

1,227

12,396

3,731

(2,327)

1,008

2,412

(4,287)

(3,688)

1,602

(6,373)

(600)

(516)

224

(892)

YOY

-

17%

-

QOQ

-

58%

-

Net margin

66%

(45%)

44%

19%

(33%)

9%

(20%)

(50%)

(23%)

Other Key Metrics：

Non-GAAP operating income (loss)

8,078

(2,338)

5,744

3,485

(1,526)

1,955

6,224

(2,529)

3,691

871

(354)

516

YOY

(23%)

8%

(36%)

QOQ

79%

66%

89%

Non-GAAP operating margin

37%

(34%)

20%

18%

(21%)

7%

30%

(34%)

13%

Non-GAAP net income (loss) attributable to Baidu

8,400

(2,899)

6,751

4,740

(1,962)

3,635

6,310

(3,394)

4,387

883

(475)

614

YOY

(25%)

17%

(35%)

QOQ

33%

73%

21%

Non-GAAP net margin

39%

(42%)

24%

24%

(28%)

14%

30%

(46%)

16%

Adjusted EBITDA

8,963

(2,257)

6,710

4,766

(1,407)

3,355

7,525

(2,405)

5,116

1,053

(336)

716

Adjusted EBITDA margin

41%

(33%)

24%

24%

(20%)

13%

36%

(33%)

18%

(1) Excluding revenue from divested businesses,2018.

(2) Includes share-based compensation as follows:

Cost of revenues

32

26

58

58

41

99

25

45

70

4

6

10

Selling,general and administrative

399

146

545

327

176

503

207

129

336

29

18

47

Research and development

604

32

636

959

63

1,022

749

61

810

105

9

114

Total share-based compensation

1,035

204

1,344

280

1,624

981

235

1,216

138

33

171

(3) Relates to intersegment eliminations and adjustments

(4) Relates to the net loss attributable to iQIYI noncontrolling interests

Baidu,Inc.

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

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

Three months ended

Three months ended

Three months ended

Three months ended

September 30,2018 (RMB)

June 30,2019 (RMB)

September 30,2019 (USD)

Baidu Core

iQIYI

Baidu,Inc.

Baidu Core

iQIYI

Baidu,Inc.

Operating income (loss)

7,591)

4,872)

233

5,832)

2,355

726

(396)

329

Add: Share-based compensation expenses

1,035

204

1,344

280

1,624

981

235

1,216

138

33

171

Add: Amortization of intangible assets(1)

28

49

77

32

66

98

52

68

120

7

9

16

Non-GAAP operating income (loss)

8,338)

5,526)

1,529)

3,691

871

(354)

516

Add: Depreciation of fixed assets

885

81

966

1,281

119

1,400

1,301

124

1,425

182

18

200

Adjusted EBITDA

8,257)

6,407)

3,405)

5,053

(336)

716

Net income (loss) attributable to Baidu

14,140)

12,327)

2,688)

(6,373)

(600)

(516)

(892)

Add: Share-based compensation expenses

1,151

1,337

280

1,495

974

235

1,106

136

33

155

Add: Amortization of intangible assets(1),net of tax

18

40

41

8

52

37

21

50

47

3

7

7

Add: Disposal gain,net of tax

(6,697)

-

(6,569)

(181)

-

(181)

-

-

-

-

-

-

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

298

-

298

162

23

185

8,023

-

8,023

1,123

-

1,123

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

(449)

(3)

(452)

(285)

(1)

(286)

745

1

745

104

-

104

Add: Reconciling items on equity method investments,net of tax(2)

(114)

-

(114)

(32)

11

(27)

834

8

839

117

1

117

Non-GAAP net income (loss) attributable to Baidu

8,899)

6,962)

3,394)

4,387

883

(475)

614

Diluted earnings (loss) per ADS

35.26

6.57

(18.37)

(2.57)

Add: Accretion of the redeemable noncontrolling interests

-

0.05

0.06

0.01

Add: Non-GAAP adjustments to earnings per ADS

(16.06)

3.49

30.92

4.32

Non-GAAP diluted earnings per ADS

19.20

10.11

12.61

1.76

Net cash provided by operating activities

10,361

994

11,355

6,074

891

6,965

8,508

293

8,801

1,190

41

1,231

Less: Capital expenditures

(2,026)

(193)

(2,219)

(1,204)

(155)

(1,359)

(1,031)

(181)

(1,212)

(145)

(25)

(170)

Free cash flow

8,335

801

9,136

4,870

736

5,606

7,477

112

7,589

1,045

16

1,061

(1) This represents amortization of intangible assets resulting from business combinations.

(2) This represents Baidu's share of equity method investments for other non-GAAP reconciling items,amortization of intangible assets not on the investee's books,adjusted for related income tax effects.

(3) Non-GAAP measures are adjusted retroactively to exclude: 1) amortization of intangible assets resulting from business combinations ; and 2) share-based compensation and amortization of intangible assets not on their books,resulting from equity method pick-up; and 3) fair value change of the investees' long-term investments,net of tax,as follows:

Non-GAAP operating income,previously reported

8,050

(2,387)

5,667

3,453

(1,592)

1,857

6,172

(2,597)

3,571

864

(363)

500

Add: Amortization of intangible assets(1)

28

49

77

32

66

98

52

68

120

7

9

16

Non-GAAP operating income,revised

8,078

(2,338)

5,744

3,485

(1,526)

1,955

6,224

(2,529)

3,691

871

(354)

516

Non-GAAP net income attributable to Baidu,357

(2,939)

6,685

4,418

(2,025)

3,279

6,052

(3,452)

4,098

847

(483)

573

Add: Adjustments relating to equity-method investments,net of tax

25

-

25

314

11

319

237

8

242

33

1

34

Add: Amortization of intangible assets(1),net of tax

18

40

41

8

52

37

21

50

47

3

7

7

Non-GAAP net income attributable to Baidu,400

(2,899)

6,751

4,740

(1,962)

3,635

6,310

(3,394)

4,387

883

(475)

614

Adjusted EBITDA,982

(2,150)

6,789

4,780

(1,348)

3,388

7,542

(2,345)

5,153

1,055

(328)

721

Less: Adjustments to amortization of intangible assets

(19)

(107)

(79)

(14)

(59)

(33)

(17)

(60)

(37)

(2)

(8)

(5)

Adjusted EBITDA,963

(2,257)

6,710

4,766

(1,407)

3,355

7,525

(2,405)

5,116

1,053

(336)

716

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