Hello, and thank you for standing by for Baidu's third quarter 2017 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. If you have any objections, you may disconnect at this time. I'd now like to turn the meeting over to your host for today's conference, Sharon Ng, Baidu's Director of Investor Relations.

Hello, everyone, and welcome to Baidu's third quarter 2017 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. Today, you'll hear from Robin Li, Baidu's Chief Executive Officer; Qi Lu, Baidu's Chief Operating Officer; and Herman Yu, Baidu's Chief Financial Officer. After their prepared remarks, Robin, Qi and Herman will answer your questions. Before we continue, please note that the discussion today contains forward-looking statements made under the Safe Harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from our current expectations. Potential risks and uncertainties include, but are not limited to, those outlined in our public filings with the SEC, including our Annual Report on Form 20-F. Baidu does not undertake any obligation to update any forward-looking statement, 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 measure, and is available on our IR website at ir.baidu.com. As a reminder, this conference is being recorded. In addition, a webcast of this conference call will also be available on Baidu's IR website. I will now turn the call over to Baidu's CEO, Robin Li.

Hello, everybody, and thank you for joining today's call. We delivered solid financial results, and made meaningful progress in this quarter on Baidu's strategic pillars; strengthening our mobile foundation, and leading in AI. On strengthening our mobile foundation, Baidu's core business continue to build momentum from our twin-engine mobile search and feed. In mobile search, Baidu is making good progress in product innovation that enables native access to rich content, such as video and content within top mobile apps. Our strategy to leverage Baidu's leading AI technology to improve the algorithmic recommendation of our feed is showing measurable results in improving user experience. In September, the DAU over MAU of our flagship app, Mobile Baidu, increased by 2 percentage points year-over-year. Daily user time spend on Mobile Baidu grow 15% sequentially in the third quarter, the fastest among apps in China is DAUs over 100 million according to QuestMobile. We will continue to work on increasing the user scale, and improving user stickiness of Mobile Baidu by leveraging Baidu's leading AI technology, coupled with user experience data based on large array of Baidu apps that we use. This strategy will allow us to continuously improve user experience on Mobile Baidu, which ultimately is the key to growing market share. The natural result of our feed's increasing user scale and user time spent is better monetization. For the third quarter, feed revenue on an annualized basis exceeded $1 billion. This is an impressive milestone as our feed product was officially launched about a year ago. Turning to Baidu's second strategic pillar leading in AI. We are making measureable progress across our industries on Apollo, DuerOS, ABC Cloud and FSG. In September, we launched Apollo 1.5, an upgrade of Baidu's open source autonomous driving platform, and created a multi-billion dollar fund to…

Thank you, Robin. On our core business front, we remain focused on improving the user experience through product innovation for search, feed, Mobile Baidu, and iQIYI. On search, AI is the underlying technology foundation that enables us to systematically drive product innovation in a number of areas. A big priority for us is to improve user experience so that the overall search experience is much more mobile native. For example, our top one initiative enables a faster and a more immediate one-at-a-time search experience. It intelligently optimizes the top search result, and has gained strong traction. In Q3, (9:55) results have grown to cover over 20% of search page views. By applying intelligent filtering, and advanced presentation technologies, the percentage of search landing pages that provides a good mobile native experience has now exceeded 90%, which was 40% at the beginning of 2017. At the same time, we continue to expand search's coverage of richer content, especially video and the percentage of video content within search result pages continue to grow. Through deep link and share link, Baidu's search now can access high-quality content embedded within top apps. AI also enabled voice and image as search input modalities, and they're making sustainable progress in providing our users with a more natural, and overall more compelling search experience. On feed, AI technology plays an even more potent role in product and user experience in our content ecosystem. First, we continue to strengthen the core foundation of feed, which is a very high scale personalized information recommendation. Our core algorithms are iterating and improving at a rapid pace, leveraging Baidu's strength in AI algorithmic capabilities, and Baidu's data assets such as search data. As a result, the core product metrics, such as Click-Through Rates and the user satisfactions continued a healthy pace…

Thanks, Qi. Hello, everyone. It's a great pleasure to join Baidu, and participate on my first earnings call. Baidu is an enviable tech company. Its search business delivers an operating margin of approximately 50%, and it invests another 30% or so of its revenues back to strengthen its mobile, and feed, and AI. In the third quarter, Baidu shed its delivery business as part of a year-long strategy to free-up company resources and management attention to focus on AI and projects that have strong synergy. In addition to investing in mobile, in areas such as Mobile Baidu and iQIYI, we are also putting significant efforts to develop AI-based platforms in the voice assist and autonomous driving markets. Like the rest of the world, smartphone sales in China over the last few years have been flattish, and we are seeing heavy investments moving towards smart devices for homes and autonomous driving. These trends present a unique opportunity for Baidu to offer operating systems for smart devices, and autonomous driving vehicles. On a global scale, our peers in the voice assist and autonomous driving spaces are formidable. However, Baidu has been developing AI technology for the last five to six years, including voice assist in Chinese. Over the past year, we have been very focused on developing a strong network of partnerships with local companies, in areas such as home electronics and auto manufacturers to adopt our technologies. We believe this is what it takes for an AI platform player to be successful in China. A big part of Baidu's investments today, is in the new market opportunities presented by AI that will not have material revenues in the near future. We believe our investments to become a platform player for smart devices in autonomous driving will bear significant return in the…

Thank you. Our first question today, comes from the line of Chi Tsang from HSBC. Please ask your question.

Good morning. Thanks very much for taking my question. I wanted to ask you about Mobile Baidu, and I guess, my first question is maybe housekeeping question. Did you guys disclose how many DAUs you have for news feed currently? And secondly, I was wondering if you can sort of give us a little bit more commentary about engagement? And I'm wondering sort of how many times people are opening up their Mobile Baidu app per day? And then, sort of related to that, the number one news app in China has about 70 to 80 minutes of use per day. I'm wondering if that is a figure that you think Mobile Baidu can reach at some point in the future. Thank you.

So, let me take a first cut, and Robin and Herman is here to chime in. For Mobile Baidu, as we talked in the past, we view this as the flagship product for the mobile era information content containers. And Baidu is in a unique position to drive sustained improvement across our user base, DAU and user engagement, such as time spent. The fundamental reason is, we have the twin-engine of feed and search, because feed through the fundamental power of AI technology and more data will be able to understand the users' interest, users' needs in increasing degree. The products will really know you, and provide services that are timely, and of high value to you. And at the same time, we always know for our industry's last 20 – almost 20 years, search is a fundamental need for our users. We always have information, content, service, knowledge needs to access through search, so by harnessing the synergy between these two fundamental trends, and Baidu's fundamental strengths, we believe we will be able to drive sustained improvements on product through better, more content ecosystem, overall better experience, richer modality, and most importantly, the twin-engine of personalized recommendation and search. Baidu is in a unique position more than any other players in China market to sustainably drive a high-paced improvement on user base growth, and engagement.

Yeah. This is Robin, let me add that, we basically view Mobile Baidu as one product, including the search feature and the feed feature; and feed is highly, highly personalized. We distribute feed content based on a lot of understanding, it's about our users, especially use of queries that represents their true interest. So, we basically view feed and search as two major features of this one product, and we are able to provide a much more personalized information distribution channel for our users, and we believe this still has a lot of potential to go. Our recommendation would continue to evolve on almost a daily basis, users who use our feed product will be able to see progress going forward constantly, I think, we have still a lot of room for improvement on this front.

Our next question today comes from the line of Alicia Yap from Citigroup. Please ask your question.

Hi. Good morning, Robin, Dr. Lu, Herman, and Sharon. Thanks for taking my call. Congratulations to Herman on your new role. So my question is related to the traffic acquisition costs versus the SG&A spend. So it seems like the TAC continued to decline on the year-over-year basis. So could we assume that this is mainly driven by overall slower growth in the search-specific traffic from the Union members, while the organic Mobile Baidu app's traffic improving as the user engagement in news feed – are these leading to more organic search of traffic in return? And then, it seems that the step up in SG&A this quarter is mainly related to more aggressive promotions in Mobile Baidu installation. So any color as to how we should think about the SG&A line for the fourth quarter, as well as the TAC for the fourth quarter, and some color into the 2018? Thank you.

Okay, great. Hi, Alicia. So two items. First on the TAC, I think, the fact that you mentioned, I think, that it's correct. Part of the reason is, is the fact that, part of our TAC is also coming from Mobile Baidu, and we're seeing good growth with overall Mobile Baidu. I think secondly, on the SG&A, within the SG&A expense this quarter, we had bad debt allowances for Baidu Deliveries, and also for Nuomi that amounted to over RMB 522 million, so that was part of the reason for the increase. So when you back that out, actually, looking at marketing expenses, it's not as significant.

Our next question today comes from the line of Gregory Zhao from Barclays. Please ask your question.

Hello, Robin. Hello, Dr. Lu, Herman and Sharon. Thanks for taking my question, and congratulations to Herman on the new role. So I have two very quick questions. The first one is about our core search revenue, so when we compare our segment revenue growth trend with our Q4 total, our revenue growth guidance, so our news feed is very strong, iQIYI, it's very strong. So if we backfill the – just to get the search revenue growth; so the search revenue for Q4 looks a little bit soft, so do we have any special reason behind? That's my first question. The second question is about our news feed product. So in terms of revenue, the news feed is growing very fast, and based on Robin's disclosure, it's catching up with our competitors such as Weibo and (40:43). So in terms of our content generation capability and user engagement, so Weibo's social features and (40:53) strategy such as a video, I think, we have some special selling point, right, compared to the Weibo, compared to (41:01) with our position into the market, and with our strategy to compete with such kind of competitors? Thank you.

Herman will answer your first question, and Qi will answer -

Yeah. Hi, Gregory, so on your question of search, whether it's soft in the fourth quarter. As I mentioned earlier, the guidance that we're giving when you're looking at Baidu core business, that excludes our spin-off business in iQIYI, we're actually seeing the range that we gave you, most of it is above Q3. So I don't actually see that. I think your point is, can we break out the difference between feed and search? And as Robin mentioned earlier, when we look at, for example, the traffic in Mobile Baidu, we actually don't see a user and try to break out the time they're spending on search versus on feed. We see it as just one product, and as long as the user's getting good experience in that product, and we're generating revenue whether it's in search or whether it's in the feed, we see that as kind of one container, and how do you optimize time spent, also monetization for that one app. So I wouldn't break that out separately. The way I would just see it is, there are lot of (42:24) including Mobile Baidu, where you have the different experiences, and when we, for example, do marketing and so forth, we look at it as, how much can we get from this particular app versus how much can we get it from different functionality of that particular app.

Yeah. So let me answer the second question, and also add to what Herman just said, we fundamentally view Mobile Baidu, the combination of search and feed as one unified product, and we have what it takes to build the mobile era leaving containers and starting point for our users. With regard to competition, specifically against – you mentioned (43:08), Weibo. There are several fronts, and we believe Baidu has a strong strength in our capability to compete extremely well, and grow our business at a very, very rapid pace. First, is the fundamental strength of algorithm and data. If you look across our competitors, Baidu has the strongest AI algorithmic capability in data, because our search data encompasses so much user signals about the user interest and the user needs, that's number one. Number two, on growing the richness of content offering, you mentioned videos. Our video product, not only videos displayed within search, within feeds and also we have a separate video apps they're all growing at a very, very rapid pace. You will see us investing more and growing more innovations in enriching the content in our offerings. And third front is monetization. Our ad platform has fundamental strengths. We have vast scales of customer base who have rich algorithmic capabilities and data sets, leveraging from our search advertising synergies. So you combine all the three key factors, we have very high confidence that our product will compete extremely well, and will grow very strongly going forward.

Yeah. And great, let me add another point, just to hone on the point of looking at Mobile Baidu search and feed together. So as you know, one of the things in trying to get app adoption is channel costs, right? So because we have two functionalities, when we look at channel costs, we look at it very closely on the ROI, if we can get a bang for a buck. So that means that you're looking at the lifetime value of that user once you acquire versus the cost. And because we have two functionalities, we look at those functionalities together in what we can get from the user as we're acquiring those, and you can see our peers who basically is reinforcing our strategy by now, trying to add search. The thing is it takes many, many years to actually build that quality. But it just shows that our business model works that you're probably just going to be able to get more monetization if you have feed and if you have a very good search engine.

Yeah. I'll add to that, in terms of content generation, we view the whole Baidu platform as one content ecosystem, which includes the search content in web format, the iQIYI video which is mostly in the long form video, but we can cut that into shorter clips, and distribute it through our feed product. We also have (45:59) we have lots and lots of content generation tool and apps. And we continue to integrate all these kind of content into the Mobile Baidu platform. And Mobile Baidu, both in terms of search and feed has unmatched distribution capabilities for content. Therefore, we will be able to build a stronger and stronger content ecosystem.

Our next question today, comes from the line of Alex Yao from JPMorgan. Please ask your question. Alex Yao - JPMorgan Securities (Asia Pacific) Ltd.: Hi, good morning guys. Thank you for taking my question, and congratulations to Herman's new role. Wish you all the best in the new role. I'd like to follow-up with the 4Q revenue guidance. I think, Herman you mentioned the core search could be growing at 26% on a year-over-year basis for 4Q. And then, if my math is correct, that you suggest that the core search is going to decline somewhere between 2% to 4% Q-o-Q from 3Q to 4Q. And then, Qi also mentioned the AI has improved the Click-Through Rates, which supposedly should improve the RPM. Does it mean we are seeing some weakness in the traffic for the core search? Thank you. I'll stop here.

Yeah, Alex. Thanks. Actually, the math I'm looking at is converse to what you just said. When you look at our sequential growth from Q3 to Q4, taking out iQIYI, taking out the businesses that we have spun-off, well, I'm actually looking at – if you look at the midpoint, we're talking about maybe a sequential growth of 2%, so it's up 2%. And this is very consistent with – for example past year, when you look at 2015, using the same math taking out businesses that we have spun off sequentially, we're also looking at around 2%. So I'm looking at this number pretty consistently. Because it's an up quarter, I think that, when you put in the calculation, you might get a different result.

Next question?

Our next question today, comes from the line of Thomas Chong from Credit Suisse. Please ask your question. Thomas Chong - Credit Suisse (Hong Kong) Ltd.: Hi. Thanks management for taking my questions and congratulations, Herman on the new role. I have a couple of quick questions regarding the cloud and the financial services. On cloud, how should we envision the business scale over the next couple of years? And how we think we can outpace our peers in terms of customers and revenue? And my second question is about the financial services. Can you mention or provide us some more guidance about the timing of profitability, the business breakdown et cetera, that would be great. Or if not, can we actually rank different business in descending order under the others revenue? Thank you.

So, let me take both questions. First, with regard to our ABC Cloud business; the fundamental position differentiation is ABC, which is AI technology, plus big data, which is the data assets, Baidu's ecosystem is able to harness. And then overly on top of a very strong set of cloud infrastructures and the services. With that in mind, our focus is to leverage ABC, but deliver industry vertical specific end-to-end solutions with big customers first; and then horizontalize, and then build industry-specific ecosystems to grow our business. And we've been showing strong tractions in that approach. As I mentioned in the prepared remarks, we are continuing to expand the industry verticals that we're covering and deepen the penetration in each of the verticals. In terms of the pace of growth, we are growing at a very rapid pace, and on the pace, essentially to double on an annual basis or more than double on an annual basis. So even though it start from small numbers, it will become mature over the coming two to three years. So that's for our Cloud business. And with regard to FSG, so you mentioned the profitability. This is indeed something the teams internally has been working on super hard. At this point, we are not prepared to share the specific timing, but we are on a very healthy path for this business to become – quickly to become profitable.

Our next question today, comes from the line of Juan Lin from 86Research. Please ask your question.

Hi, good morning, Robin, Dr. Lu, Herman and Sharon. Thanks for taking my questions, and congratulations Herman, for the new role. My first question is on iQIYI, I noticed that your competitor have recently announced aggressive content purchase and production plan. I'm wondering, how should we foresee the competitive landscape for video content going forward, and what is the trend for video price for the next year? And secondly, on the core business; as you have been adopting AI and innovative products for core business, I'm wondering what is the long-term potential for monetization improvement, such as lifting Click-Through Rate and PPC? And in particular, Click-Through Rate and the PPC for search has been quite stable. I'm wondering whether you have seen new opportunities to improve search monetization due to the AI adoption going forward? Thank you.

Let me take both questions. So first with regard to iQIYI business, and the content production and content cost question that you mentioned. First of all, let me reemphasize, iQIYI, their core competency. The team has done tremendous job over the years building up a core competency. The combination of content procurement, and content self-production, and this is very, very important. If you look at the past track record, there's open public statistic available for you to look at. iQIYI has been consistently procuring top-ranked video content, and also, iQIYI was able to show a strong track record of self-producing content. Overall, this is the key focus areas for the iQIYI management team. So continuing to strengthen the leadership positions in content procurement, and the content self-production, that's a very important part. The other part I would like to emphasize is, iQIYI, also has been driving lot of product innovations, particularly the personalized video feed recommendation product. It has been growing very, very strongly, and that product also has lot of monetization potential. So overall, we continue to have a strong confidence in iQIYI as the leading video entertainment platform for China, continue to drive strong growth and user engagement, and monetization. The second, with regard to using AI to improve the monetization for our core business, it's a great question. That's indeed one area we have strong potential, again, through a combination of AI technology and data. In AI technology, I believe, in the last call, I mentioned that, we've using deep learning, using better models to be able to harness more signals from our conversion data, and to improve the conversion rate for ad product. As we all know, search advertising economics is fundamental in conversion economics. As long as we keep improving conversions, we will be able to keep improving our ability to monetize, that's number one. Number two is the direction headed by our dynamic ads, which is our partners, our advertising partners are increasing willing to share their structured data, their product catalogs, and their user data by a combination of their structured data, by a combination of their user data. Again, we will be able to use AI technology to harness a more converging signals, more user interest. So, those are our core dimensions that would pay-off in both search advertising and in feed monetization. And third area is, as Mobile Baidu continues to grow through the twin-engine of feed and search, we'll be able to draw more budgets, more diversified ad budget, not just focused on performance ads, but increasingly brand advertising, and rich media advertising; through AI technology, we will also be able to offer new interactions as Herman mentioned, through face recognition, through AI. These are all key avenues for us to increase systematically, increase the yield of our ad platform over time; again, so the combination of AI and data assets.

Juan, let me add a few points on top of that, when we talk about dynamic ads that Qi just talked about, and talk data structure with the partners and customers and so forth. Let me just give you a couple of examples. For example, when you look at Baidu Search, you can now search, for example, going to a destination, and by working with Ctrip, we'll get a display; for example, you want to go from Beijing to Shanghai, when you search that. We'll actually get a display of the data coming from Ctrip. And then, on our website, even though behind it's powered by a Ctrip system, on our website, you'll actually get the display, you'll actually be able to go directly to Ctrip's platform, and be able to consummate that transaction. But everything will be done from a user interface perspective on Baidu's platform. So the very fact that you're able to go in the path of just kind of doing a search, now you're able to actually consummate the transaction from a user experience directly on here, having that closed loop, that's pretty powerful. Another example is, if we're talking about financial services. On the one hand, we're making micro loans, having asset management, on the other hand it's being able to get that user behavior, that technology, and then be able, for example, if you want to search for a loan based on different user profile, it will actually push you different products, and be able to set the credit limit based on your past behaviors. So these are kind of the steps we're going, it used to be just kind of contextual search, searching a whole word. Now, you'll actually be able to customize the product based on different users using Baidu products. So…

Our next question today, comes from the line of Alvin Jiang from Deutsche Bank. Please ask your question.

Hi, management. Thank you for taking my questions, and congratulations on Herman's new role. And my first question is on AI, for AI new initiatives, and we can see the outcome, as the big Internet companies are also doing the same exploration, and do you think there will be much more in this field in two to three years? And then, what is Baidu's key strength in AI comparing its peers? And also on financial impact, how big is the investment specifically in AI in 2017? And what's the monetization plan? Thank you. I have a follow-up.

Okay. Let me take both questions, then Herman will chime in as we see. So with regard to AI competitions over the next two to three years, it is indeed the case, there's lot of industry energies and investment across a peer set of companies in AI. However, Baidu has fundamental stress around a few key dimensions. First, as you all know, Baidu is among the very first companies to identify the importance of AI; and proactively investing in AI technology and talent over many, many years ago. It takes time to develop the core competency of talent base in technology, that's number one. Number two, we view the best strategy and best path forward for AI commercialization is to platformize it and to build an ecosystem. And that will have scale advantage, that will have increasing the bigger and a bigger first-mover advantage. For example, in our self-driving car Apollo ecosystem, we are actually the world's very first open ecosystem, and our ecosystem is growing at a very, very rapid pace; and that, all the time we have increasingly competitive barriers in advantage for Baidu. And similar stories happening on our DuerOS platform. At this point, we are clearly by far, the best leading technology platform for conversational AI in powered devices for home, for in-car navigations. Again, you will see scale advantage, first-mover advantage in those front. So overall, Baidu's combination of early investments, the build-up of talent base and technology, and the platform orientation and the ecosystem approach will enable Baidu to accelerate the pace of commercialization, and increasingly build up competitive barriers in AI competition. With regard to AI investment, we've been very disciplined in running our overall internal operations. We use a very systematic approach to ensure our OpEx, particularly R&D, and sales and marketing, are allocated proportional to the economic long-term returns that we can see. For example, we've been investing heavily in Mobile Baidu, in our feed, in our mobile search, because that's the area we see tremendous growth opportunity. At the same time, the AI-enabled new businesses; the financial maturity will take time to come. But we have to invest, at this stage, proactively. The key is being very disciplined, being very efficient. Overall, we are very pleased how everything plays out, and over a period of time, Herman, our CFO, will share more operating highlights with regard to cost and benefit for our AI initiative businesses over the coming quarters.

Yeah. And, Alvin, let me just add a couple of points. With regards to our competition, I think, AI at the end of the day is just supercomputing, right. So the power of your computing, the way you can actually leverage that, it's really the broad sets of data that you have, right. When you think about Baidu, you look at the properties that we have from maps to years and years of search data, and so forth. We really have the broadest set of data across the users in China. So as a result, because you know the users so well, you know across – so deeply across the spectrum of data, then when you have that supercomputing power, then you can have pretty amazing results. And as we mentioned over and over, our AI is just focused on three platforms, it's focused on mobile, it's focused on voice assist, and it's focusing on autonomous driving. And really, when you're looking at peers in this space, you're looking at basically a lot of the global players that are kind of focusing on this direction. So when you look at Baidu, I think, you have to look at the computing that we're doing, which is AI, you look at the inputs that we have, I think it's very different than other Internet companies, because we're in the business of search for so many years, and the properties that we have across China. And then separately, when we were looking at the sector that we're going into, trying to be an operating system for autonomous driving for our smart devices, and so forth, it's a pretty unique position, I think. So with regards to investment in AI, as I mentioned earlier, over the last year, we've been becoming more and more singularly focused, right? We divested businesses that were not as synergistic as we think. For example, like Baidu Games, like Baidu Deliveries and so forth, and basically, as we're divesting from those things, we now have more capital to spend. And the great thing about Baidu's new business model is that we're leveraging AI on our traditional business as well as on our new business. So as you're further developing the power of computing mixed with the broad amount of data that we have, we're really able to leverage our existing business and also grow the new businesses. So the total investment is quite huge, but a lot of it is already built into our financial model.

Our next question today comes from the line of Piyush Mubayi from Goldman Sachs. Please ask your question. Piyush Mubayi - Goldman Sachs (Asia) LLC: Thank you for taking my question. I have a very simple question, and this is addressed to Dr. Qi. In which innings are we in the utilization of AI and improving search monetization, according to you? Thank you.

You're using a baseball analogy? So I would say probably the second inning, somewhere between the second and the third inning. There's a long trajectory ahead of us. Good question. Piyush Mubayi - Goldman Sachs (Asia) LLC: Thank you.

Next question, operator?

Our next question today comes from the line of Grace Chen from Morgan Stanley. Please ask your question.

Hello. Hi, thank you for taking my questions. I'd just like to know, can you give us guidance about the various cost items, such as content costs, SG&A, traffic acquisition costs and R&D? I remember we talked about to double the content costs year-over-year earlier this year, but if we look at the run rate so far, it seems like the spending is actually much lower than what we planned earlier. So can you help us understand the gap there, and update us the latest guidance? Thank you.

Yeah. I think, rather than giving line-by-line guidance, I think, it's probably easier just looking at our operating margin. So when you look at our non-GAAP operating margin for the third quarter, I think that's around 24%. I think, historically when you're moving from Q3 to Q4, you're going to see several points drop. And really, our operating margin at the end of the day, a big factor of that is looking at our margin or channel costs. And as I mentioned earlier, it's purely on an ROI basis. If we think that there are opportunities where we can spend, we can increase our users, and think that the lifetime value of the user is worthwhile, we'll spend a little bit more. So that's probably one of the factors that's going to decide what our ultimate operating margin is. But we should expect few points drop from Q3. With regards to content costs, I think, several factors in there. The biggest factor, as you probably know, is from iQIYI. So as I mentioned earlier, in the fourth quarter, we expect iQIYI revenue to be lighter because of the environment that we're in. Naturally, when your revenue is lower, that means that you're not going to buy a lot of hot series content. So I think those things are related. I think that's probably the major factor for our content going into Q4.

Our next question today comes from the line of Ming Xu from UBS. Please ask your question.

Thank you, management for taking my question. I just have one very quick follow-up on the video side. So in last month, one of your competitors actually announced a very impressive membership number. So I remember, Robin, you mentioned your membership number was over 30 million during the last earnings call. So could you maybe update us on the latest membership count you have, and can you maybe share with us your like long-term targets on this one? Thank you.

Yeah. We noticed that some of our competitors are aggressively promoting their membership. They either bundle the membership with their existing product or (1:09:37) with a very big discount. So we no longer think the number of membership matters that much, but the subscription revenue as a percentage of total revenue, iQIYI continues to lead, and we have a significant lead over the competition.

Operator, we'll take the last two questions.

Our next question today comes from the line of Natalie Wu from CICC. Please ask your question.

Hi, good morning, management. Thanks for taking my question. My question is regarding the feed ad. (1:10:16) mentioned we should look search and feed ad together as they are in one single app or one unified product. So does that mean feed ad is showing cannibalization effect for core search? And as you mentioned in prepared remarks, feed ad generated the $1 billion U.S. revenue on an annualized basis in the third quarter. So does that mean your feed ad revenue in the third quarter reached RMB 2 billion, and is that number net of sales rebate or gross basis, and does that number include iQIYI's video feeds? And also how do you view the growth prospect of this business; will you consider launching an individual app for that? Thank you.

So let me take the first part with regard to cannibalization, and then Herman can talk about the number breakdown. So the simple answer is, clearly no, feed ads has been too incremental to our overall advertising business. There's a few key areas to further elaborate. First our search advertising budget, and ad spend continue to remain strong and stable and growing, so that's very, very important. The second is, we are increasingly adding more capabilities to offer to advertisers when they pick our feed ad product. For example, ad creatives, ad authoring tools. So that make it much easier for advertisers to use our feed product. And it's also important to point out, many of search advertisers, they see the combination of search feeds is very, very useful and helpful for their advertising campaign, because often times, they want to cover their target customers across the different layers, consideration funnels. So there's indeed campaigns across both search and the feeds, but in terms – from ad spend perspective, it's very much incremental. And more importantly, overtime the feed products would harness more and more brand advertising budget, particularly richer advertising, creatives, adding (1:12:44). So overall, we see the combination of ad platform offering both search advertising and the feed advertising is net incremental and have very, very strong headroom, and trajectory for long-term and sustained growth ahead of us.

Hi, Natalie. Let me just add a few points to that. So I think your question just assumes that feed and search are two separate products, but let me kind of put it in context of why we think that we should look at this as one. If we start looking at these two as one product then, at least, strategically for Baidu, we're going to be able to differentiate our product with other people. For example, one way to look at this is, the content ecosystem, right. Because the idea is that, when you – the feed is where you're free, helping the ecosystem where you have a lot of bloggers that come in and actually use for example Baijiahao, Baidu's free account. And what Baidu is able to do is, once these users come and actually generate content on these accounts, Baidu also makes it available for people to actually search these accounts. So in other words, we really don't have a preference whether the user actually looking at the content through feed or looking at the content through search. We see it kind of as two-way to display the same amount of content. So on the one hand, we're expanding on our content base using Baijiahao in addition to what probably that Robin mentioned earlier like Baidu knows, like Baidu other properties like (1:14:30) and so forth. So that's why I think, the more we allow the users to leverage different ways to look at the content, we see it more as one product. And that's a huge differentiator than the other parties. And secondly, the question on the $1 billion, I mean, when we annualized $1 billion then what you need to do is, look at for Q3 just, divide it by four, then get possibly where we are with Q2. Okay, and the question on iQIYI, iQIYI, we will see that as a separate category as I mentioned in the guidance. And iQIYI is really the feed product that's within Baidu's other properties.

Let me just add that, for search and feed, we can look at it from a two front. From the advertiser front, I think, as Qi mentioned, feed can attract a lot of brand advertisers. But on the other hand, we do share a large amount of advertiser both on search and on feed. So I view that as a strength instead of weakness. We have a very large advertiser base, and we can distribute it via our app both on search result page and the feed page. So this is a very advantage point for Baidu. And from the traffic point of view, I've been saying that over the past few years, and many, many times, our benefit is very much traffic bound not budget bound. So the more traffic you generate, so the more revenue you generate. Advertisers always want to buy more from our platforms.

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.