Hello, and thank you for standing by for Baidu's Fourth Quarter and 2022 Earnings Conference Call. [Operator Instructions] I would now like to turn the meeting over to your host for today's conference, Juan Lin, Baidu's Director of Investor Relations.

Juan Lin - Director, Investor Relations

Hello, everyone, and welcome to Baidu's fourth quarter and fiscal year 2022 earnings conference call.

Baidu's earnings release was distributed earlier today, and you can find a copy on our website as well as on Newswire services. On the call today, we have Robin Li, our Co-Founder and CEO; Rong Luo, our CFO; Dou Shen, our EVP, in-charge of Baidu AI Cloud Group, ACG and Zhenyu Li, our SVP, in-charge of Baidu Intelligent Driving. After our prepared remarks, we will hold a Q&A session.

Please note that the discussion today will contain forward-looking statements made under the Safe 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. For detailed discussions of these risks and uncertainties, please refer to our latest annual report and other documents filed with the SEC and Hong Kong Stock Exchange. 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 measures and is available on our IR website at ir.baidu.com. As a reminder, this conference is being recorded. In addition, a webcast of this conference call will be available on Baidu's IR website.

I will now turn the call over to our CEO, Robin.

Robin Li - Co-Founder, Chairman and Chief Executive Officer

Hello, everyone. In Q4 2022, Baidu Core revenues were impacted by a challenging environment caused by a rapid increase in COVID-19 cases and its impact on the broader economy. However, we managed to improve our operating profit and margin year-over-year in the quarter.

Beyond that, Baidu demonstrated its value as a trusted platform for users seeking accurate and authoritative information during critical moment like the peak time of COVID-19 pandemic. As restrictions in China were relaxed and many people get infected, people were most keen to monitor the progress of the epidemic in their local areas. We quickly mobilized our resources and launched the COVID-19 indices based on Baidu Search queries providing real-time updates and forecast for better transparency. Also, we partnered with reputable hospital and medical experts to offer guidance and advice for public health. In Q4, health-related search queries grow about 40% year-over-year, reaching a record-breaking high.

Today, we are on the threshold of exciting new developments in our industry. For this call, I'll focus on three major themes and then I'll provide quarterly reviews across our business lines. And finally, I'll talk about our outlook for 2023. Regarding the major theme, first, although our fourth quarter results were impacted by COVID-19, we are optimistic about our path to reaccelerate revenue growth in the coming quarters. So far in Q1, we have already seen a recovery of our online marketing revenue from the trial, in particular, from verticals in healthcare, travel, businesses and lifestyle. Assuming no significant new disruption, we expect this recovery trend to continue and boost our online marketing revenue through increase in demand and take advantage of pent-up consumption in China. We also anticipate resuming cloud project implementation as business operations return to normal signing new contracts and accelerating AI Cloud revenue growth.

Second, we are riding high on the wave of AI as aur earlier investments make us well-positioned to benefit now that the industry is about to experience significant growth and monetization. Over the past many years, we have double down on AI, recognizing its potential to drive market expansion and increase enterprise value. Today, AI has become a cornerstone of many of our products and services. For example, in search, the ERNIE family of large models has been instrumental in delivering improved search results since March of 2019. This model enables improved ranking and multimodal search capability.

In Cloud, we leverage our AI expertise to offer industry-specific AI solutions and applications for traditional industries such as transportation, manufacturing, energy and utilities. Our Intelligent Driving business built on the backbone of Baidu's Computer Vision and other machine-learning algorithms is another testament to our commitment to the SKU. Recently, its users reading about ChatGPT large language models using generated AI have created a megatrend that will revolutionize many businesses. Baidu is well-positioned to capitalize on the imminent inflection point in AI, thanks to our extensive talent pool, well-developed infrastructure, a diverse array of businesses and leading technology.

We are also excited about the upcoming launch of Ernie Bot, our new conversational AI-bot powered by our latest in-house large language models. We plan to fully integrate Ernie Bot across all of our operations. For our consumer-food facing products, we plan to embed Ernie Bot into Baidu Search first. We believe this will reshape information generation and presentation and create a new entry point for the next-generation Internet helping us attract more users and gain market share in a profitable manner. In the future, we will also integrate Ernie Bot into Xiaodu which will allow Xiaodu to significantly upgrade our smart devices and services. We believe AIGC will also provide notable potential for iQIYI on content generation and user acquisition.

Through our R2B business, we plan to make these technologies widely available to our customers, developers and ecosystem partners to help boost productivity across industries. By opening the platform to generating large language model to the public, we expect more and more business owners and entrepreneurs to build their own models and applications on our AI Cloud.

For Intelligent Driving, we plan to integrate Ernie Bot into our auto solutions further enhancing user experience. We also believe generating pre-trained transformers will play an important role in driving the expansion of our operations. Clearly, we can benefit from the new AI inflection point as we have timely prepared our overall business for this new megatrend.

Turning to my third theme. We will continue to focus on the long-term sustainable development of our company. As you all know, 2022 was an incredibly challenging year. However, we have used this time wisely to lay a strong foundation by building a more efficient organization through cost optimization, organizational adjustment and a management reshuffle. As a result, in the second half of 2022, Baidu Core's non-GAAP operating margin and profit both improved year-over-year. We believe a more streamlined operation will help us to achieve sustainable growth.

Now let's review the fourth quarter operating highlights. AI Cloud reported 4% year-over-year growth in Q4. Revenue growth decelerated from the prior quarter due to the impact of COVID-19 outbreak at the end of the quarter. Nevertheless, the margins of AI Cloud in Q4 improved year-over-year. Two major factors were at play. First, we continue to scale back low margin businesses for both IaaS and Cloud solution projects. And second, we continue to standardize our AI solutions and applications for specific use cases in traditional industries. For example, our quality inspection and the petroleum inspection solutions have been adopted by many leading companies in traditional industries like chemical fiber, electric power and renewable energy.

We are seeing margin improvement as we replicate our AI solutions and the applications which tackle industry-specific challenges. By working with the industry leaders, we are enhancing our knowledge of industry-specific challenges and the standardizing AI Cloud solutions and applications for scale. As an example, thermal power, which mainly coal-fired makes up majority of the power supply in China, generating around 5.9-trillion-kilowatt hour in 2022 according to National Bureau of Statistics of China.

Recently, we developed an AI solution for a leading coal-fired power plant in Shaanxi province to improve the efficiency of power generation through method such as automated cooling system. According to our internal estimate, this solution resulted in almost a five gram of coal consumption per kilowatt-hour, well above our customers' expectation of one gram reduction. This also means a 12.5-gram reduction in carbon dioxide emission per kilowatt hour. We aim to create more similar projects to gain scale.

Turning to Intelligent Driving. We continue to make significant progress in the fourth quarter further reinforcing our beliefs in our strategy and business model. Apollo Go remained the largest autonomous ride-hailing service provider in the world, measured by the number of rides completed. In Q4, Apollo Go provided 561,000 to the public on open roads. That's up 162% year-over-year. By the end of January, the cumulative number of rides exceeded 2 million. This demonstrates users increasing acceptance of Apollo Go autonomous ride-hailing service. As we scale-up our operations, we are able to continuously improve our technologies and refine our services. These accomplishments also build our safety record and to bolster both users and regulators trust and fueling the development of the fully driverless ride-hailing market.

In 2022, we made some notable breakthroughs in fully driverless operations on public roads. Since last August, we have begun to offer fully driverless ride-hailing services in Wuhan and Chongqing. In late December, we were granted the permission to test drive vehicles, with no-seated operator in the car on public roads in the Yizhuang region of Beijing, a critical step the Capital City allows fully driverless ride-hailing operations. As I stated in the past, labor cost is a major cost component in ride-hailing operations. Removing safety operators from vehicles can significantly reduce this cost. In Q4, fully driverless ride provided to the public are increasing very fast, helping us to expand our operations and reduce cost per mile. In 2022, we also unveiled RT6 aiming to bring the cost of robotaxi to the price range of mass-market EVs for the first time in China. This initiative will allow us to further reduce our cost in the future. Baidu Apollo's auto solutions made a breakthrough engagement based multinational automaker. It intends to cooperate with us on AVP functionality for one of very popular car models in China.

Moving to Mobile Ecosystem. Our traffic remained strong, both total mobile search queries and feeds distributed through Baidu App continued to experience double-digit year-over-year growth in the quarter. In December, MAUs for the Baidu App increased 4.2% year-over-year. Despite revenue declining in Q4, our Mobile Ecosystem continued to generate high operating profit, operating margin and substantial cash flow. Thanks to increased efficiency. Encouragingly, we have seen a recovery in our online marketing revenues after the Chinese New Year holiday.

On another positive note, our retail and e-commerce remained an outperforming vertical, with more than 20% year-over-year growth accounting for over 10% of the total advertising revenue. Users not only come to Baidu to search for information and knowledge, but also increasingly come to ask to search for services and merchandise, driving up growth in merchandise search queries and transactions on Baidu. Quarterly GMV facilitated by Baidu Search rose by 84% year-over-year in Q4. Short videos contributed to a year-over-year increase in feed revenue in Q4 despite macro challenges. Apart from feed, we believe short videos also benefit search in both user experience and monetization, and the growing prevalence of short videos within Baidu Mobile Ecosystem should drive long-term online marketing revenue growth.

We continue to help content creators to generate content through AI, enriching our Mobile Ecosystem, in particular, producing short videos. As we move forward into 2023, our priorities are clear and focused. First, we are committed to revenue growth as we have seen a clear pathway for a successful business recovery. Second, we are poised to take advantage of the huge potential of AI to drive business growth. We aim to integrate generated AI into most of our products and services and make our cutting-edge large language models available to both consumers and businesses. Third, we will maintain healthy growth while also strengthening our foundation. Our Mobile Ecosystem should continue to generate strong margins and cash flow. We aim to continue expanding margins for AI Cloud and outgrowing our Internet peers. We also will continue to make strategic and prudent investments in Intelligent Driving to capture the long-term market opportunity.

With that, let me turn the call over to Rong to go through financial results.

Rong Luo - Chief Financial Officer

Thank you, Robin. Now let me go through details of our fourth quarter and full-year 2022 financial results. We closed the year 2022 with solid financial results. Baidu Core's Q4 revenue was RMB25.7 billion, decreasing 1% year-over-year. In 2022, Baidu Core generated RMB95.4 billion or USD13.8 billion in revenue, basically flat from last year. And our online marketing business continue to grow very fast and reached 30% of Baidu Core revenue in the fourth quarter, up 6% a year ago, demonstrating how Cloud and other AI-powered businesses have fueled our business model and will continue to do so to meet our long-term. For the full-year 2022, our online marketing business accounted for 27% of Baidu Core revenues, up from 22% in 2021. Revenue from our online marketing business, revenue from Baidu AI Cloud increased by 4% year-over-year to RMB5.1 billion in Q4 on an apple-to-apple comparison and were up by 23% year-over-year to RMB17.7 billion in 2022 on apple-to-apple comparison.

Xiaodu is another revenue contributor to the online marketing business. Xiaodu continue to achieve solid revenue growth in both Q4 and the year 2022. Baidu Core online marketing revenue decreased by 6% year-over-year and 4% sequentially in Q4 due to the weak demand for advertisers in the challenging macro-environment caused by COVID. Baidu Core online marketing revenue was down by 6% year-over-year in relation to '22.

IQIYI revenue was RMB 7.6 billion in Q4, increasing 3% year-over-year. iQIYI revenue was RMB29 billion in the year 2022, decreasing 5% year-over-year. Cost of revenue was RMB63.9 billion in Q4, decreasing 2% year-over-year, primarily due to the reduction of content costs, cost of goods sold, and other costs related to new AI business, partially offset by the increase in traffic acquisition costs. Cost of revenue was RMB63.9 billion 2022, decreasing 1% year-over-year, primarily due to an increase in traffic acquisition costs, bandwidth costs, cost of goods sold, and other costs related to new AI business offset by the decrease in content costs.

Operating expenses were RMB11.5 billion in Q4, a decrease of 17%, year-over-year, which was primarily due to a reduction in staff-related expenses. Operating expenses were RMB43.8 billion in 2022, decreasing by 12% year-over-year, which was primarily due to a reduction in channel spending, promotion and marketing and personnel related expenses.

Non-GAAP operating income was RMB6.5 billion in Q4 and non-GAAP operating margin was 20%. Non-GAAP operating income was RMB23.2 billion in 2022 and non-GAAP operating margin was 19%, in 2022. For Baidu Core, non-GAAP operating income was RMB5.5 billion and operating margin was 21% in Q4. Non-GAAP operating income was RMB20.9 billion and non-GAAP Baidu Core operating margin was 22% in the year 2022.

Regarding the non-operating items, in Q4, total other income, that was RMB1.8 billion mainly resulting from favorable gain of RMB1.6 billion from our long-term investments. Income tax expenses was RMB1.3 billion. In 2022, total other loss net was RMB5.8 billion, mainly resulting from a fair value loss of RMB3.9 billion and an impairment loss RMB3 billion from long-term investments. Income tax expenses were RMB2.6 billion. In Q4, net income attributable to Baidu was RMB5 billion and diluted earnings per ADS was RMB13.59. Net income attributable to Baidu Core was RMB4.8 billion, and net margin for Baidu Core was 19%. Non-GAAP net income attributable to Baidu was RMB5.4 billion. Non-GAAP diluted earnings per ADS was RMB15.25. Non-GAAP net income attributable to Baidu Core was RMB4.9 billion and non-GAAP net margin for Baidu Core was 19% on that. In the year 2022, net income attributable to Baidu was RMB7.6 billion and diluted earnings per ADS was RMB19.85. Net income attributable to Baidu Core was RMB7.6 billion and net margin for Baidu Core was 8%. Non-GAAP net income attributable to Baidu was RMB20.7 billion and non-GAAP diluted earnings per ADS amounted to RMB58.93. Non-GAAP net income attributable to Baidu Core was RMB19.9 billion and non-GAAP net margin for Baidu Core was 21%.

Cash and short-term investments for Baidu Core as of December 1, 2022 were RMB177.4 billion or USD25.7 billion. Free cash flow for Baidu Core excluding iQIYI was RMB18.1 billion or USD2.6 billion into 2022. Baidu Core had approximately 36,300 employees as of December 31st, 2022. On a separate note, we're excited about iQIYI's continuous efforts to improve operating efficiency. In the quarter, iQIYI once again generated positive non-GAAP operating profit and free cash flow. On the user side, iQIYI's average daily number and the total subscribing members increased to 111.6 million in Q4, a net addition of 10.6 million from the previous quarter. iQIYI maintained its largest market-share in the drama category in terms of effective video viewership according to Enlightent data. In addition, in the past 12 months, iQIYI raised around USD1.3 billion post these top ratings. Baidu continue to hold controlling voting power in iQIYI and consolidated iQIYI's financial results.

Operator, with that, let's now open the call to questions. Operator, please.

Question & Answers

Operator

Sure. [Operator Instructions] Your first question comes from Alex Yao from J.P. Morgan. Please ask your question.

Alex Yao - J.P. Morgan - Analyst

Thank you, management for taking my question and congrats on a strong quarter. I have a couple of questions for the online advertising business. Can you share with us the trends you are seeing in February post the trends New Year holidays. From industry perspective, what are the stronger recovery industry and what are the relatively weaker recovery industry? And particularly, I'm interested in the offline related verticals of such as travel, local services, franchising and healthcare, can you comment on your relative exposure to these offline related verticals and how are they recovering since the Chinese New Year holiday?

And then secondly, can you share with us your preliminary thoughts on how are the recovery trends in the coming months, particularly I think second quarter will be a little bit special because the consumption has already been normalized and you are competing against a low base on year-over-year basis, how should we think about advertising growth trend in the next couple of months, particularly second quarter?

Robin Li - Co-Founder, Chairman and Chief Executive Officer

Yes. Hi, Alex. This is Robin. Our ad business is highly correlated with COVID, as you know, when we entered the first quarter the number of COVID infections has passed it's peak and is now on a downward trend. People's daily lives are gradually back to normal, and the operations of many companies are recovering as well. As the economy continues to recover our ad revenue is gradually improving from the trials. When we look into our ad verticals, we have seen substantial improvements in our largest verticals including healthcare, travel, lifestyle and franchises. These are all pretty much offline business, and the online business especially, online games, relatively are weaker.

And regarding to the recovery by region, I think as the COVID infection number has passed its peak in all of China, the regions passing the peak earlier started to recover earlier and post Chinese New Year holiday, Tier 2 and Tier 3 cities recovered faster than Tier 1 cities. That's because a lot of people took longer breaks from their families before going back to Tier 1 cities for work. And again, the magnitude of the recovery correlates heavily with the recovery of our top verticals. As we look beyond the first quarter and into the latter part of 2023, we are confident that our ad business will benefit from China's reopening and macro recovery. And with that, we look forward to demand recovery from advertisers which should provide significant boost to our ad revenue.

I also want to highlight that advertisers prefer to spend on performance-based ads rather than pure brand promotion during the process of economic and business recovery and Search has proven to be the most effective form of performance-based advertising because users have a clear intent when using Search. Search ads connecting users' intentions with the most relevant product and service offer. That's why we expect to gain more marketing dollars from our advertisers. Over the long term, we will continue to benefit from this sustained growth of China's macroeconomy improvement. Also, e-commerce and short videos will continue to drive long-term growth of our ad business. Overall, we believe our ad revenue should outgrow China's GDP in the long run.

Beyond that, we are very excited about the opportunities around generated AI. We believe by incorporating Ernie Bot, Baidu App and particularly Baidu Search, we will have an enhanced user experience. The new features powered by Ernie Bot, should help us to attract new users and drive user engagement and also drive advertiser interest in Baidu too. So, this will power our long-term revenue growth.

Alex Yao - J.P. Morgan - Analyst

Thank you.

Juan Lin - Director, Investor Relations

Operator, next question please.

Operator

Thank you. Your next question comes from Alicia Yap from Citigroup. Please ask your question.

Alicia Yap - Citigroup - Analyst

Hi, yeah. Thank you. Good evening, Robin, Julius and management team. Thanks for taking my questions. My question is related to ChatGPT, So, there's been a lot of expectation on Baidu progress in ChatGPT and also the AI-generated content. Can management share with us what could be the new opportunities that you are seeing in this still, and how is Baidu positioned in this trend. Any color the management can share would be appreciated. Thank you.

Robin Li - Co-Founder, Chairman and Chief Executive Officer

Thank you for your questions, Alicia. We are obviously excited about ChatGPT and AIGC. It represents megatrends that could change a lot of things. We are working on Ernie Bot, a new version of conversational AI bot that uses our latest technology in large language models. We will embed Ernie Bot into Baidu's Search first and will open it to the public in March. Baidu is the leader in China's technology innovation [Technical Issues]. Remember we launched Ernie in March 2019 and have scaled it up with well 100 billion parameters. It is trained by serving billions of user search with that and other applications every day. So, in terms of NLP capabilities, Ernie is considered as the state-of-the art Chinese language model. And it is not only about language, but also about understanding Chinese culture. ERNIE 3.0 is already a very localized AI foundation model for China market, which means the generated large language model we are working on by now will be more suitable in Chinese language and to the China market than models developed overseas.

In addition, our deep learning framework PaddlePaddle on which Ernie is based has gained a strong momentum, millions of developers use Paddle for their AI works. This there is a strong synergy between the framework layer and the model layer. AI training, as you know, is very expensive. We believe our full stack AI capabilities will allow us to build the most efficient large language model and support all kinds of applications from search to content generation and in vertical areas that could improve productivity significantly.

For Baidu Search, I just mentioned that we are working hard on revolutionary reversion of Baidu Search build upon Ernie Bot. That incorporate generated AI into our search algorithm as well as content creation. And we are adding interactive features too. Users will soon be able to interact directly with the new generated large language model. It would be complementary or even upgrading the traditional search experience and attract more users. ChatGPT type of features could potentially become a new traffic entry point for Internet users, and therefore, expand the market by our Search. Meanwhile, it will also help our advertisers, our content creators and merchants etc. With our strong AI capabilities, we should be able to keep iterating and upgrading the model. Our search engine is just one example, there are many other applications we believe will also benefit from it.

And for AI Cloud, our AI Cloud provide full stack offering of four layers from the cloud infrastructure layer to deep learning open-source framework layer then to the large foundation model layer and ultimately to application. So, these are the four layers. And by opening the generated large language model to the public, aka mobile assist service, we should help many business owners and their work with their own models and applications on our cloud to bring about a significant positive change and improvement in a number of areas including, increased efficiency, better decision-making and improved customer experiences.

So, to recap, Baidu's strong AI capabilities build are in large language model and AI foundation models in addition to expand the market size for Search, we are able to help many, many industries to build their own models, develop their own application and significantly improve their productivity. We believe it will be a game-changer for cloud computing. AI is transforming many industries in a big way and we are super-excited about what's to come. We are building an AI ecosystem around Ernie Bot. As of today, a number of organizations have already decided to integrate Ernie Bot into their products and services. And remember, this is just the beginning of the journey. Thank you.

Alicia Yap - Citigroup - Analyst

Thank you, Robin.

Operator

Thank you. Your next question comes from Gary Yu with Morgan Stanley. Please ask your question.

Gary Yu - Morgan Stanley - Analyst

Hi. Thank you, management, and congratulations on a decent set of results. So, a couple of questions regarding the AI Cloud business. First one is for the revenue growth, with the disruption in revenue collection that we saw in fourth quarter push-out the benefit first quarter and have you seen the reopening kicked-off in projects of Cloud so-far and what are the overall Cloud revenue growth for 2023 that time management expects to see and what the Cloud offering, what kind of product offering we can see from the Cloud service as the major growth driver for 2023 and how do we expect the company growth rate and drive all the cloud market in the coming years to be?

And I think my second question related to that is, can you also comment on overall IT spending budget by enterprises in the public sector? First is the, so the private sector versus the public sector, and also, do you expect to win these a number of new cloud project this year, and do you think that the uptick will be gradual given the overall macro remains weak? And just lastly, any comment on breakeven timeline, and what is the key bottleneck so-far reaching breakeven?

Dou Shen - Executive Vice President and Chief of AI Cloud Group

Hi, Gary. Thanks for questions. This is a Dou, and I will answer the first two questions and then let Rong secure the last one. So, we do have seen a gradual recovery of the cloud revenues as our R&D team has begun to work on the ongoing projects post opening. However, you know the cycle from sales lead to revenue recognition various one a few months to a few quarters. And considering that our AI Cloud revenue growth should be back-loaded this year. But meanwhile, we will keep bringing out low-margin businesses for both as in Cloud solution products as we focus on margin improvement for the Cloud. This initiative will have an impact on our ad revenue growth going-forward. But still, we aim to continue growing our Internet peers in 2023.

If we look into the long-term, the big trend for our traditional industries to move business onto Cloud and use AI to improve their efficiency remain unchanged, deliver the digital and intelligent transformation will be the key driver for the GDP grows in the near future. And for sure, we will benefit the most from this transformation, because we think Baidu is uniquely positioned, actually compare it to others, our AI Cloud provides full stack offerings on four layers as Robin just mentioned from Cloud infrastructure to deep learning platform, that's PaddlePaddle, as you know, to large foundation models and applications. And all this work seamlessly together in each offer end-to-end solutions to achieve optimal outcomes for our clients even at lower costs versus other solutions which is built from different providers for the Cloud platform and models.

And in addition, our end-to-end solutions can actually upgrade in much shorter time, once we have improvement on any of these layers, which will further benefit the clients. So, if you go in the sectors of transportation, manufacturing, and energy and utilities or other industries, so I believe Baidu's Cloud service should be the most efficient one, because in addition to the technical advantage I just explained, we already know the industry and we know the pain-points and we have accumulated the experience by successfully delivering high-quality products already in the industries.

Most importantly, and as Robin just mentioned, we plan to integrate Ernie Bot into our Cloud and AI products. So, this should help many business owners and entrepreneurs build their energy applications with new business or improve their operations. So, we believe this will be a significant step for our AI Cloud and potentially reshape the whole China's Cloud industry. So, we will help more business owners and entrepreneurs to live from digital era to AI world, where AI technologies will play a vital role in productivities in all industries.

And with that, I will turn to Rong for your last part. Yes, Rong.

Rong Luo - Chief Financial Officer

Yeah, I'm going to address your question regarding to our AI Cloud margins. We continually improved margins for Cloud by cutting the low-margin businesses and continue to building AI applications, which has gone up, which is a consistent strategy for years. Same was mentioned before, as our AI Cloud actually going to pass, the first one will be the personal cloud, which continue to generally picks up on the margin while the enterprise cloud is still loss making and the margins is improving both gross margin and operating margin. In fact, if you look at the new projects we've signed, the projected margins continued to improve in the past quarters. Robin has talked a lot about how we can achieve the margin improvement in his prepared remarks, and this we're continually improving our margins in future. Know that if you have time to build a sizable AI application of volume which can be used by many companies and many industries, I am confident that Baidu's full staff accountability will help us to achieve. And lastly, we're pretty much on track to make the AI Cloud products a heritage business in the coming four years. Thank you.

Operator

Thank you. Your next question comes from Eddie Leung with Bank of America. Please ask your question.

Eddie Leung - BofA Merrill Lynch - Analyst

Good evening, guys. So, I have couple of quick questions around your investment and margins as we are having an economic recovery, can you talk a bit about your investment fund for 2023 such as user acquisition and headcount? A bit related to that, I think Robin also mentioned that the AI Chat Bot could be pretty expensive to operate, right. So also related to that, could you just highlight that about the margin profile of that? And then could you give us some color on the margin pull of your core marketing pieces as well as the long-term R&D and G&A expense target? Thank you.

Rong Luo - Chief Financial Officer

Eddie, thanks so much for your questions. And let me try to address your questions. If we still remember, actually we started to cut costs and expenses since the end of the year 2021, which is ahead of our competitors in the same industry in China and we carefully review and restructure our business the last few quarters. For Mobile Ecosystem, we have phased some businesses, so there Baidu has obviously, we have no competitive advantages, or we cannot be profitable for long-term. By doing so, the Mobile Ecosystem growth today is more heavy than one year ago and having much leaner operations than before, and during the past years, the total headcount of Baidu Park actually reduced by 8% so we are not focusing on the areas where we are best-in-class in our efforts. At the same time, for AI Cloud, we structurally eliminate the low margin businesses.

We're also tightening our controls on variable costs. You probably can see that as a result in 2022 Baidu Core's operating expenses decreased by 9% year-over-year. And if we separate them out, our SG&A was down by 15% on one side and R&D was down by 3% year-over-year. In the second half of the year 2022 Baidu costs and non-GAAP operating profit margin is increasing year-over-year. And now we have healthier cost structure, a stronger organization than one year ago. So, looking at year 2023, we will remain very disciplined in spending, and we will continue to balance the revenue growth and margin as we are building a long-term sustainable development for the whole organization. If we look into each item, we will continue to monitor ROI for all promotional activities, particularly Baidu's acquisition costs and we will carefully manage all the other variable costs. For R&D you have asked just now, we're working very hard to improve efficiency of our team, the R&D team today are required to focus on building the technologies, products or services, which can create more values for users and customers. We believe, over the long-term we should be able to see the operating leverage from R&D.

Along the same line, we will continue to invest focus in new opportunities and closely monitor the rate cuts and capex, we will keep investing in cutting-edge projects like large language models or generated AI because we believe we will transform many businesses and provide huge opportunities for Baidu, while we able to further improve our efficiencies by reallocating our resources to supporting the new initiatives, such as in Ernie Bot, in short, we will not hesitate to invest in our new promising business.

So as a summary, we will look into each business to continue to generate high profits and cash flow in the future, which is our foundation and for AI Cloud and to continue to expand our margins within AI Cloud and with cloud we will continue to pass on heavy margin businesses in the industry, as Robin has just said we're continuing to standardize our AI solutions and applications. For personal cloud, we will continue to earn decent profits and margins in the future. For Apollo Go, we will continue to invest for the future, but meanwhile, we will carefully monitor its operational and financial metrics to evaluate our performance and the investment returns. Over the long run, we believe we still have room to optimize our cost and expenses, but during this process, we will dynamically allocate resources and balance the growth with margins and cash flow. Thanks so much for questions Eddie.

Operator

Thank you. Thank you. Your next question comes from Wei Xiong with UBS. Please ask your question.

Wei Xiong - UBS - Analyst

Hi, good evening, management. Congratulations on a strong quarter and thank you for taking my question. I want to ask about your robotaxi business. I'm wondering what is the current unit economics for this business, and how should we think about the breakeven timeline for the robotaxi? And also, if management can share any color on your technology roadmap that will be appreciated as well. Thank you.

Zhenyu Li - Senior Vice President and General Manager of Intelligent Driving Group

Hi, thanks. Thanks for your questions. This is Zhenyu. For your first question regarding the unit economics, as you know, the major costs are overall are labor costs and vehicle costs. So, firstly, labor cost, as you know, fully driverless operation in the safety is always the cost, the rate is to lower labor costs. In 2022, we made a big progress in providing fully driverless service on the open road. Now, we are providing fully driverless ride-hailing service in Wuhan and the Chongqin. For example, in Wuhan, we carefully expanding operations by covering a wide area longer daily operations, operating hours and also by growing of late all the vehicles. In December, we will allow to test that fully driverless cars on the open road in Beijing, Yizhuang. This is in part put us towards fully driverless operation in the Capital City. In 2023, we plan to further expand off late and ride for fully driverless operation. We will continue to reduce the labor cost by allowing more vehicles to remove in car safety operator. More-and-more cities here in China are supportive to autonomous ride-hailing operation. As a market leader Baidu is benefiting from this trend.

Also, as we said before, scaling up operations have enabled us to use full technology and further improve our safety performance. As we scale-up, we will further improve our technology and gain approval from the regulators. We will remain the largest autonomous ride-hailing service provider globally. For the year, we provided more than 1.5 million rides to the public. Now our reach of each vehicle in top cities like Beijing provides 17 drives a day. This number is already close to what a taxi can do. We believe by continuously improving our technology more-and-more cities will give ride lines to offer a traveler for ride-hailing service in the future, ultimately reducing vehicle cost with Apollo RT6, which is designed to offer large scale fully driverless ride-hailing services. We are bringing the cost of ride to the price range or mass-market electric vehicles also put. We believe vehicle cost will continue to decline in the future. The China's EV market is developing very fast and the entire supply chain is highly localized. The cost of auto parts still has lots of room to decrease. So, two factors, we believe that unit economics are operable, and will continue to improve. As Robin said, we can leverage large language model to improve technology and this will help us to further improve safety performance. Thank you.

Wei Xiong - UBS - Analyst

Thank you.

Operator

Thank you. Your next question comes from Kenneth Fong with Credit Suisse. Please ask your question.

Kenneth Fong - Credit Suisse - Analyst

All right. Thank you, management, for taking my questions and congrats on a very strong set of results. I have a question on the user traffic and user time spent, have you seen any impact or changes in these two parameters as China reopened, especially in the big cities? Thank you.

Robin Li - Co-Founder, Chairman and Chief Executive Officer

Hi, Ken, this is Robin. People started to spend more time outdoors post reopening. But actually, user time spend for hour as a whole increased 6.6% year-over-year, I think in January and that outperformed the overall mobile market. We have a wide variety of apps that here for users, Baidu App is one of the very few super apps in China and Baidu Search has a unique value proposition. We help people quickly find the most relevant and authoritative information online through technology. So, whenever users want to search for information and knowledge, they come to Baidu. When they come back to work, this becomes more apparent even if they want to check for academic development in their regions or check entrance exam scores. These kinds of needs can be better and better matched by Baidu Search and other Baidu Apps.

Over the past year, we continue to use technology to enrich content and services, so we can provide our users with a better experience in search, in feed and in many other products. Today, people not only come to us to search for information, but also to find products and services. This effort have strengthened Baidu's leading position in China's mobile Internet space. And another highlight is, but of course, Ernie Bot definition before, it has the potential to become a new traffic entry point for people online. Also, using AI to generate short video content is a typical application for generated AI. We believe AIIGC well help us accumulate more short videos on our platform over time and a direct benefit would be increasing video viewership and ad revenue. Thank you.

Kenneth Fong - Credit Suisse - Analyst

Thank you, management.

Operator

Your next question comes from Lincoln Kong with Goldman Sachs. Please ask your question.

LincoIn Kong - Goldman Sachs - Analyst

Thank you, management, for the opportunity. I have a follow-up in terms of ChatGPT and our Ernie Bot. So, it seems that many domestic companies are recently keep announcing they're partnering with us will use Baidu's Ernie Bot technology. So, can management elaborate a bit more on the full map of this partnership and what could be the monetization opportunity here and how big should we think about the pace of revenue potential? And also, in terms of competition, so how should we think about it, other Internet companies are coming, offering the similar service, or new challenges and limits our transition opportunity here? Thank you.

Robin Li - Co-Founder, Chairman and Chief Executive Officer

Sure. We're glad to see that after we announced the plan to launch Ernie Bot many organizations reached out to us and expressed their strong interest to work with Ernie Bot. Some already announced their plan to partner with us to integrate Ernie Bot's capabilities into their products or services or operations. More-and-more enterprises realized that generated large language models are going to change their industries and they would like to capture this opportunity. In fact, Ernie Bot has attracted so much interest also shows that Baidu is well-recognized for our leading AI capabilities and the age of AI has finally come. And regarding to monetization opportunities, Ernie Bot will be integrated into Baidu Search, enhance the user experience and users will be much more dependent on us for all kinds of tasks. Therefore, significantly expand the market size of search. We are using AIGC to expand our content like text images or videos, and this will create a great opportunity for us to attract new users, increase user time spend and user stickiness. However, will gain share in the online app market over the long run.

And for cloud customers, they will be able to leverage our full stack AI capabilities, not just the basic stuff, storage or bandwidth or database, these kinds of things, they can develop their apps based on our AI framework PaddlePaddle and the foundation model ERNIE. It will be much easier, much more efficient, much more powerful, so this will propel our cloud revenue too. And our full stack of AI capabilities is quite unique, it contains cloud infrastructure, deep learning platform like PaddlePaddle and large language models and widely used application. We have a strong presence in all four layers and this all works together efficiently. Our large language model ERNIE 3.0 has been trained with billions of daily user search requests and other popular Baidu family of apps. Baidu Ernie Bot will be using this kind of hugely well tapped data pool to help improve and adapt quickly over time. The barrier-to-entry for this is very high, it requires multiple years of significantly investments, and we have the first-mover advantage.

The technology behind Ernie Bot is called reinforcement learning that human feedback. So here the human feedback part is critical. As the first mover, we get more-and-more human feedback and further improve our capabilities real ahead of anyone else. And right now, we are focused on preparing the launch off Ernie Bot bought and make continuous improvement after the launch and we are also focusing on areas that we believe Ernie Bot will create immediate value. So, state tuned. Thank you.

LincoIn Kong - Goldman Sachs - Analyst

Thank you.

Operator

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BAIDU INC

Q4 2022

Earnings Transcript

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