Victor Tseng - Director, IR Robin Li - CEO Jennifer Li - CFO Haoyu Shen - SVP of Business Operations

James Mitchell - Goldman Sachs Dick Wei - JPMorgan Alicia Yap - Citigroup Yu Jin - CICC Eddie Leung - Merrill Lynch Gene Munster - Piper Jaffray Ming Zhao - SIG Jiong Shao - Macquarie Philip Wan - Morgan Stanley Alex Yao - Deutsche Bank Aaron Kessler - ThinkEquity Steve Weinstein - Pacific Crest Jake Li - Guotai Junan Eric Wen - Mirae Asset. Wendy Huang - RBS Cynthia Meng - Jefferies Muzhi Li - Mizuho Securities Wallace Cheung - Credit Suisse Andy Yeung - Oppenheimer Michelle Ma - Samsung Securities

Hello and thank you for standing by for Baidu's first quarter 2011 earnings conference call. (Operator Instructions) I'd now like to turn the meeting over to your host for today's conference, Victor Tseng, Baidu's Investor Relations Director.

Hello, everyone, and welcome to Baidu's first quarter 2011 earnings conference call. We distributed Baidu's first quarter 2011 earnings release earlier today. You can find a copy of the press release on the company's website as well as on newswire services. Today, you will hear from Robin Li, Baidu's Chief Executive Officer; and Jennifer Li, Baidu's Chief Financial Officer. After their prepared remarks, Robin and Jennifer will be joined by Haoyu Shen, Senior Vice President of Business Operations, to answer your questions. Before we proceed, 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. 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 in this call will include discussions of certain unaudited non-GAAP financial measures. Our press release contains a reconciliation of the unaudited non-GAAP measures to the unaudited 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 corporate website at ir.baidu.com. I will now turn the call over to Baidu’s Chief Executive Officer, Robin Li.

Hello everyone, and welcome to today’s call. Our continued focus on execution (at the audit) of another quarter of very strong top and bottom line results, driven by solid traffic growth and the improvement to our month addition platform. On the user front, traffic volume growth remained strong with Organic and Union traffic both growing healthily. Today, China’s internet consumption rate is still under 35% and search is now the most widely used internet application in the country. This gives Baidu’s plenty of room to further develop the market. We will accomplish this by enabling our users to fulfill more and more of their day-to-day needs on our platform. I would like to talk briefly about some of our work under the Box Computing banner, which builds upon our search leadership and enhances user experience. As you may know, our ambition for box computing is that a simple comment box will increasingly fulfill users' needs. Box computing is powered by a sophisticated understanding of user intent and powerful natural language programming and benefit from an increasingly sophisticated online ecosystem. As result of this initiative, we now incorporate a lot of dynamic data content in our search results, in fact Baidu query returning box computing result have blown to over 60% of the total queries now. We are particularly excited about the progress of our open application platform, which is integral to our box computing mission. We launched this in September of 2010. Apps embedded in search result page now generate millions of clicks per day. Some of the best performing apps include microgames, e-books and videos as well as practical tools such as anti-virus software and express delivery tracking systems. We continue to push the bar on innovation through box computing foreign platform. Over the past quarter, we launched a new feature that automatically distinguishes between regular search queries and tags intended for posting microblog accounts. The feature then lets users simultaneously publish their posts on multiple microblog accounts. These are product improvements that enable user activities on the search platform. We are continuing to develop the resources toward educating users about how to use search more effectively and about new ways of using search. And a very important way we improved user experience is by evolving our array of social search products, traffic on our social search products such as Baidu Post Bar, Baidu Knows continues to grow healthily. Registered users have grown at a rate of 10 million per month as we added more and more social features such as Connect and Like to our existing products. As we continuously enhance our product, we are very encouraged that so many users are becoming increasingly engaged with our platform and actively creating quality content. This serves as a solid foundation for future Baidu social products. In parallel, CE.com continues to grow strongly. On the user front, there are over 150 million monthly unique users in just 12 months after its launch. This is by far a record for online video sites in China. On the monetization front, we continued to enhance Phoenix Nest, better keyword coverage and better pasted relevance drove pay per click growth of 56% year-over-year in 2010. This trend continued in Q1, and this highlights the increased value that customers are seeing from their marketing spend. At the same time, online retail has continued its trajectory of double-digit growth year-on-year. Baidu currently serves only a small percentage of tens of millions of SME's in China. We will need to keep working hard to educate the market about the benefits of online marketing results. We will continue our annual nationwide search engine marketing campaign this year, reaching over 150 cities. Another focal point is ensuring that our existing customers know how to optimize the search engine marketing process. We aim to enhance customer know-how through hiring more customer service representatives, improving the sales process through CRM implementation and developing and deploying better tools for customers to optimize their search engine marketing. We've seen in the past that as customers better understand the advantages of our online marketing platform, they tend to allocate more of their advertising spending to us. In addition to increasing sales account, expanding our R&D talent pool is another focus. Most of the 800 staff we hired this past quarter were for R&D. In particular, I would like to highlight Mr. Lee Liu, who has recently joined us as VP of human resources. Mr. Liu brings impressive credentials to Baidu, having previously served as Vice president of human resources at Motorola. Looking ahead, we will maintain our focus on improving our offering to users and customers, providing additional functionality through box computing and continuing to make improvements to our online marketing platforms. As part of this, we will continue to invest in R&D, in sales resources as well as network infrastructure. With that now I’ll turn the call over to Jennifer for financial highlights.

As Robin outlined, the Chinese internet marketplace continues to hold great growth potential for Baidu, and we are investing at all levels of our company to ensure strong and steady business expansion. Now let’s look at financial highlights for the quarter. All amounts mentioned are in RMB unless otherwise noted. Online marketing revenues for the first quarter of 2011 were RMB2.4 billion, a 88% increase year-over-over. Baidu had around 274,000 active online marketing customers in the first quarter of 2011, a 24% increase from the corresponding period in 2010 and a 0.7% decrease from the previous quarter. Revenue for online marketing customers in the first quarter reached approximately 8,900, a 51% increase from corresponding period in 2010 and flat compared to the previous quarter. Traffic acquisition cost as a component of cost of revenue was RMB199 million or 8.2% of total revenues as compared to 13.2% in the corresponding period in 2010 and 8.1% in the fourth quarter of last year. Bandwidth cost as a component of cost of revenue were RMB122 million, representing 5% of total revenue compared to 4.5% in the same period last year. Depreciation cost as a component of cost of revenue were RMB123 million representing 5% of total revenues compared to 5.1% in Q1 2010. Selling, general and administrative expenses in Q1 were RMB333 million, an increase of 55% year-over-year. This increase primarily reflects increased personnel costs and marketing expenses. Research and development expenses were RMB239 million, a 96% increase from the year ago period. The increase primarily reflects increased personnel cost. Share-based compensation expenses, which were allocated to related operating cost and expense line items, increased in aggregate to RMB31 million in the first quarter of 2011 from RMB20 million in the corresponding period in 2010. Operating profit was RMB1.2 billion, a 125% increase year-over-year. Total headcount as of March 31, 2011 was at 7,700, roughly 800 more than the previous quarter. Income tax expense was RMB181 million for the first quarter. The effective tax rate for the first quarter was 14.5% as compared to 12.8% for the corresponding period in 2010. Net income was nearly RMB1.1 billion, a 123% increase from the corresponding period in 2010. Basic and diluted earnings per ADS for the first quarter of 2011 amounted to RMB3.07 and RMB3.06 respectively. Net income, excluding share-based compensation expenses a non-GAAP measure was slightly over RMB1.1 billion, a 120% increase from the corresponding period in 2010. Basic and diluted earnings per ADS, excluding share-based compensation expense, both non-GAAP measures were RMB3.16 and RMB3.15 respectively. As of March 31, 2011, the company had cash, cash equivalents and short-term investments of RMB8.6 billion. Net operating cash flow and capital expenditures for the first quarter of 2011 were RMB977 million and RMB387 million respectively. Now let me provide you with our top-line guidance for the second quarter of 2011. We currently expect total revenue for the second quarter of 2011 to be between RMB3.23 billion and RMB3.3 billion, which would represent a 68.7% to 72.4% year-over-year growth. This forecast reflects Baidu's current and preliminary yields, which is subject to change. I will now open the call to questions. Operator, please go ahead.

(Operator Instructions) Your first question is from the line of James Mitchell with Goldman Sachs. James Mitchell - Goldman Sachs: You mentioned that paid lead growth was 56% year-on-year in 2010 and continues at a fast rate in first quarter 2011. Is the growth in paid lead some of the growth enquiries or has the ratio of paid lead queries increased? And then maybe it is related to that but the 110% growth in the bandwidth cost year-on-year, was that an unusually fast increase because of very fast query growth or is bandwidth use for query increasing because of the box computing results in the queries?

Let me answer the first question about passive versus the number of clicks. In 2010, our paid products grew by 56% versus 2009, and that leads the growth of traffic growth in 2010. We are seeing that trend continuing into Q1, and this really shows the power of our new internet auction system. James Mitchell - Goldman Sachs: If the traffic growth is less than 56%, my bandwidth cost is up 110%. Is that because of richer results?

The bandwidth cost itself also includes server hosting expenses. As you have noticed, we have stepped up our investment in servers, acquisitions of network infrastructure equipment. So as part of the bandwidth cost, with more servers, there is more hosting cost related to that. So included in bandwidth cost is traffic-related, and I would say most of the increase is because we have more servers.

Also because we also offer a lot of non web search products, including the social search products. Traffic for the social search products grow much faster than web search product, and right now it's under-monetized.

Your next question is from the line of Mr. Dick Wei with JPMorgan. Dick Wei - JPMorgan: My question is on local advertising. I think with the popularity of goods purchase in China, it seems some more of the local SMEs started to think about advertising also on the Internet. I wonder how much of Baidu's revenue currently coming from the local advertising or local advertisers, and what is the product plan in this area? Should we expect more acquisitions or should we expect more of the internal sales team to build up sales?

Right now if you look at our customer portfolio, we don't really have a whole lot of local service advertisers with us. So not many of them are buying our pay click products. And right now we are exploring different ways of capturing that market going forward, but we don't have any major announcement at this point.

Local is very long tail; there are lots of very small ones and the ARPU for local is relatively lower than our typical customers. What we have seen is that some of the aggregators for local services, including those group buying sites, those classified ad sites, 58.com or (gienje.com), those are the pick for large advertisers of ours. Right now I think it's probably still early for us to directly get in touch with the local merchant.

Your next question is from the line of Alicia Yap with Citigroup. Alicia Yap - Citigroup: I was just wondering would you be able to share with us some of your thoughts regarding how Baidu will be playing a role in the emerging important space of the social media marketing. Any upcoming initiatives of your view regarding the industry trends would be appreciated.

Like I mentioned during the prepared remarks, our view on the social is that we need to integrate socialistic search, because these searches are core and they are fundamental to internet users' everyday needs. Search just became the most popular application for Chinese internet users. There are still lots of growth for us to expect for many years down the road. We do realize that social is becoming more and more popular, that’s why we have been embracing a lot of social features into our products. In fact since year 2003, we started to social features to our search services. Total search services represent a quarter of our total traffic and is growing faster than the web search. So our approach is to integrate social with search, not to really develop an intent social network per se.

Your next question is coming from the line of Yu Jin with CICC. Yu Jin - CICC: You have a broad presence in mobile internet. So I am curious, and the behavior of mobile internet users, I am not sure whether the top-class applications will be a circular trend wherein the bandwidth is not a problem. Users will still go to the website to enjoy most of mobile services. So I’d like to learn the insight from Robin.

It’s not clear. Can you please repeat your question? Yu Jin - CICC: My question is, I am curious on you view. I'm not sure whether APB Star Plus applications is set the trend for mobile internet users when the bandwidth is not a problem, so we can access mobile internet more easily, so people will still go to the website, go to the 3w to enjoy most internet services.

Yes, I think that would be a long term view for mobile internet. If you look at the PC internet, in the early days, a lot of people would like to download software and going to directories. Later on, when there are many different services on the internet available, people had to rely on search. Mobile internet is relatively in its infant stage. People are still very much into the app store model; they like to download apps and save it. But going forward, when there are tens of millions of apps, hundreds of millions of apps, I think people would increasingly have to depend on search to find what they want. So longer term, I think be it mobile or landline, users will have a lot more choices than they do today and they will be increasingly dependent on software-based user interface or search in particular.

Your next question is from the line of Eddie Leung with Merrill Lynch. Eddie Leung - Merrill Lynch: Could you share with us some update on your development from your new contextual Adsense system. And related to that have you seen the percentage of advertising revenues from contractual ads change in the past six months or so?

We mentioned I think in previous calls that we moved our contextual product to a new platform later part of last year. So since then we have been building upon that, improving our rhythm and really pushing the product to small advertisers and brand advertisers. So in Q1, we have seen a lot of progress, but we still have a long way to go. Eddie Leung - Merrill Lynch: At the moment would you describe the key focus is to increase your reach of your partners, or is more about pushing it or selling it to advertisers?

It's not so much of getting more publishers, because we have greater reach already in terms of publishers. It is really improving the product over on the site and also go out and educate different customers on how they can use contextual research.

Your next question is from the line of Gene Munster with Piper Jaffray. Gene Munster - Piper Jaffray: Question regarding Phoenix Nest. I guess we're just a little bit over a year anniversarying this and the revenue growth continued to be strong. If we get pay clicks of 56% year-over-year, if I am right CPCs were up in the mid-twenties, is there another leg to I guess the CPC (motivation) story post Phoenix Nest or is this kind of the new equilibrium netware adds?

Gene, I am not so sure if I get your question, but if you look at the number of clicks versus CPC, we apparently had tremendous growth of number of clicks last year due to Phoenix Nest. Now we still have the lapping effect; we've had our anniversary already, but in Q1, we are continuing to see great growth of the number of clicks. And CPC as you saw, largely, I think we're probably in the mid-teens instead of mid-20s in terms of growth rate. And the CPC then really were faster or slower pre and post Phoenix Nest. And I think going forward that will continue to be the case. And the important thing to bear in mind is that search market in China is still in its early stage, both the CPC and number of clicks a lot of room for improvement. It is not really about Phoenix Nest; it's about the stage we are at for the market. Gene Munster - Piper Jaffray: Okay, and just to make sure I am on the same page here is that Q1 just reported quarter comp'ing against the full Phoenix Nest integrate quarter a year ago. Is that correct?

Yes.

Your next question is from the line of Ming Zhao with SIG. Ming Zhao - SIG: I don’t know if you could give us the color on how much revenue you get from this navigation page, and do you think in the future you can still maintain the leadership in this area? And relating to that is, you just launched your Baidu browser. What's your strategy there to grow the penetration of your Baidu browser?

We don’t disclose the exact percentage revenue from (Hao), but it is the most popular home page in China set up by consumers, and we'll continue to improve the product, differentiate the product to maintain a leadership position. And in terms of revenue, it really comes from two sources, one is search (Hao) center search is the default search, the search path is Baidu search. So we gain revenue from search. And also because it's such a very popular directory site, we get some ad revenue from that as well. In any case, we can't discuss the number but it's very meaningful.

For the Baidu browser, we haven't really officially announced the browser yet, but we see opportunities there. I think in China, Internet Explorer is not very competitive. That created a lot of opportunities for the customized browsers. Having control of the browser that would certainly help us to drive traffic to Baidu search. We currently have partnership deals with some of the browsers, and we'd like to see if we can offer better user experiences to our own browser. The key is that we can share revenue with people, so we have the distribution power when we want to distribute certain type of high impact software.

Your next question is coming from the line of Jiong Shao with Macquarie. Jiong Shao - Macquarie: First to clarify what Robin said earlier in the prepared remarks, I think Robin you mentioned that 60% of your total queries come back with results with most of box computing sort of information embedded. I just want to make sure I heard that right. My question is also on box computing. Could you please give us an update on like how many partners you now have, what's your target for the number of partners by the end of the year, and the monetization time line etcetera?

Yes, you heard it right. Roughly 60% of the search with our pages now contains box computing results. Such results include both the open data platform and open application platform. We have about tens of partners right now. Some of the partners provide very popular services such as calendar services or weather reports, those kinds of services which would represent a very large number of queries. So the 60% coverage is right and I think going forward the coverage could go up continuously. In terms of monetization it's still too early. Although we have done certain tests with the box computing infrastructure, and advertisers are very happy with whom we've done a number of deals. But right now, monetization is not a focus for the box computing mission.

Your next question is from the line of Philip Wan with Morgan Stanley. Philip Wan - Morgan Stanley: Could you please provide us more color about your mobile strategy? And there's a news commenting that 80% of Android platforms will be in for Baidu as the (first) search engine. And I'm particularly interested in the economics behind that, for example with Baidu (inaudible) of their handsets of the revenue sharing in the form of traffic (inaudible)?

Yes, I think that this cost is the LV android phones shipped in China. 80% of them have Baidu as default search engine. So these are affiliate agreements that we entered with device makers. So it's a revenue sharing arrangement we built with the handset makers. So the search could either be, on those phones we have a system on the home screen or some of the other devices we preinstall Baidu translated software onto those devices. For the overall mobile strategy, to put it in a single-term, it's also box computing. I think in the future, the moment a user powers on the mobile phone, he or she will immediately see a box that can do everything. We are working very hard toward that mission.

Your next question is from the line of Alex Yao with Deutsche Bank. Alex Yao - Deutsche Bank: Can you give us an update on the Baidu Union business and how should we think about the traffic acquisition cost in the rest of the year?

So as we talked about many times before, we have two businesses within Baidu unit, one is search the other is contextual. And so a lot of the TAC cost decline also was due to our rationalization of the search business. And those initiatives by now are largely behind us. And the other business is contextual where we see tremendous growth potential going forward, but we have a long way to go. And if you look at these two businesses, contextual tends to have a higher payout ratio. So if contextual revenue grows to a bigger percentage of total unit business, then you will see TAC ratio going up. But again, there will be a gradual profit. If you look at Q1, TAC as a percentage of total revenue is sluggish versus Q4. So looking out to the rest of the year we think TAC ratio will fluctuate, but it will be within a better to normal range. But again, search business is all about competition; if someone gets more competitive we probably need to react. And if we do very well in contextual, then we have an occasional TAC as well.

Your next question is coming from the line of Aaron Kessler with ThinkEquity. Aaron Kessler - ThinkEquity: If you can clarify what I'm hearing in the quarter that there was maybe some reduction in agency commission fees. If you can comment on that. And also just picking up that maybe you're looking to clean up some of the advertiser base, maybe on a heels of the Alibaba issue in terms of some fraudulent advertisers. If you can comment on any of those issues, that would be helpful.

On the agency policy, so we update our policy every year. We look at different types of agencies and how they help us on different product lines, and every year we rationalize how much we pay out to them to encourage them to serve the customers better and see it's a win-win situation with Baidu. And our customer clean up, that’s really a continuous process. We monitor consumer complaints and customer complaints continuously. And once we find that some customers are using (13:02.51) we will clean up that factor or we will install stricter requirements for certain factors. So that’s a continuous process; there is nothing new in Q1.

Your next question is from the line of Steve Weinstein with Pacific Crest. Steve Weinstein - Pacific Crest: When I look at the sequential growth implied in your guidance for Q2, it seems to be a little lower than what we've seen historically. And I am wondering if you could put that in context if it's because there were factors in Q1 that made Q1 particularly strong, or if you're doing something in Q2 that might make it a little bit weaker, or if this is just the business operating at this level, scale now, we are going to see more maturation and maybe the flattening out of this growth rate?

I think a few things. The seasonality in Q1 is a factor, at least it was last year. And as you said, we are at much bigger scale than the fourth. So that's how we get our numbers. We mentioned that Q2 last year was the first quarter for Phoenix Nest to show power. So from Q1 to Q2 in 2010, you would naturally see a higher sequential growth. But this year, I think its more of a normal sequential growth.

Your next question is from the line of Jake Li with Guotai Junan. Jake Li - Guotai Junan: My question is still regarding our Hao123. So currently, could you give us some color about the traffic contribution from your Hao123? Why I ask this is, because 360 has roll out their business model, and it's very similar with the Hao123. And they also get a lot of traffic, so I am wondering if you have plan to further expand the Hao123? For example, do you have plans to launch a vertical navigation page like the e-commerce? Also, do you have any plan to monetize this?

As I said, we don't disclose the exact percentage of search traffic from Hao, but it's quite meaningful. So as I said, we will continue to improve the product, differentiate the product going forward, and we will market (inaudible) ourselves and also through our different partners.

As you know, that has very strong brand recognition among the vast of majority of Chinese internet users. So we enjoy an advantage when trying to distribute (Hao) to partners and to get new users to adopt this site. We also think that there is lot of room for improvement for a directory site. Like you mentioned, vertical is one direction. We are coming up with certain vertical directories such as group buying directories which has already been launched and very well received by both users and advertisers. Another direction we’re moving into for hires, and it's personalization. We will deliver different results, different user interfaces for different users. We think perhaps we can provide the best user experience with Hao (inaudible) recognition, we would be a winning site. Jake Li - Guotai Junan: Do you have any other data about the Rakuten?

Yes, Rakuten has been live for a few months now, and the team is still improvising the product to fit Chinese consumers' needs better in terms of interface, in terms of the transaction process. And the work has been slowed down a little bit by what happened in Japan. But we are looking forward to see news of interface launch in a few months.

Your next question is from the line of Eric Wen with Mirae Asset. Eric Wen - Mirae Asset.: I have two housekeeping questions and one follow up. First, Jennifer, the account receivable seems to go up a little bit from the first quarter. Can you update on why that's the case? Is it because of the large advertisers taking more share? Second is that, can you give a brief color on the loss in the Japan subsidiary due to the earthquake during the quarter. How much did it reduce your profit during this quarter? And I have a follow up.

In terms of account receivable, as we have mentioned, our large customers continue to really benefit from our monetization platform, and their spending with us has been growing at a fast pace. So there is really nothing unusual going on with the accounts receivable in terms of like longer payment terms or law situation. So this basically represents the business of large customers that's growing at a healthy rate. Japan, we have said that we will not separately disclose the Japan financials because our business space is going much larger. It's increasingly as an expense item, immaterial. This past quarter, while business has been somewhat affected by the Japan earthquake, but the expense item related to the Japanese operation is not out of line compared to historical patterns. Eric Wen - Mirae Asset.: The follow up question is about the strategy on Android. I just wonder if company can give some color on whether it will be a platform or a content strategy for Baidu. Now I understand that Android is going to be a open platform, which opens the possibility for any company to build its own flavor and stay compatible. What is Baidu's thoughts on that? Would Baidu be pursuing a platform strategy based on Android or based on its own technology, or it will stay on the application side, mostly bundling your search box or any future applications? Any color on that would be very helpful.

We work with all kinds of platforms to integrate our search box into the mobile phone or tablet. So we are probably more often than anyone now. But in our vision for the future of computing is box computing, so we would like to see a mobile device that has nothing but a box in the future. We would like all of the platform players to work towards this direction, and if necessary, we can come up with our own.

(Operator Instructions) The next question comes from the line of Wendy Huang with RBS. Wendy Huang - RBS: My question is regarding the number of advertiser growth. In Q4, 2010 and Q1, 2011 your advertiser base has been stable and it shows no growth. I just wonder, what kind of advertiser growth implied by your sudden quarter guidance, which is currently implying about 33% to 35% sequential growth. Is it mainly from the ARPU growth still or shall we see any increase in the number of advertisers?

We don’t breakout the revenue growth guidance into number of customers in the ARPU, but Q1 versus Q4 number of customers are flattish. Comparison is normal if you look at historical numbers. And if the future is any indication, we will see growth of a number of customers in Q2 versus Q1. Now we are starting our annual spring campaign, and again sort of 100 city tour, and that will help on our position. And seasonality, I wish that in Q4 we shall have very strong position.

The next question is from the line of Cynthia Meng with Jefferies. Cynthia Meng - Jefferies: I have two questions; one is on Qiyi. One, will it start to have video advertisement just in terms of timing after one year of starting operations. The second one is on tax rates for Jennifer. Tax rate for the first quarter was 14.5% and how should we think about the full year tax rate?

For Qiyi, we already started to sell video ads for (te.com) website. Some of them are embedded in the (CDUs). But Qiyi is only one year old. As a media brand it takes some time for the revenue to catch up with the traffic.

And for tax rates, you will notice that for Q1 compared to last year, it’s a slight step-up. This is normal, as some sub-entities do enjoy favorable tax treatment. As time goes by, they migrate out of that tax status. We have guided in the early part of last call that this year's tax rate, you should anticipate low to mid-teens, and the current level is very indicative for this year.

(Operator Instructions) The next question is from the line of Muzhi Li from Mizuho Securities. Muzhi Li - Mizuho Securities: I would like to ask Robin, what do you think the challenge of social media is through Baidu's search product?

Like I mentioned before, our strategy through social media is to integrate social with search, and we have been doing that for eight years. This is quite different from the U.S. case where for many, many years search was quite dominant and there were no threat from social. But in China if you look at the landscape, there are lots of players in the social ground, particularly Tencent, they being there for many, many years and they are very successful. So we started to think about how to make search better and how to defend our position many, many years ago. And so far, it's being very successful and users are very loyal to us and they help to create a lot of high quality content to the Baidu website. When you talk about social media, that definition, "media" means advertising. Plus, you have high quality content. You can drive traffic and you can monetize that. So I'm very happy that we did that many, many years ago, And we will continue to add more and more social features to our existing products, helping our users to create high quality content on the Baidu website. So that would be our answer to social media.

Your next question is from the line of Wendy Huang with RBS. Wendy Huang - RBS: I just wonder what's your current top five advertiser categories? And also, in particular has the e-commerce advertisers' contribution exceeded 5% of your total revenues?

Our top five sectors have remained largely the same. They are medical, healthcare, machinery, equipment, education and travel and online software services. As we've mentioned, e-commerce, our script is growing at a fast pace. It's not making up the top five sectors, and over time we'll continue to see there is a lot of potential in the e-commerce space. Wendy Huang - RBS: It's being already meaningful with more than 5% of total revenue.

It's really difficult to classify exactly how you define retail. E-commerce space is a very broad definition. So I think, we wouldn’t want to venture into exactly what the percent of that is. I think that the our retailing sector itself is growing very fast. It's not one of the top five sectors.

Your next question is from the line of Wallace Cheung with Credit Suisse. Wallace Cheung - Credit Suisse: Questions on the balance sheet; can you explain why the fixed assets, intangible assets and also the long-term investment seems to be jumping quite significantly on a Q-on-Q basis?

Fixed asset, well, it ties up with our CapEx investment. As we have noted that we have stepped up our investment in network infrastructure and fixed assets will reflect that. In terms of intangible assets, what happened over Q1 is, we did acquire a piece of land in the Southern part of China, and we are expanding our office capacities in another parts of the country. So this intangible asset increase basically reflects land acquisitions. And in terms of long-term investments, these are investments that we made in other companies; what's included in here would be ventures like Rakuten and also other long-term investment that we made with other entities. Wallace Cheung - Credit Suisse: Does it include the new investment fund that you have set up for the open platform?

Not this one, not in here. This one is basically M&A activities.

Your next question is from the line of Andy Yeung with Oppenheimer. Andy Yeung - Oppenheimer: My question is similar to the previous question, which is about your CapEx cycle and your division costs. Obviously, you are embarking on a very large CapEx cycle right now. Can you give us some insight in terms of the areas of making investment and how we should view your credit cycle going forward, and also with depreciation costs?

In terms of CapEx, you will have noticed that we have stepped up our CapEx spending. In Q4 the number was RMB$360 million and the number is about RMB$390 million this quarter, and this basically gives you an idea of the pace that we are going with. And I think this phase will continue on as the year goes along, and we anticipate to step up the CapEx spending on this front as well. What's included in this investment is basically infrastructure, network equipment, servers. And as I mentioned earlier, we also acquired land. As the year goes deeper, we will also incur CapEx-related OpEx expansion cost. So basically our investment for the future, we see great potential in the market space and we need to expand both facilities as well as infrastructures. Andy Yeung - Oppenheimer: Great, and just want to follow up with a question on values. Depreciation cycle, looking at the fixed assets, I mean what's the lifecycle for depreciation there?

Most of the servers and infrastructure network equipment, around three years for land, and that's much longer, and buildings that's much longer. Most of the CapEx spending that you're seeing now is server related.

The next question is from the line of Michelle Ma with Samsung Securities. Michelle Ma - Samsung Securities: I have a question regarding your online video business, Qiyi. Just wondering how much percent of the traffic on Qiyi is actually coming from Baidu, and if you can share with us what's the current market share of Qiyi in China online video business.

We drive a lot traffic to Qiyi, but we are not going to disclose the percentage. One thing for sure is that Baidu is largest onsite traffic source for (te.com). What we have seen very happily is that Qiyi, excluding its current name, is that increasingly users are going directly to (te.com). Michelle Ma - Samsung Securities: And also the current market share of Qiyi?

I don’t have the numbers at hand, but Qiyi is obviously a leader in the long form license to video content. There are larger ones that host all kinds of video content including those user generated content. And Qiyi is at this time purely for long form license video content, and I believe that user experience, we are at number one and the growth rate there is number one. I am not sure about the current position. I need to check.

We are now approaching the end of the conference call. I will now turn the call over to Baidu's Chief Executive Officer, Robin Li, for his closing remarks.

Once again, thank you for joining us today. And please do not hesitate to contact us if you have any further questions.

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Have a good day.