Executive Summary

• Baidu reported 2Q17 non-GAAP diluted earnings per ADS of ¥16.00, up 98.0% year over year, to beat the consensus of ¥10.13. Revenues reached ¥20.9 billion, up 14.3% year over year and were broadly in-line with the consensus estimate.
• The solid EPS beat is mainly due to lower-than-expected operating expenses as well as a tax-rate reduction. The decrease in the effective tax rate was due to the preferential tax status that was granted to certain PRC subsidiaries in 2Q17.
• Management expects the top-line for 2Q17 to be in the ¥23.13–¥23.75 billion range, representing a year-over-year increase of 26.7%–30.1%. Management expects to use artificial intelligence (AI) as a fundamental driver to offset the slow growth in the core business.