20-F 1 d272011d20f.htm FORM 20-F Form 20-F
41680000000.000000625P2Y0.0000006250.0000006250.0000006250.0000006250.00000062527562906false FY0001329099Baidu Campus No. 10 Shangdi 10th StreetBaidu Campus No. 10 Shangdi 10th Street0.0000006250.0000006250.0000006250.000000625P5DP5DPar value per share and the number of shares as of December 31, 2020 has been retrospectively adjusted for the Share Subdivision that took effect on March 1, 2021 as detailed in Notes 1 and 21Basic and diluted earnings per share and the number of shares for the years ended December 31, 2019 and 2020 have been retrospectively adjusted for the Share Subdivision that took effect on March 1, 2021 as detailed in Notes 1 and 21.The number of shares has been retrospectively adjusted for the Share Subdivision that took effect on March 1, 2021 as detailed in Note 1 and Note 21.Gross unrealized losses (downward adjustments excluding impairment) were RMB863 million, RMB378 million and RMB166 million (US$26 million) for the years ended December 31, 2019, 2020 and 2021, respectively.The Company adopted a one-quarter lag in reporting its share of equity income (loss) in Trip.The Company adopted a one-quarter lag in reporting its share of (loss) income in majority of its equity investees.The allowance for credit losses on contract assets was RMB27 million and RMB85 million (US$13 million) as of December 31, 2020 and 2021, respectively. The amounts charged to expenses for credit losses on contract assets and write-offs charged against the allowance were RMB9 million and RMB58 million (US$9 million) for the years ended December 31, 2020 and 2021, respectively. No write-offs were charged against the allowance for the years ended December 31, 2020 and 2021, respectively. The effect of adopting ASU 2016-13 on January 1,2020 was RMB11 million to the opening balance of contract assets, net.Basic and diluted net earnings per share, the number of shares and the adjustments for dilutive restricted shares and share options for the years ended December 31, 2019 and 2020 have been retrospectively adjusted for the Share Subdivision and the ADS Ratio Change that took effect on March 1, 2021, as detailed in Note 1.The balance mainly represents deferred revenue relating to the future services to be provided by the Company to investees.The balances mainly represent deferred revenue relating to the future services to be provided by the Company to Related Party F which is an equity method investment investee.The balances mainly represent non-trade interest-free long-term loans provided by Related Party B.The balances mainly represent amounts arising from services including advertising services and licensing of content assets provided by the Company’s investees and non-trade amounts payable for acquiring the equity interest of the Company’s investees.The balance represents amount due to Related Party B arising from services provided by Related Party B to the Company in the ordinary course of business and non-trade loans provided by Related Party B with interest rates of nil.The balances mainly represent amounts arising from deferred revenue relating to the future online marketing services and other services to be provided by the Company to Related Party A and business trip services provided by Related Party A.The balance consists of amount due from the Company’s investees in the ordinary course of business.The balances represent non-trade long-term loans due from Related Party B with interest rates ranging from 0.00% to 0.50%, and amounts arising from services the Company provided to Related Party B.The balance mainly represents online marketing services provided to Related Party D.The balances mainly represent amounts arising from services including online marketing services and cloud services the Company provided to Related Party E. Related Party E ceases to be a related party from February 2021 as the Company does not have significant influence over Related Party E after its public listing.The balances mainly represent amounts arising from cloud services and other services the Company provided to its investees in ordinary course of business.The balances mainly represent amounts arising from online marketing services, cloud services and other services the Company provided to Related Party A.In addition, due to adverse changes in the expected performance of certain produced content and the reduced amount of ultimate revenue expected to be recognized, an impairment charge of RMB205 million and RMB161 million (US$25 million) was recognized for produced content predominantly monetized on its own and was recognized as cost of revenues in the consolidated statement of comprehensive income for the years ended December 31, 2020 and 2021, respectively. The fair value information presented is not as of the period’s end, and is sensitive to changes in the unobservable inputs used to determine fair value and such changes could result in the fair value at the reporting date to be different from the fair value presented.The fair value hierarchy of certain equity investments were transferred from level 3 to level 1 due to the public listing of the investees during the year ended December 31, 2021Due to factors such as the outbreak of coronavirus (COVID-19) resulting in declined financial performances and changes in business circumstances of certain investees, the Company recognized impairment charges of long-term investments in the consolidated statement of comprehensive (loss) income during the years ended December 31, 2020 and 2021. For equity securities accounted for under the measurement alternative, when there are observable price changes in orderly transactions for identical or similar investments of the same issuer, the investments are re-measured to fair value. The Company recognized impairment loss on intangible assets as of March 31, 2020. The impairment loss on intangible assets in 2021 was immaterial.The outbreak of COVID-19 during the first quarter of 2020 also has resulted in a downward adjustment to forecasted advertising revenues for the Mainland China film group. As a result, the Company performed an assessment to determine whether the fair value of the Mainland China film group was less than its unamortized film costs as of March 31, 2020 with the assistance of a third-party valuation firm. The Company uses a discounted cash flow approach to estimate the fair value. The Company estimated the most likely future cash flows based on historical results, economic useful lives or license periods and perception of future performance. The Company has incorporated those cash outflows necessary to generate the cash inflows, including future production, operation, exploitation and administrative costs, which were estimated at 32%-37% of revenue in aggregate. The discount rate was determined to be the weighted average cost of capital of the Mainland China film group at 15%. As of March 31, 2020, the fair value of the Mainland China film group was less than its corresponding carrying value and resulted in the Company recognizing an impairment charge of RMB390 million related to licensed copyrights and RMB210 million related to produced content, respectively. 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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form
20-F
(Mark One)
 
REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR 12(g) OF THE SECURITIES EXCHANGE ACT OF 1934
 
or
 
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For
the fiscal year ended December 31, 2021.
 
or
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For
the transition period from
            
to
            
or
 
SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of event requiring this shell company report
For the transition period from
                
to
                
Commission file number:
000-51469
Baidu, Inc.
(Exact name of Registrant as specified in its charter)
N/A
(Translation of Registrant’s name into English)
Cayman Islands
(Jurisdiction of incorporation or organization)
Baidu Campus
 
No. 10 Shangdi 10th Street
Haidian District
, Beijing 100085
The People’s Republic of China
(Address of principal executive offices)
Rong Luo, Chief Financial Officer
Telephone: +(86 10
) 5992-8888
Email: ir@baidu.com
Facsimile: +(86 10) 5992-0000
Baidu Campus
No. 10 Shangdi 10th Street,
Haidian District
, Beijing 100085
The People’s Republic of China
(Name, Telephone, Email and/or Facsimile number and Address of Company Contact Person)
Securities registered or to be registered pursuant to Section 12(b) of the Act:
 
 
Title of Each Class
 
Trading Symbol
 
Name of Each Exchange on Which Registered
American depositary shares
 (each American depositary share

representing eight Class A ordinary shares, par value

US$0.000000625 per share
)
 
BIDU
 
The Nasdaq Stock Market LLC

(The Nasdaq Global Select Market)


Class A ordinary shares, par value US$0.000000625 per share
*
 
 
 
The Nasdaq Stock Market LLC

(The Nasdaq Global Select Market)
Class A ordinary shares, par value US$0.000000625 per share
 
9888
 
The Stock Exchange of Hong Kong Limited
 
*
Not for trading, but only in connection with the listing on The Nasdaq Global Select Market of American depositary shares.
Securities registered or to be registered pursuant to Section 12(g) of the Act:
None
(Title of Class)
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:
None
(Title of Class)
Indicate the number of outstanding shares of each of the Issuer’s classes of capital or common stock as of the close of the period covered by the annual report
2,205,032,472
Class A ordinary shares and
559,300,320
Class B ordinary shares, par value US$0.000000625 per share, as of December 31, 2021.
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes  ☒    No  ☐
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.    Yes  ☐    No  ☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒    No  ☐
Indicate by check mark whether the registrant has submitted electronically, if any, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation
S-T
(§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  ☒    No  ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated
filer or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer” “emerging growth company” in Rule
12b-2
of the Exchange Act. (Check one):
 
Large accelerated filer  ☒   Accelerated filer  ☐  
Non-accelerated
filer  ☐
  Emerging growth company  
If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 13(a) of the Exchange Act.  ☐
† The term “ new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.  
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
 
U.S. GAAP   ☒    International Financial Reporting Standards as issued by the International Accounting Standards Board  ☐    Other   ☐
If “ Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.
Item 17 ☐
Item 18 ☐
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule
12b-2
of the Exchange Act). Yes ☐ No
(APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS)
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.    Yes  ☐    No  ☐
 
 
 

TABLE OF CONTENTS
 
  
 
1
 
  
 
2
 
  
 
2
 
        Item 1.
  
  
 
2
 
        Item 2.
  
  
 
3
 
        Item 3.
  
  
 
3
 
        Item 4.
  
  
 
85
 
        Item 4A.
  
  
 
140
 
        Item 5.
  
  
 
140
 
        Item 6.
  
  
 
175
 
        Item 7.
  
  
 
188
 
        Item 8.
  
  
 
190
 
        Item 9.
  
  
 
192
 
        Item 10.
  
  
 
193
 
        Item 11.
  
  
 
201
 
        Item 12.
  
  
 
203
 
  
 
207
 
        Item 13.
  
  
 
207
 
        Item 14.
  
  
 
207
 
        Item 15.
  
  
 
207
 
        Item 16A.
  
  
 
208
 
        Item 16B.
  
  
 
208
 
        Item 16C.
  
  
 
208
 
        Item 16D.
  
  
 
208
 
        Item 16E.
  
  
 
208
 
        Item 16F.
  
  
 
209
 
        Item 16G.
  
  
 
209
 
        Item 16H.
  
  
 
209
 
        Item 16I.
  
  
 
209
 
  
 
210
 
        Item 17.
  
  
 
210
 
        Item 18.
  
  
 
210
 
        Item 19.
  
  
 
210
 
  
 
222
 
  
 
F-1
 
 
i

INTRODUCTION
In this annual report, except where the context otherwise requires and for purposes of this annual report only:
 
   
“ADSs” refers to our American depositary shares, each ADSs representing eight Class A ordinary shares;
 
   
“China” or “PRC” refers to the People’s Republic of China, and solely for the purpose of this annual report, excluding Taiwan, Hong Kong and Macau;
 
   
“Class A ordinary shares” refers to Class A ordinary shares of the share capital of our company with a par value of US$0.000000625 each, conferring a holder of a Class A ordinary share one vote per share on all matters submitted for voting at general meetings of our company;
 
   
“Class B ordinary shares” refers to Class B ordinary shares of the share capital of our company with a par value of US$0.000000625 each, conferring weighted voting rights in our company such that a holder of a Class B ordinary share is entitled to 10 votes per share on all matters submitted for voting at general meetings of our company;
 
   
“DAU”, or daily active user, refers to the average number of mobile devices that launched our mobile apps at least once during a day within a specific period;
 
   
“Hong Kong” or “HK” or “Hong Kong S.A.R.” are to the Hong Kong Special Administrative Region of the PRC;
 
   
“Hong Kong Listing Rules” are to the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited, as amended or supplemented from time to time;
 
   
“Hong Kong Share Registrar” are to Computershare Hong Kong Investor Services Limited;
 
   
“Hong Kong Stock Exchange” are to The Stock Exchange of Hong Kong Limited;
 
   
“Main Board” are to the stock market (excluding the option market) operated by the Hong Kong Stock Exchange which is independent from and operated in parallel with the Growth Enterprise Market of the Hong Kong Stock Exchange;
 
   
“MAU”, or monthly active user, refers to the number of mobile devices that launched our mobile apps during a given month;
 
   
“our company” refers to Baidu, Inc.;
 
   
“RMB” or “Renminbi” refers to the legal currency of China;
 
   
“SFO” refers to the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong), as amended or supplemented from time to time;
 
   
“shares” or “ordinary shares” refers to our ordinary shares, which include both Class A ordinary shares and Class B ordinary shares;
 
   
“user traffic” or “traffic” refers generally to page views of a website, with “page views” measuring the number of web pages viewed by internet users over a specified period of time except that multiple page views of the same page viewed by the same user on the same day are counted only once;
 
   
“U.S. GAAP” refers to generally accepted accounting principles in the United States;
 
   
“we,” “us,” “our,” or “Baidu” refers to Baidu, Inc., its subsidiaries, and, in the context of describing our operations and consolidated financial information, our consolidated affiliated entities in China, including, but not limited to, Beijing Baidu Netcom Science Technology Co., Ltd., or Baidu Netcom;
 
   
“iQIYI” refers to iQIYI, Inc., a company incorporated in the Cayman Islands listed on Nasdaq under the symbol “IQ” and one of our subsidiaries;
 
   
“$,” “dollars,” “US$” or “U.S. dollars” refers to the legal currency of the United States; and
 
1

   
all discrepancies in any table between the amounts identified as total amounts and the sum of the amounts listed therein are due to rounding.
On March 1, 2021, Baidu, Inc. effected a change to its authorized share capital by
1-to-80
subdivision of shares. Concurrently, Baidu, Inc. effected a proportionate change in ADS to Class A ordinary share ratio from 10 ADSs representing 1 Class A ordinary share to each ADS representing 8 Class A ordinary shares, or the Share Subdivision. Such changes been reflected retroactively throughout this document.
FORWARD-LOOKING INFORMATION
This annual report on Form
20-F
contains forward-looking statements that reflect our current expectations and views of future events. These statements are made under the “safe harbor” provisions of the U.S. Private Securities Litigation Reform Act of 1995. You can identify these forward-looking statements by terminology such as “may,” “will,” “expect,” “anticipate,” “future,” “intend,” “plan,” “believe,” “estimate,” “is/are likely to” or other similar expressions. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy and financial needs. These forward-looking statements include, but are not limited to:
 
   
our operations and business prospects;
 
   
our business and operating strategies and our ability to implement such strategies;
 
   
our ability to develop and manage our operations and business;
 
   
competition for, among other things, capital, technology and skilled personnel;
 
   
our ability to control costs;
 
   
our ability to identify and conduct investments and acquisitions, obtain relevant regulatory approvals from governmental authorities, as well as integrate acquired target(s);
 
   
changes to regulatory and operating conditions in the industry and geographical markets in which we operate;
 
   
our dividend policy; and
 
   
all other risks and uncertainties described in “Item 3.D. Key Information—Risk Factors.”
We would like to caution you not to place undue reliance on these forward-looking statements and you should read these statements in conjunction with the risk factors disclosed in “Item 3.D. Key Information—Risk Factors.” Those risks are not exhaustive. We operate in a rapidly evolving environment. New risks emerge from time to time and it is impossible for our management to predict all risk factors, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ from those contained in any forward-looking statement. We do not undertake any obligation to update or revise the forward-looking statements except as required under applicable law.
Unless otherwise noted, all translations from Renminbi to U.S. dollars and from U.S. dollars to Renminbi in this annual report are made at a rate of RMB6.3726 to US$1.00, the exchange rate in effect as of December 30, 2021 as set forth in the H.10 statistical release of The Board of Governors of the Federal Reserve System. We make no representation that any Renminbi or U.S. dollar amounts could have been, or could be, converted into U.S. dollars or Renminbi, as the case may be, at any particular rate, or at all.
PART I
 
Item 1.
Identity of Directors, Senior Management and Advisers
Not applicable.
 
2

Item 2.
Offer Statistics and Expected Timetable
Not applicable.
 
Item 3.
Key Information
Our Corporate Structure and Contractual Arrangements with our Consolidated Affiliated Entities
Baidu, Inc. is not a PRC operating company but a Cayman Islands holding company with operations primarily conducted through (i) our PRC subsidiaries and (ii) contractual arrangements with its consolidated affiliated entities based in China. PRC laws and regulations restrict and impose conditions on foreign investment in internet content, value-added telecommunication-based online marketing, audio and video services and mobile application distribution businesses. Accordingly, we operate these businesses in China through our consolidated affiliated entities, and rely on contractual arrangements among our PRC subsidiaries, our consolidated affiliated entities and their nominee shareholders to control the business operations of our consolidated affiliated entities. External revenues contributed by our consolidated affiliated entities accounted for 40%, 43% and 44% of our total external revenues for the years ended December 31, 2019, 2020 and 2021, respectively. As used in this annual report, “our company” refers to Baidu, Inc., whereas “we,” “us,” “our,” or “Baidu” refers to Baidu, Inc., its subsidiaries, and, in the context of describing our operations and consolidated financial information, our consolidated affiliated entities in China, including but not limited to Beijing Baidu Netcom Science Technology Co., Ltd., or Baidu Netcom. Investors in our ADSs are not purchasing equity interest in our consolidated affiliated entities in China but instead are purchasing equity interest in a holding company incorporated in the Cayman Islands.
Our subsidiaries, our consolidated affiliated entities and their shareholders have entered into a series of contractual agreements. These contractual arrangements enable us to:
 
   
receive the economic benefits that could potentially be significant to our consolidated affiliated entities in consideration for the services provided by our subsidiaries;
 
   
exercise effective control over our consolidated affiliated entities; and
 
   
hold an exclusive option to purchase all or part of the equity interests in our consolidated affiliated entities when and to the extent permitted by PRC law.
These contractual arrangements among our subsidiaries, our consolidated affiliated entities and their shareholders generally include proxy agreements, exclusive equity purchase and transfer option agreements or exclusive purchase option agreements, loan agreements, operating agreements or business operation agreements, exclusive technology consulting and services agreements, and equity pledge agreements, as the case may be. As for some of our consolidated affiliated entities, our subsidiaries have entered into additional business cooperation agreements, power of attorney, license agreements and/or commitment letters (as the case may be) with these consolidated affiliated entities and their respective shareholders. Terms contained in each set of contractual arrangements with our consolidated affiliated entities and their respective shareholders are substantially similar. As a result of the contractual arrangements, we have effective control over and are considered the primary beneficiary of these companies, and we have consolidated the financial results of these companies in our consolidated financial statements. The nominee shareholders of Baidu Netcom, Beijing Perusal and Beijing iQIYI, our consolidated affiliated entities, are directors or members of senior management of us or iQIYI. We or iQIYI consider such people suitable to act as the nominee shareholders of these consolidated affiliated entities because of, among other considerations, their contribution to us or iQIYI, their competence and their length of service with and loyalty to us or iQIYI. For more details of these contractual arrangements, see “Item 4. Information on the Company—C. Organizational Structure—Contractual Arrangements with Our Consolidated Affiliated Entities and the Nominee Shareholders.”
However, the contractual arrangements may not be as effective as direct ownership in providing us with control over our consolidated affiliated entities and we may incur substantial costs to enforce the terms of the
 
3

arrangements. If our consolidated affiliated entities or the nominee shareholders fail to perform their respective obligations under the contractual arrangements, we could be limited in our ability to enforce the contractual arrangements that give us effective control over our consolidated affiliated entities, and these agreements have not been tested in China courts. Furthermore, if we are unable to maintain effective control, we would not be able to continue to consolidate the financial results of these entities in our financial statements. See “Item 3. Key Information—D. Risk Factors—Risks Related to Our Corporate Structure—Our contractual arrangements with our consolidated affiliated entities in China and the individual nominee shareholders may not be as effective in providing control over these entities as direct ownership” and “Item 3. Key Information—D. Risk Factors—Risks Related to Our Corporate Structure—The individual nominee shareholders of our consolidated affiliated entities may have potential conflicts of interest with us, which may adversely affect our business. We do not have any arrangements in place to address such potential conflicts.”
There are also substantial uncertainties regarding the interpretation and application of current and future PRC laws, regulations and rules regarding the status of the rights of our Cayman Islands holding company with respect to its contractual arrangements with our consolidated affiliated entities and their nominee shareholders. It is uncertain whether any new PRC laws or regulations relating to variable interest entity structures will be adopted or if adopted, what they would provide. If we or any of our consolidated affiliated entities is found to be in violation of any existing or future PRC laws or regulations, or fail to obtain or maintain any of the required permits or approvals, the relevant PRC regulatory authorities would have broad discretion in accordance with the applicable laws and regulations to take action in dealing with such violations or failures. See “Item 3. Key Information—D. Risk Factors—Risks Relating to Our Corporate Structure—PRC laws and regulations governing our businesses and the validity of certain of our contractual arrangements are uncertain. If we are found to be in violation, we could be subject to sanctions. In addition, changes in PRC laws and regulations or changes in interpretations thereof may materially and adversely affect our business,” and “—Risks Relating to Doing Business in China—Uncertainties exist with respect to the interpretation and implementation of the new PRC Foreign Investment Law and its Implementation Regulations and how it may impact the viability of our current corporate structure, corporate governance and business operations.”
Our corporate structure is subject to risks associated with our contractual arrangements with our consolidated affiliated entities. Our company and its investors may never have a direct ownership interest in the businesses that are conducted by our consolidated affiliated entities. Uncertainties in the PRC legal system could limit our ability to enforce these contractual arrangements, and these contractual arrangements have not been tested in a court of law. If the PRC government finds that the agreements that establish the structure for operating our business in China do not comply with PRC laws and regulations, or if these regulations or the interpretation of existing regulations change or are interpreted differently in the future, we and our consolidated affiliated entities could be subject to severe penalties or be forced to relinquish our interests in those operations. This would result in our consolidated affiliated entities being deconsolidated. The majority of our assets, including the necessary licenses to conduct business in China, are held by our consolidated affiliated entities. A significant part of our revenues are generated by our consolidated affiliated entities. An event that results in the deconsolidation of our consolidated affiliated entities would have a material effect on our operations and result in the value of the securities of our company diminish substantially or even become worthless. Our company, our PRC subsidiaries and consolidated affiliated entities, and investors of our company face uncertainty about potential future actions by the PRC government that could affect the enforceability of the contractual arrangements with our consolidated affiliated entities and, consequently, significantly affect the financial performance of our consolidated affiliated entities and our company as a whole. Baidu, Inc. may not be able to repay its indebtedness, and the Class A ordinary shares or ADSs of our company may decline in value or become worthless, if we are unable to assert our contractual control rights over the assets of our PRC subsidiaries and consolidated affiliated entities that conduct all or substantially all of our operations. For a detailed description of the risks associated with our corporate structure, please refer to risks disclosed under “Item 3. Key Information—D. Risk Factors—Risks Related to Our Corporate Structure.”
 
4

Our company and our consolidated affiliated entities face various risks and uncertainties related to doing business in China. For example, we face risks associated with regulatory approvals on offshore offerings, anti-monopoly regulatory actions, and oversight on cybersecurity and data privacy. We also face risks associated with the lack of inspection by the Public Company Accounting Oversight Board, or the PCAOB, on our auditors as discussed under “—The Holding Foreign Companies Accountable Act.”. These risks could result in a material adverse change in our operations and the value of our ADSs, significantly limit or completely hinder our ability to continue to offer securities to investors, or cause the value of such securities to significantly decline. For a detailed description of risks related to doing business in China, see “Item 3.D. Key Information—Risk Factors—Risks Related to Doing Business in China.”
PRC government’s significant authority in regulating our operations and its oversight and control over offerings conducted overseas by, and foreign investment in, China-based issuers could significantly limit or completely hinder our ability to offer or continue to offer securities to investors. Implementation of industry-wide regulations, including data security or anti-monopoly related regulations, in this nature may cause the value of such securities to significantly decline. For more details, see “Item 3. Key Information—D. Risk Factors—Risks Relating to Doing Business in China—The PRC government’s significant oversight over our business operation could result in a material adverse change in our operations and the value of our ADSs.”
Risks and uncertainties arising from the legal system in China, including risks and uncertainties regarding the enforcement of laws and quickly evolving rules and regulations in China, could result in a material adverse change in our operations and the value of our ADSs. For more details, see “Item 3. Key Information—D. Risk Factors—Risks Relating to Doing Business in China—Uncertainties exist with respect to the interpretation and implementation of the new PRC Foreign Investment Law and its Implementation Regulations and how it may impact the viability of our current corporate structure, corporate governance and business operations.”
The Holding Foreign Companies Accountable Act
The Holding Foreign Companies Accountable Act, or the HFCA Act, was enacted on December 18, 2020. The HFCA Act states that if the SEC determines that we have filed audit reports issued by a registered public accounting firm that has not been subject to inspection by the PCAOB for three consecutive years beginning in 2021, the SEC shall prohibit our shares or ADSs from being traded on a national securities exchange. Since our auditor is located in China, a jurisdiction where the PCAOB has been unable to conduct inspections without the approval of the Chinese authorities, our auditor is not currently inspected by the PCAOB, which may impact our ability to remain listed on a United States or other foreign exchange. The related risks and uncertainties could cause the value of our ADSs to significantly decline. For more details, see “Item 3. Key Information—D. Risk Factors—Risks Related to Doing Business in China—The PCAOB is currently unable to inspect our auditor in relation to their audit work performed for our financial statements and the inability of the PCAOB to conduct inspections over our auditor deprives our investors with the benefits of such inspections” and “Item 3. Key Information—D. Risk Factors—Risks Related to Doing Business in China—Our ADSs may be prohibited from trading in the United States under the HFCAA in 2024 if the PCAOB is unable to inspect or fully investigate auditors located in China, or as early as 2023 if proposed changes to the law are enacted. The delisting of our ADSs, or the threat of their being delisted, may materially and adversely affect the value of your investment.”
Permissions Required from the PRC Authorities for Our Operations
We conduct our business primarily through our subsidiaries and consolidated affiliated entities in China. Our operations in China are governed by PRC laws and regulations. As of the date of this annual report, our PRC subsidiaries and consolidated affiliated entities have obtained the requisite licenses and permits from the PRC government authorities that are material for the business operations of our subsidiaries and our consolidated affiliated entities in China, including, among others, the Value-Added Telecommunication Business Operating License, the Internet News Information Service License, the Short Messaging Service Access Code Certificate, the Online Audio/Video Program Transmission License, the Radio and Television Program Production License, the Surveying and Mapping Qualification Certificate for internet map services, the Internet Culture Business
 
5

Permit, the Internet Publication Service License, the Publication Business Operating License, the Qualification Certificate for Internet Drug Information Services, the Human Resource Services License, the Filing Certificate for the Online Transaction Platform, the Filing Certificate for Business of Category II Medical Devices, the Registration Certificate for Medical Devices, the Food Business License, the Medicine Business License, the Filing Certificate for the Online Publication Transaction Platform, the Internet Domain Name Services License and the License for Pilot Operation of Commercial Autonomous Transportation Services. Given the uncertainties of interpretation and implementation of relevant laws and regulations and the enforcement practice by relevant government authorities, we may be required to obtain additional licenses, permits, filings or approvals for the functions and services of our platform in the future. For more detailed information, see “Item 3. Key Information—D. Risk Factors—Risks Related to Doing Business in China—We may be adversely affected by the complexity, uncertainties and changes in PRC regulations of internet and related business and companies.”
Furthermore, in connection with our issuance of securities to foreign investors, under current PRC laws, regulations and regulatory rules, as of the date of this annual report, we, our PRC subsidiaries and our consolidated affiliated entities, (i) are not required to obtain permissions from the China Securities Regulatory Commission, or the CSRC, (ii) are not required to go through cybersecurity review by the Cyberspace Administration of China, or the CAC, and (iii) have not been asked to obtain such permissions by any PRC authority.
However, the PRC government has recently indicated an intent to exert more oversight and control over offerings that are conducted overseas and/or foreign investment in China-based issuers. For more detailed information, see “Item 3. Key Information—D. Risk Factors—Risks Relating to Doing Business in China—The approval of and filing with the CSRC or other PRC government authorities may be required in connection with our offshore offerings under PRC law, and, if required, we cannot predict whether or for how long we will be able to obtain such approval or complete such filing.”
Cash Flows through Our Organization
Baidu, Inc. is a holding company with no operations of its own. We conduct our operations in China primarily through our subsidiaries and consolidated affiliated entities in China. As a result, although other means are available for us to obtain financing at the holding company level, Baidu, Inc.’s ability to pay dividends to the shareholders and to service any debt it may incur may depend upon dividends paid by our PRC subsidiaries and license and service fees paid by our PRC consolidated affiliated entities. If any of our subsidiaries incurs debt on its own behalf, the instruments governing such debt may restrict its ability to pay dividends to Baidu, Inc. In addition, our PRC subsidiaries are permitted to pay dividends to Baidu, Inc. only out of their retained earnings, if any, as determined in accordance with PRC accounting standards and regulations. Further, our PRC subsidiaries and consolidated affiliated entities are required to make appropriations to certain statutory reserve funds or may make appropriations to certain discretionary funds, which are not distributable as cash dividends except in the event of a solvent liquidation of the companies. For more details, see “Item 5. Operating and Financial Review and Prospects—Liquidity and Capital Resources—Holding Company Structure.”
Under PRC laws and regulations, our PRC subsidiaries and consolidated affiliated entities are subject to certain restrictions with respect to paying dividends or otherwise transferring any of their net assets to us. Remittance of dividends by a wholly foreign-owned enterprise out of China is also subject to examination by the banks designated by State Administration of Foreign Exchange, or SAFE. The amounts restricted include the
paid-up
capital and the statutory reserve funds of our PRC subsidiaries and the net assets of our consolidated affiliated entities in which we have no legal ownership, totaling RMB40.8 billion, RMB45.0 billion and RMB45.9 billion (US$7.2 billion) as of December 31, 2019, 2020 and 2021, respectively. For risks relating to the fund flows of our operations in China, see “Item 3. Key Information—Risk Factors—Risks Related to Doing Business in China—Our subsidiaries and consolidated affiliated entities in China are subject to restrictions on paying dividends and making other payments to our holding company.”
In 2020, certain of our PRC subsidiaries have declared and distributed profits earned to Baidu (Hong Kong) Limited for an aggregate amount of US$1.5 billion; the dividend payments are subject to withholding tax. We
 
6

have made tax provisions based on the corresponding tax rate. If our PRC subsidiaries further declare and distribute profits earned after January 1, 2008 in the future, the dividend payments will be subject to withholding tax, which will increase our tax liability and reduce the amount of cash available to our company. For the potential distributable profits to be distributed to our qualified Hong Kong incorporated subsidiary, the deferred tax liabilities are accrued at a 5% withholding tax rate. For more information on related risks, please see “Item 3.D. Key Information—Risk Factors—Risks Related to Doing Business in China—If our PRC subsidiaries declare and distribute dividends to their respective offshore parent companies, we will be required to pay more taxes, which could have a material and adverse effect on our result of operations.”
Under PRC law, Baidu Inc. may provide funding to our PRC subsidiaries only through capital contributions or loans, and to our PRC consolidated affiliated entities only through loans, subject to satisfaction of applicable government registration and approval requirements.
For the years ended December 31, 2019, 2020 and 2021, Baidu, Inc. provided loans with principal amount of RMB1.5 billion, RMB10.0 billion and RMB14.5 billion (US$2.3 billion), respectively, to its subsidiaries, and the subsidiaries repaid principal amount of RMB13.0 billion, RMB15.4 billion and RMB4.9 billion (US$766 million), respectively, to Baidu, Inc.
For the years ended December 31, 2019, 2020 and 2021, the subsidiaries of Baidu, Inc. provided loans with principal amount of RMB3.3 billion, RMB6.5 billion and RMB3.1 billion (US$486 million), respectively, to Baidu, Inc. and Baidu, Inc. repaid principal amount of RMB3.1 billion, RMB3.5 billion and RMB3.0 billion (US$468 million), respectively, to its subsidiaries.
For the years ended December 31, 2019, 2020 and 2021, our PRC consolidated affiliated entities received RMB11.7 billion, RMB5.0 billion and RMB6.9 billion (US$1.1 billion), respectively, as capital contributions or loans from the subsidiaries of Baidu, Inc. and the PRC consolidated affiliated entities repaid principal amount of RMB9.1 billion, RMB1.1 billion, and nil, respectively, to the subsidiaries.
For the years ended December 31, 2019, 2020 and 2021, our PRC consolidated affiliated entities provided loans with principal amount of nil, RMB261 million and RMB450 million (US$71 million), respectively, to the subsidiaries of Baidu, Inc. and the subsidiaries repaid principal amount of nil, RMB36 million and RMB10 million (US$2 million), respectively, to our PRC consolidated affiliated entities.
Baidu, Inc. has not declared or paid any cash dividends, nor does it has any present plan to pay any cash dividends on its ordinary shares in the foreseeable future. We currently intend to retain most, if not all, of our available funds and any future earnings to operate and expand our business. See “Item 8. Financial Information—A. Consolidated Statements and Other Financial Information—Dividend Policy.” For PRC and United States federal income tax considerations of an investment in our ADSs, see “Item 10. Additional Information—E. Taxation.”
 
A.
Selected Financial Data
The following table presents the selected consolidated financial information for our company. The selected consolidated statements of comprehensive income data and cash flow data for the three years ended December 31, 2019, 2020 and 2021 and the consolidated balance sheets data as of December 31, 2020 and 2021 have been derived from our audited consolidated financial statements, which are included in this annual report beginning on page
F-1.
The selected consolidated statements of comprehensive income data and cash flow data for the years ended December 31, 2017 and 2018 and the selected consolidated balance sheets data as of December 31, 2017, 2018 and 2019 have been derived from our audited consolidated financial statements for the years ended December 31, 2017, 2018 and 2019, which are not included in this annual report. Our historical results do not necessarily indicate results expected for any future periods. The selected consolidated financial data should be read in conjunction with, and are qualified in their entirety by reference to, our audited consolidated financial statements and related notes and “Item 5. Operating and Financial Review and Prospects” below. Our audited consolidated financial statements are prepared and presented in accordance with U.S. GAAP.
 
7

Starting from January 1, 2018, we adopted ASC Topic 606,
Revenue from contracts with Customers
(“ASC 606”), which reclassifies value added taxes, or VAT, from cost of revenues to net against revenues, among other changes. The consolidated statement of comprehensive income data for the years ended December 31, 2018, 2019, 2020 and 2021 presented below have been prepared in accordance with ASC 606, while the consolidated statements of comprehensive income data for the year ended December 31, 2017 presented below have been prepared in accordance with ASC Topic 605,
Revenue Recognition
(“ASC 605”).
 
    
Year Ended December 31,
 
    
2017
(1)
   
2018
(2)
   
2019
(2)
   
2020
(2)
   
2021
(2)
 
    
RMB
   
RMB
   
RMB
   
RMB
   
RMB
   
US$
 
                                      
    
(In millions, except per share and per ADS data)
 
Consolidated Statements of Comprehensive Income Data:
            
Revenues:
            
Online marketing services
     73,146       81,912       78,093       72,840       80,695       12,663  
Others
     11,663       20,365       29,320       34,234       43,798       6,873  
  
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Total revenues
     84,809       102,277       107,413       107,074       124,493       19,536  
  
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Operating costs and expenses:
            
Cost of revenues
     43,062       51,744       62,850       55,158       64,314       10,092  
Selling, general and administrative
     13,128       19,231       19,910       18,063       24,723       3,879  
Research and development
     12,928       15,772       18,346       19,513       24,938       3,914  
  
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Total operating costs and expenses
     69,118       86,747       101,106       92,734       113,975       17,885  
  
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Operating profit
     15,691       15,530       6,307       14,340       10,518       1,651  
  
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Total other income (loss), net
     5,592       11,795       (6,647     8,750       260       40  
  
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Income (loss) before income taxes
     21,283       27,325       (340     23,090       10,778       1,691  
  
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Income taxes
     2,995       4,743       1,948       4,064       3,187       500  
  
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Net income (loss)
     18,288       22,582       (2,288     19,026       7,591       1,191  
  
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Less: Net loss attributable to
non-controlling
interests
     (13     (4,991     (4,345     (3,446     (2,635     (414
  
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Net income attributable to Baidu, Inc.
     18,301       27,573       2,057       22,472       10,226       1,605  
  
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
 
(1)
VAT is presented in cost of revenues rather than net against revenues in accordance with the legacy revenue accounting standard (ASC 605).
(2)
VAT is presented as net against revenues rather than in cost of revenues in accordance with the new revenue accounting standard (ASC 606).
 
    
As of December 31,
 
    
2017
    
2018
    
2019
    
2020
    
2021
 
    
RMB
    
RMB
    
RMB
    
RMB
    
RMB
    
US$
 
                                           
    
(In millions)
 
Consolidated Balance Sheets Data:
                 
Cash and cash equivalents
     11,084        27,638        33,443        35,782        36,850        5,783  
Restricted cash
     252        2,189        996        758        10,821        1,697  
Short-term investments, net
(1)
     89,381        111,626        112,924        126,402        143,243        22,478  
Total assets
(2)
  
 
251,728
 
  
 
297,566
 
  
 
301,316
 
  
 
332,708
 
  
 
380,034
 
  
 
59,636
 
Short-term loans
     1,244        3,046        2,618        3,016        4,168        654  
Long-term loans, current portion
     10        84        737        7,427        2        —    
Long-term loans
     6,701        7,456        7,804        —          12,629        1,982  
Notes payable, current portion
     6,500        6,871        5,219        —          10,505        1,648  
Notes payable
     29,111        42,735        38,090        48,408        43,120        6,766  
Convertible senior notes, current portion
     —          —          —          4,752        —          —    
Convertible senior notes
     —          4,712        12,297        11,927        12,652        1,985  
Total liabilities
  
 
121,356
 
  
 
121,814
 
  
 
128,501
 
  
 
140,865
 
  
 
156,082
 
  
 
24,492
 
Total Baidu, Inc. shareholders’ equity
  
 
115,346
 
  
 
162,897
 
  
 
163,599
 
  
 
182,696
 
  
 
211,459
 
  
 
33,183
 
 
8

 
(1)
We adopted Accounting Standards Update (“ASU”)
No. 2016-13,
Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments
(“ASU
2016-13”)
on January 1, 2020, which requires the measurement and recognition of expected credit losses for financial assets held at amortized cost. ASU
2016-13
replaces the existing incurred loss impairment model with an expected loss methodology, which will result in more timely recognition of credit losses.
(2)
We adopted ASU
No. 2016-02:
Leases
on January 1, 2019 using the modified retrospective transition method.
Right-of-use
assets (“ROU assets”) and lease liabilities (including current and
non-current)
for operating leases are presented on the face of the consolidated balance sheets as of December 31, 2019, 2020 and 2021, while the consolidated balance sheet data as of December 31, 2017 and 2018 have been prepared in accordance with ASC Topic 840,
Leases
(“ASC 840”).
 
    
Year Ended December 31,
 
    
2017
   
2018
   
2019
   
2020
   
2021
 
    
RMB
   
RMB
   
RMB
   
RMB
   
RMB
   
US$
 
                                      
                
(In millions)
             
Consolidated Cash Flow Data:
            
Net cash provided by operating activities
     32,828       35,967       28,458       24,200       20,122       3,158  
Net cash used in investing activities
     (76,949     (34,460     (19,974     (27,552     (31,444     (4,934
Net cash provided by (used in) financing activities
     44,557       15,082       (3,873     5,665       23,396       3,671  
Net increase in cash, cash equivalents and restricted cash
     120       18,491       4,612       2,101       11,131       1,747  
Financial Information Related to the Consolidated Affiliated Entities
The following tables present the condensed consolidating schedule of financial performance, financial position and cash flows for our consolidated affiliated entities and other entities for the periods and as of the dates presented.
Selected Condensed Consolidated Statements of Comprehensive Income Information
 
    
For the Year Ended December 31, 2021
 
    
Baidu, Inc.
   
Subsidiaries
    
Consolidated
Affiliated
Entities and
their
subsidiaries
   
Eliminations
   
Consolidated
Total
 
                                 
    
RMB
 
    
(In millions)
 
Revenue
     —         83,428        61,380       (20,315     124,493  
Net (loss) income
     (2,245     10,082        (220     (26     7,591  
 
    
For the Year Ended December 31, 2020
 
    
Baidu, Inc.
   
Subsidiaries
    
Consolidated
Affiliated
Entities and
their
subsidiaries
    
Eliminations
   
Consolidated
Total
 
                                  
    
RMB
 
    
(In millions)
 
Revenue
     —         69,425        52,666        (15,017     107,074  
Net (loss) income
     (2,082     19,083        2,091        (66     19,026  
 
9

    
For the Year Ended December 31, 2019
 
    
Baidu, Inc.
   
Subsidiaries
    
Consolidated
Affiliated
Entities and
their
subsidiaries
   
Eliminations
   
Consolidated
Total
 
                                 
    
RMB
 
    
(In millions)
 
Revenue
     —         72,172        51,988       (16,747     107,413  
Net (loss) income
     (1,530     2,228        (2,950     (36     (2,288
Selected Condensed Consolidated Balance Sheets Information
 
    
As of December 31, 2021
 
    
Baidu, Inc.
    
Subsidiaries
    
Consolidated
Affiliated
Entities and
their
subsidiaries
    
Eliminations
   
Consolidated
Total
 
                                   
    
RMB
 
    
(In millions)
 
Assets
             
Cash and cash equivalents
     11,448        22,523        2,879        —         36,850  
Short-term investments, net
     6,499        133,758        2,986        —         143,243  
Accounts receivable, net
     —          2,491        7,490        —         9,981  
Others
     61        15,106        8,074        —         23,241  
Total current assets
  
 
18,008
 
  
 
173,878
 
  
 
21,429
 
  
 
—  
 
 
 
213,315
 
Fixed assets, net
     199        13,923        8,905        —         23,027  
Intangible assets, net
     —          75        1,614        —         1,689  
Licensed copyrights, net
     —          4,969        2,289        —         7,258  
Produced content, net
     —          525        10,426        —         10,951  
Long-term investments, net
     —          44,334        22,998        —         67,332  
Investments in subsidiaries and consolidated affiliated entities and their subsidiaries
(1)
     13,014        24,096        106        (37,216     —    
Operating lease
right-of-use
assets
     —          4,989        7,076        —         12,065  
Others
     —          33,700        10,697        —         44,397  
Total
non-current
assets
  
 
13,213
 
  
 
126,611
 
  
 
64,111
 
  
 
(37,216
 
 
166,719
 
Amounts due from the entities within Baidu
(2)
  
 
6,116
 
  
 
22,516
 
  
 
—  
 
  
 
(28,632
 
 
—  
 
Total assets
  
 
37,337
 
  
 
323,005
 
  
 
85,540
 
  
 
(65,848
 
 
380,034
 
Liabilities
             
Accounts payable and accrued liabilities
     712        22,320        18,352        —         41,384  
Customer deposits and deferred revenue
     —          7,656        6,050        —         13,706  
Operating lease liabilities
     —          243        2,619        —         2,862  
Others
     10,450        2,515        3,571        —         16,536  
Total current liabilities
  
 
11,162
 
  
 
32,734
 
  
 
30,592
 
  
 
—  
 
 
 
74,488
 
Operating lease liabilities
     —          316        5,253        —         5,569  
Others
     55,748        19,244        1,033        —         76,025  
Total
non-current
liabilities
  
 
55,748
 
  
 
19,560
 
  
 
6,286
 
  
 
—  
 
 
 
81,594
 
Amounts due to the entities within Baidu
(2)
  
 
—  
 
  
 
—  
 
  
 
28,632
 
  
 
(28,632
 
 
—  
 
Total liabilities
  
 
66,910
 
  
 
52,294
 
  
 
65,510
 
  
 
(28,632
 
 
156,082
 
 
10

    
As of December 31, 2020
 
    
Baidu, Inc.
    
Subsidiaries
    
Consolidated
Affiliated
Entities and
their
subsidiaries
    
Eliminations
   
Consolidated
Total
 
                                   
    
RMB
 
    
(In millions)
 
Assets
             
Cash and cash equivalents
     4,079        29,355        2,348        —         35,782  
Short-term investments, net
     —          119,472        6,930        —         126,402  
Accounts receivable, net
     —          2,517        6,151        —         8,668  
Others
     78        3,852        8,560        —         12,490  
Total current assets
  
 
4,157
 
  
 
155,196
 
  
 
23,989
 
  
 
—  
 
 
 
183,342
 
Fixed assets, net
     192        12,338        4,978        —         17,508  
Intangible assets, net
     —          523        1,499        —         2,022  
Licensed copyrights, net
     —          5,442        993        —         6,435  
Produced content, net
     —          426        6,130        —         6,556  
Long-term investments, net
     —          57,141        19,092        —         76,233  
Investments in subsidiaries and consolidated affiliated entities and their subsidiaries
(1)
     8,471        22,051        1,615        (32,137     —    
Operating lease
right-of-use
assets
     —          3,344        6,460        —         9,804  
Others
     —          23,091        7,717        —         30,808  
Total
non-current
assets
  
 
8,663
 
  
 
124,356
 
  
 
48,484
 
  
 
(32,137
 
 
149,366
 
Amounts due from the entities within Baidu
(2)
  
 
—  
 
  
 
23,446
 
  
 
—  
 
  
 
(23,446
 
 
—  
 
Total assets
  
 
12,820
 
  
 
302,998
 
  
 
72,473
 
  
 
(55,583
 
 
332,708
 
Liabilities
             
Accounts payable and accrued liabilities
     649        21,704        14,363        —         36,716  
Customer deposits and deferred revenue
     —          6,635        5,991        —         12,626  
Operating lease liabilities
     —          298        2,068        —         2,366  
Others
     6,453        7,595        2,629        —         16,677  
Total current liabilities
  
 
7,102
 
  
 
36,232
 
  
 
25,051
 
  
 
—  
 
 
 
68,385
 
Operating lease liabilities
     —          317        4,376        —         4,693  
Others
     48,408        18,236        1,143        —         67,787  
Total
non-current
liabilities
  
 
48,408
 
  
 
18,553
 
  
 
5,519
 
  
 
—  
 
 
 
72,480
 
Amounts due to the entities within Baidu
(2)
  
 
3,854
 
  
 
—  
 
  
 
19,592
 
  
 
(23,446
 
 
—  
 
Total liabilities
  
 
59,364
 
  
 
54,785
 
  
 
50,162
 
  
 
(23,446
 
 
140,865
 
 
Note:
(1)
It represents the elimination of the investment in our subsidiaries and consolidated affiliated entities and their subsidiaries.
(2)
It represents the elimination of intercompany balances among Baidu, Inc., our subsidiaries and consolidated affiliated entities and their subsidiaries.
Selected Condensed Consolidated Cash Flows Information
 
    
For the Year Ended December 31, 2021
 
    
Baidu, Inc.
   
Subsidiaries
   
Consolidated
Affiliated
Entities and
their
subsidiaries
   
Eliminations
   
Consolidated
Total
 
                                
    
RMB
 
    
(In millions)
 
Net cash (used in)/provided by operating activities
     (1,853     17,717       4,121       137       20,122  
Net cash (used in)/provided by investing activities
     (16,183     (24,971     (7,551     17,261       (31,444
Net cash provided by/(used in) financing activities
     25,628       11,167       3,999       (17,398     23,396  
 
11

    
For the Year Ended December 31, 2020
 
    
Baidu, Inc.
   
Subsidiaries
   
Consolidated
Affiliated
Entities and
their
subsidiaries
   
Eliminations
   
Consolidated
Total
 
                                
    
RMB
 
    
(In millions)
 
Net cash (used in)/provided by operating activities
     (1,912     21,346       4,616       150       24,200  
Net cash provided by/(used in) investing activities
     5,921       (26,396     (8,382     1,305       (27,552
Net cash (used in)/provided by financing activities
     (1,757     5,018       3,859       (1,455     5,665  
 
    
For the Year Ended December 31, 2019
 
    
Baidu, Inc.
   
Subsidiaries
   
Consolidated
Affiliated
Entities and
their
subsidiaries
   
Eliminations
   
Consolidated
Total
 
                                
    
RMB
 
    
(In millions)
 
Net cash (used in)/provided by operating activities
     (1,720     28,413       1,649       116       28,458  
Net cash provided by/(used in) investing activities
     12,870       (19,817     (4,829     (8,198     (19,974
Net cash (used in)/provided by financing activities
     (11,494     (4,065     3,604       8,082       (3,873
 
B.
Capitalization and Indebtedness
Not applicable.
 
C.
Reasons for the Offer and Use of Proceeds
Not applicable.
 
D.
Risk Factors
Summary of Risk Factors
An investment in our ADSs or Class A ordinary shares involves significant risks. Below is a summary of material risks we face, organized under relevant headings. These risks are discussed more fully in Item 3. Key Information—D. Risk Factors.
Risks Related to Our Business and Industry
 
   
If we fail to retain existing customers or attract new customers for our online marketing services, our business, results of operations and growth prospects could be seriously harmed;
 
   
Our business and results of operations could continue to be materially and adversely affected by the challenging macroeconomic environment impacting online marketing demand;
 
   
Our business depends on a strong brand, and if we are unable to maintain and enhance our brand, our business and results of operations may be harmed;
 
   
We face risks associated with our proposed acquisition of YY Live and its online live streaming business;
 
12

   
We face significant competition and may suffer from loss of users and customers as a result;
 
   
If our expansions into new businesses are not successful, our results of operation and growth prospects may be materially and adversely affected;
 
   
We have experienced slowdowns and declines in our revenues, and we may sustain net loss from time to time, and we may experience downward pressure on our operating and profit margins in the future;
 
   
Our business is subject to complex and evolving Chinese and international laws and regulations, including those regarding data privacy and cybersecurity. Many of these laws and regulations are subject to change and uncertain interpretation, and could result in claims, penalties, changes to our business practices, increased cost of operations, damages to our reputation and brand, or declines in user growth or engagement, or otherwise harm our business; and
 
   
We have been and may again be subject to legal proceedings, claims and investigations and could be adversely impacted by unfavorable results of legal proceedings and investigations.
Risks Related to Our Corporate Structure
 
   
Our company is a Cayman Islands holding company with no equity ownership in our consolidated affiliated entities and we conduct our operations in China through (i) our PRC subsidiaries and (ii) our consolidated affiliated entities with which we have maintained contractual arrangements. Investors in our Class A ordinary shares or the ADSs thus are not purchasing equity interest in our consolidated affiliated entities in China but instead are purchasing equity interest in a Cayman Islands holding company. If the PRC government deems that our contractual arrangements with our consolidated affiliated entities do not comply with PRC regulatory restrictions on foreign investment in the relevant industries, or if these regulations or the interpretation of existing regulations change or are interpreted differently in the future, we could be subject to severe penalties or be forced to relinquish our interests in those operations. Our holding company in the Cayman Islands, our consolidated affiliated entities, and investors of our company face uncertainty about potential future actions by the PRC government that could affect the enforceability of the contractual arrangements with our consolidated affiliated entities and, consequently, significantly affect the financial performance of our consolidated affiliated entities and our company as a group;
 
   
Our contractual arrangements with our consolidated affiliated entities in China and the individual nominee shareholders may not be as effective in providing control over these entities as direct ownership; and
 
   
We are in the process of registering the pledges of equity interests by nominee shareholders of some of our consolidated affiliated entities, and we may not be able to enforce the equity pledges against any third parties who acquire the equity interests in good faith in the relevant consolidated affiliated entities before the pledges are registered.
Risks Related to Doing Business in China
 
   
Changes in China’s economic, political or social conditions or government policies could have a material and adverse effect on our business and results of operations;
 
   
The approval of and/or filing with the CSRC or other PRC government authorities may be required in connection with our offshore offerings under PRC law, and, if required, we cannot predict whether or for how long we will be able to obtain such approval or complete such filing;
 
   
Uncertainties with respect to the PRC legal system could adversely affect us;
 
   
We may be adversely affected by the complexity, uncertainties and changes in PRC regulations of internet and related business and companies;
 
13

   
The PRC government’s significant oversight over our business operation could result in a material adverse change in our operations and the value of our ADSs;
 
   
Any failure or perceived failure by us to comply with the enacted Anti-Monopoly Guidelines for Internet Platforms and other anti-monopoly laws and regulations may result in governmental investigations or enforcement actions, litigation or claims against us and could have an adverse effect on our business, financial condition and results of operations;
 
   
It may be difficult for overseas regulators to conduct investigation or collect evidence within China;
 
   
The PCAOB is currently unable to inspect our auditor in relation to their audit work performed for our financial statements and the inability of the PCAOB to conduct inspections over our auditor deprives our investors with the benefits of such inspections; and
 
   
Our ADSs will be prohibited from trading in the United States under the HFCA Act in 2024 if the PCAOB is unable to inspect or fully investigate auditors located in China, or as early as 2023 if proposed changes to the law are enacted. The delisting of our ADSs, or the threat of their being delisted, may materially and adversely affect the value of your investment.
Risks Related to our ADSs and Class A Ordinary Shares
 
   
The trading price of our ADSs and/or our Class A ordinary shares has been and is likely to continue to be volatile regardless of our operating performance;
 
   
We adopt different practices as to certain matters as compared with many other companies primarily listed on the Hong Kong Stock Exchange;
 
   
Substantial future sales or perceived potential sales of our Class A ordinary shares and/or ADSs in the public market could cause the price of our Class A ordinary shares and/or ADSs to decline; and
 
   
The different characteristics of the capital markets in Hong Kong and the U.S. may negatively affect the trading prices of our Class A ordinary shares and/or ADSs.
Risks Related to Our Business and Industry
If we fail to retain existing customers or attract new customers for our online marketing services, our business, results of operations and growth prospects could be seriously harmed.
We generate a substantial majority of our revenues from online marketing services, a substantial majority of which are derived from our
pay-for-performance,
or P4P, services. Our online marketing customers will not continue to do business with us if their investment does not generate sales leads and ultimately consumers, or if we do not deliver their web pages in an appropriate and effective manner. Our P4P customers may choose to discontinue their business with us, which are not subject to fixed-term contracts. In addition, third parties may develop and use certain technologies to block the display of our customers’ advertisements and other marketing products on our Baidu platform, which may in turn cause us to lose customers and adversely affect our results of operations. Furthermore, as our auction-based P4P services enable our customers to bid for priority placement of their paid sponsored links, we may lose customers if they find the bidding mechanism not cost effective or otherwise not attractive. Additionally, if our users do not increase their engagement on our platform, or our content ecosystem fails to offer rich and quality content that meets users’ tastes and preferences, or our users spend more time with or otherwise satisfy their content consumption demands on competing platforms, or we otherwise experience user traffic decline due to any reason, it would be difficult for us to attract new customers or retain existing customers. If our customers determine that their expenditures on our platform do not generate expected returns, they may allocate a portion or all of their advertising budgets to other advertising channels, such as other online marketing platforms, television and outdoor media, and reduce or discontinue business with us. Failure to retain our existing customers or attract new customers for our online marketing services could
 
14

seriously harm our business, results of operations and growth prospects. We have recorded substantial customer deposits and deferred revenue, which mainly consist of deposits received from certain customers of our online marketing services. If we are unable to fulfill our obligation in respect of such customer deposits and deferred revenue, we may have to refund the balance to our customers and our cash flow and liquidity position would be materially adversely affected.
Since most of our customers are not bound by long-term contracts, they may amend or terminate advertising arrangements with us. Failure to retain existing customers or attract new ones to advertise on our platform may materially and adversely affect our business, financial condition, results of operations and prospects.
We have in the past removed, and may in the future again remove, questionable listings or advertisements to ensure the quality and reliability of our search results and/or information feed. Such removal, whether temporary or permanent, may cause affected customers to discontinue their business with us or negatively impact our relationships with affected Baidu Union partners. We also examine the relevant business licenses and bank accounts of prospective customers prior to business engagement, as a quality control measure. In addition, we have taken steps to implement measures requested by PRC regulatory authorities, such as modifying paid search practices and limiting the displays of advertisements in connection with certain industries. We have also proactively implemented numerous additional measures to deliver a better user experience and build a safer and more trustworthy platform for users. Such measures have had a negative impact on the number of customers and our revenues, although we believe such impact is likely to be temporary. PRC regulations on online marketing services are evolving, and uncertainties remain with respect to the implementation of and compliance with new regulations that may emerge, which in turn may have a material adverse impact on our business, results of operations and growth prospects.
Our business and results of operations could continue to be materially and adversely affected by the challenging macroeconomic environment impacting online marketing demand.
Online marketing services continue to be a primary source of our revenues and resumed growth in 2021, although we experienced declines in online marketing revenues in 2019 and 2020, mainly due to the weakness in online advertising demand as our customers face challenging macroeconomic environment in their respective industries and in the general economy, including the significant adverse impact of the
COVID-19
pandemic in 2020. Our business and results of operations could continue to be materially and adversely affected by the challenging macroeconomic environment and the general growth in online marketing through internet search or feed. While the internet has developed to a more advanced stage in China, customers have many channels to conduct online marketing and promotions. As users may not spend as much time on search-plus-newsfeed as they do on other types of internet platforms, many current and potential customers may not allocate as much of their marketing budgets to online marketing through search-plus-newsfeed, as compared to other methods of online marketing. Our ability to increase revenue and profitability from online marketing may be adversely impacted by a number of factors, many of which are beyond our control, including but not limited to:
 
   
difficulties associated with developing and maintaining a larger user base with demographic characteristics attractive to online marketing customers and maintaining and increasing user engagement;
 
   
increased competition and potential
re-allocation
of marketing budgets and downward pressure on online marketing prices, for example, resulting from an oversupply of advertising inventory released into the market;
 
   
higher customer acquisition costs due in part to the limited experience of small to
medium-sized
enterprises, or SMEs, with the internet as a marketing channel or due to competition;
 
   
decreased use of our search and paid click because search queries are increasingly being undertaken via voice-activated smart devices, apps, social media or other online platforms;
 
   
ineffectiveness of our online marketing delivery, tracking and reporting systems;
 
15

   
decreased use of internet or online marketing in China; and
 
   
tightened regulatory environment in China’s internet and mobile internet space.
Our business depends on a strong brand, and if we are unable to maintain and enhance our brand, our business and results of operations may be harmed.
We believe that our brand “Baidu” has contributed significantly to the success of our business. We also believe that maintaining and enhancing the “Baidu” brand is critical to increasing the number of our users, customers, Baidu Union partners and content providers, as well as to expanding our developer communities and to attracting and retaining enterprise and public sector customers and partners. We have conducted various marketing and brand promotion activities, but we cannot assure you that these activities will achieve the brand promotion effect expected by us. If we fail to maintain and further promote the “Baidu” brand, or if we incur excessive expenses in this effort, our business and results of operations may be materially and adversely affected.
In addition, any negative publicity about us, our products and services, our employees, our business practices, our search results or the platform to which our search results link, regardless of its veracity, could harm our brand image and in turn adversely affect our business and results of operations. We cannot assure you that we will be able to defuse negative publicity to the satisfaction of our investors, users, customers and business partners. From time to time, there has been negative publicity about us, our brand image, our value proposition and our business practice, which has adversely affected our public image and reputation during certain periods of intense negative publicity. For example, in 2019, Shenzhen Consumer Council received complaints from users who encountered false travel information provided by false travel agencies through search listings on Baidu. Moreover, our platform and services by nature may from time to time be related to, or perceived to be related to, certain controversial public events or discussion, leading to public criticism against us. The negative publicity surrounding similar incidents have resulted in significant adverse impact on our public image and reputation. Intense negative publicity may divert our management’s attention and may adversely impact our business. We cannot assure you that our brand, public image and reputation will not be materially and adversely affected in the future.
We face risks associated with our proposed acquisition of YY Live and its online live streaming business.
Baidu (Hong Kong) Limited, our wholly-owned subsidiary, entered into definitive agreements with JOYY Inc. and certain of its affiliates, which are collectively referred to as JOYY, to acquire JOYY’s domestic video-based entertainment live streaming business in China (“YY Live”) on November 16, 2020, and subsequently amended the share purchase agreement on February 7, 2021. The closing of this acquisition is subject to certain conditions, including, among others, obtaining necessary regulatory approvals from governmental authorities. The share purchase agreement is subject to termination if the closing does not occur by the long stop date, and we and JOYY have agreed to extend the long stop date to March 31, 2022, which may be further extended through mutual agreement of both parties, if the approval has not been obtained by then. We have paid an aggregate of US$1.9 billion, after considering working capital adjustment of US$0.1 billion, to JOYY and its designated escrow account, and deposited an aggregate of US$1.6 billion into several escrow accounts, in accordance with the terms and schedule set forth in the share purchase agreement. Despite good faith efforts, we have not obtained necessary regulatory approvals with respect to the proposed acquisition as of the date of this annual report. There can be no assurance that the relevant regulatory approvals will be obtained or the acquisition of YY Live will be closed. In the event the acquisition is not closed, we will not be able to achieve the intended objectives, benefits or opportunities associated thereto, despite the significant diversion of resources and management attention to date, and we may also suffer from material adverse impact on our business, prospects, reputation, liquidity, financial results and face disputes or other proceedings.
On November 18, 2020, Muddy Waters issued a short seller report containing certain allegations against JOYY, including YY Live business. Based on public records, in November 2020, JOYY and certain of its current and former officers and directors were named as defendants in a federal putative securities class action alleging
 
16

that they made material misstatements and omissions in documents filed with the SEC regarding certain of the allegations contained in the Muddy Waters short seller report. In March 2022, the court granted defendants’ motion to dismiss in its entirety with prejudice. On February 8, 2021, JOYY publicly disclosed that its audit committee conducted an independent review of the allegations raised in the report related to the YY Live business, with the assistance of independent counsel, working with a team of experienced forensic auditors and data analytics experts, and that the review concluded that the allegations raised and conclusions reached in the report about the YY Live business were not substantiated. We are unable to predict any further consequence that may arise from or relate in any way to the allegations contained in the Muddy Waters short seller report. There might be other class actions or regulatory enforcement actions in connection with such allegations. Any adverse outcome as a result of the short seller report, or any class action or regulatory enforcement action in connection thereof, could have a material adverse effect on YY Live’s business, financial condition, results of operation, cash flows, and reputation, and we may record impairment charges of intangible assets and goodwill in connection with the acquisition, if closed, in the future. Although the allegations against JOYY have been proven to be groundless, we had already allocated a portion of our resources to make assessment in relation to the short seller report and various matters provided for in the share purchase agreement. In the event that there is a dispute as to whether indemnification provision is triggered, we may need to utilize a significant portion of our resources and divert management’s attention from
our day-to-day operations
to resolve such disputes, including any litigation or other legal proceedings arising thereof.
Even if the acquisition of YY Live is closed eventually, there can be no assurance that the acquisition will bring the anticipated benefits and opportunities to us. We have relatively limited experience with operating the online live streaming business and we may not be able to successfully integrate YY Live into our existing business. We face uncertainties and challenges in navigating the complex regulatory environment, competing effectively in attracting and retaining users and hosts, and developing and/or upgrading products and services as well as technologies to meet everchanging user needs. If implemented ineffectively or if impacted by unforeseen negative economic or market conditions or other factors, we may not realize the full anticipated benefits of the acquisition of YY Live. Our failure to meet the challenges involved in realizing the anticipated benefits of the acquisition of YY Live could cause an interruption of, or a loss of momentum in, our activities and could adversely affect our results of operations. The acquisition and integration of the businesses may result in material unanticipated problems, expenses, liabilities, competitive responses and diversion of management’s attention, and we may record impairment charges in connection therewith if the anticipated benefits of the acquisition fail to realize. We would be subject to and may not be able to successfully manage a variety of additional risks associated with combining YY Live with us. These risks include, but are not limited to, the following:
 
   
the online live streaming business is based on a relatively new business model in a relatively new market in which user demand may change or decrease substantially;
 
   
challenges in the integration of operations and systems and in managing the expanded operations of a larger and more complex company;
 
   
challenges in achieving anticipated business opportunities and growth prospects from combining YY Live with the rest of our businesses;
 
   
rules and measures governing online live streaming businesses and hosts are complex and evolving, and we may not be able to navigate such complex regulatory environment or to respond to future changes in regulatory environment in an effective and timely manner;
 
   
we may face significant risks related to the content and communications on YY Live, as a majority of the communications on YY Live are conducted in real time, and we are unable to verify the sources of all information posted thereon or examine the content generated by users before it is posted;
 
   
the revenue model for online live streaming may not remain effective, and we may not be able to retain existing users, attract new users, keep users engaged and attract more paying users;
 
   
we may not be able to retain or attract popular talents such as performers, channel managers, professional game players, commentators and hosts for our live streaming platform or these talents may fail to draw fans or participants; and
 
17

   
unanticipated additional costs and expenses resulting from integrating into our business additional personnel, operations, products, services, technology, internal controls and financial reporting responsibilities.
In addition, on March 12, 2022, the National Development and Reform Commission, or the NDRC, and the Ministry of Commerce, or the MOC, issued the Negative List for Market Access (2022 Version), which, among others, prohibits
non-state
capital from engaging in live streaming and broadcasting of events and activities involving politics, economy, military affairs, diplomatic affairs, major social events, culture, science and technology, public health, education and sports and such other activities and events related to political direction, public opinion orientation and value orientation. The scope of these restricted subject matters for live streaming and broadcasting is relatively broad and vague, and is subject to further clarifications and interpretations by the regulator. Even if we were able to close the acquisition of YY Live eventually, we may need to further adjust the business and operations of YY Live, which may be adversely affected.
We face significant competition and may suffer from loss of users and customers as a result.
We face significant competition in almost every aspect of our business. For Baidu Core business, our primary competitors are mainly internet companies, online marketing platforms in China and other search engines. We compete with these entities for both users and customers on the basis of user traffic, cyber security quality (relevance) of search (and other marketing and advertising) results, availability and user experience products and services, distribution channels and the number of associated third-party websites. iQIYI competes with other internet media and entertainment services, such as internet and social platforms and short-form video platforms, as well as major TV stations. iQIYI competes with these market players for both users and advertising customers, and primarily on the basis of obtaining IP rights to popular content, conducting brand promotions and other marketing activities, and making investments in and acquisitions of business partners. See “Item 4.B. Information on the Company—Business Overview—Competition.” Some of our competitors have significant financial resources, long operating histories and are experienced in attracting and retaining their users, accommodating their users’ habits and preferences and managing customers. They may use their experience and resources to compete with us in a variety of ways, including competing for users and their time, customers,
third-party
agents, content, strategic partners and networks of third-party websites/wapsites, investing more heavily in research and development and making investments and acquisitions. Our business environment is rapidly evolving and competitive. Our business faces changing technologies, shifting user needs, and frequent introductions of rival products and services. Some of our competitors in the search sector may have innovative business models, extensive distribution network or proprietary content or technologies that may provide users with better user experience and customers with better services. They may use their resources in ways that could affect our competitive position, including developing new products, making acquisitions, continuing to invest heavily in research and development and in talent, and continuing to compete aggressively for users, advertisers, customers, the acquisition of traffic and content. If any of our competitors provides comparable or better Chinese language search and feed experience or internet video services, our user traffic could decline significantly. Additionally, if the channels and properties that we use to distribute services or products to our users and customers are no longer available to us, we may experience a decline in user traffic. Any such decline in traffic could weaken our brand and result in loss of users and customers, which could have a material and adverse effect on our results of operations.
There are vertical service providers in the forms of mobile apps and/or websites that allow users to search within their closed ecosystems. There players often purchase traffic from search engineers and try to retain their users by offering comprehensive services on their platforms. As these vertical service providers expand, though they will continue to acquire traffic from search engines, their reliance on search engines may decline, especially if they can consolidate their industry verticals.
We also face competition from other types of advertising media, including traditional advertising media, such as newspapers, magazines, yellow pages, billboards, other forms of outdoor media, television and radio,
 
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mobile apps, webcasting and online video. Large companies in China generally allocate, and may continue to allocate, a limited portion of their budgets to online marketing, as opposed to traditional advertising and other forms of advertising media. If these companies do not devote a larger portion of their marketing budgets to online marketing services provided by us, or if our existing customers reduce the amount they spend on online marketing, our results of operations and growth prospects could be adversely affected.
If our expansions into new businesses are not successful, our results of operation and growth prospects may be materially and adversely affected.
As part of our growth strategy, we enter into new businesses from time to time to generate additional revenue streams and through our development of new business lines or strategic investments in or acquisitions of other businesses. Expansions into new businesses may present operating, marketing and compliance challenges that differ from those that we currently encounter.
We have invested significant resources in the research and development of artificial intelligence (AI) technology and have made significant progress in the commercialization of
AI-enabled
offerings, including
in-app
services, cloud services and solutions, intelligent driving services and solutions and smart devices and services. We plan to continue to invest capital and other resources into our
AI-enabled
business operations. However, AI technology is rapidly evolving with significant uncertainties, and we cannot assure you that our investment and exploration in AI technology and
AI-enabled
products and services will be successful. Our operating results may also suffer if our innovation is not responsive to the needs of our users, customers and partners, inappropriately timed with market opportunities, or marketed ineffectively. For example, we have limited experience with operating and scaling
AI-enabled
business, including cloud services and solutions, intelligent driving services and solutions and smart devices and services, which could subject us to various challenges and risks, including developing and managing relationships with enterprises and public sector customers and partners, who are likely to have different needs and preferences from our existing customers, users and partners, highly competitive procurement processes, instances of corrupt practices or other illegal gains, longer receivable payment cycles and lower collection rates. We also may not alter our business practices in time to avoid or reduce adverse effects from any of the foregoing risks. In addition, our
AI-enabled
business requires very different products and services, sales and marketing channels and internal operational systems and processes. These requirements could disrupt our current operations and harm our financial condition and operating results, especially during the initial stage of investment, development and scaling of our new
AI-enabled
offerings.
We may also enter into other markets and industries/industry verticals that are new to us through organic business initiatives or investment and acquisitions, such as
e-commerce
and healthcare vertical including internet hospital, which may subject us to different and unforeseen risks. However, we cannot assure you that such efforts will be successful. For these new markets and industries/industry verticals, we may not have sufficient experience and may not be able to navigate the rapidly evolving regulatory environment or forecast and meet the continually changing demands and preferences for products and services. Some of these new markets and industries/industry verticals are emerging with relatively novel and untested business models. Any of the foregoing could pose significant challenges to us. We may not realize the anticipated benefits of our investments or acquisitions, due to the uncertainties related to the performance and valuation of the relevant targets, or failure to integrate the targets into our existing business, or difficulty in operating the acquired business with our existing expertise and resources. See also “—Our strategy of investments and acquiring complementary businesses and assets may fail.”
It is uncertain whether our strategies will attract users and customers or generate the revenue required to succeed. If we fail to generate sufficient usage of our new products and services, we may not grow revenue in line with the significant resources we invest in these new businesses. This may negatively impact gross margins and operating income. Commercial success of our expansion into new business areas depends on many factors, including innovativeness, competitiveness, effectiveness of distribution and marketing, and pricing and
 
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investments strategies, especially in the early stage of competition for market share. For example, the smart transportation industry is highly competitive and fragmented. Our current and potential competitors in this industry range from large and established technology companies to emerging
start-ups.
Some competitors have longer operating histories in the sector. They can use their experience, resources and network in ways that could affect our competitive position, including making acquisitions, continuing to invest heavily in research and development and in talents, aggressively initiating intellectual property claims (whether or not meritorious), and continuing to compete aggressively for customers, partners and investees. Our competitors may be able to innovate and provide products and services faster than we can or may foresee
product-and-service
needs before us. As a result, we may not achieve significant revenues from our new business areas, such as our
AI-enabled
business operations, for several years, or at all, and may incur significant losses during the process and fail to recoup our investments. On the other hand, market conditions and general acceptance of products and services could be adversely impacted if other players in the market fail to adopt appropriate business and operational model, develop and offer successful products and services and develop and adapt appropriate technologies and infrastructure. If the markets of our new businesses, such as intelligent driving and electric vehicle, do not develop and grow as we anticipate, we may incur significant loss from our new businesses and our growth prospects may be materially adversely impacted.
In addition, we may encounter regulatory uncertainties related to new business areas that we enter into. The laws and regulations related to AI technology and products are at an early stage of development and still evolving in China. The effects of such laws and regulations remain unclear and may add uncertainties to the development and operation of our
AI-related
business. For example, as PRC regulatory framework on autonomous driving evolves, we may be required to comply with approval and other compliance requirements for autonomous driving road test, internet security and related data collection and sharing promulgated by PRC authorities from time to time. See “Item 4.B. Information on the Company—Business Overview—Regulations—Regulations on Artificial Intelligence and Autonomous Driving Vehicles.” We may confront other challenges as we enter new business domains, including the lack of adoption of new products and services, the lack of management talent in the new business, cost management and other factors required for the expansion of new businesses.
We have experienced slowdowns and declines in our revenues, and we may sustain net loss from time to time, and we may experience downward pressure on our operating and profit margins in the future.
Our total revenues grew at a compound annual growth rate (CAGR) of 10.1% from 2017 to 2021. Our growth was driven in part by the growth in China’s internet and online marketing industries, which may not be indicative of future growth or be sustainable. We experienced a slow-down in revenue growth in 2019 and a decrease in revenue in 2020 due to the decline in our online marketing services. Although our revenue resumed growth in 2021, we could continue to experience a decline in our revenues, as a result of a number of factors, including changes in the mix of products and services, customer demographics, industry and channel, changes in policy or policy implementation, increase in market competition for marketing and/or new AI offerings, and decrease in pricing arising from an oversupply of advertising inventory in the market, which has been witnessed since 2019. We may also experience a decline in our revenue or revenue growth rate, if there is a decrease in the rate of adoption for our products, services and technologies, or deceleration or decline in demand for platforms used to access our services, among other factors.
Our operating margin decreased from 13% in 2020 to 9% in 2021. Net income attributable to us as a percentage of revenue decreased from 21% in 2020 to 8% in 2021. We may experience downward pressure on our operating margin from increasing competition, revenue growth slower than expenses, and increased costs and expenses from many aspects of our business, including within online marketing where revenue growth does not keep up with traffic cost growth and related infrastructure costs to support our online properties, such as Baidu App, video-related and other products requiring huge data transmission and computing power. We may also pay increased fees for our distribution channels, as well as increased content acquisition costs to content providers. Additionally, an increase in personnel-related costs, an increase in spending to promote new products and services, the expiration of temporary tax exemptions or reductions, and the impact of the coronavirus
 
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(COVID-19),
which has negatively affected our revenue growth and delayed certain spending, may dampen our operating margin. We may also experience downward pressure on our operating margin resulting from a variety of factors, such as the expansion of our business into new areas, including AI cloud, intelligent driving, voice assistant & smart device, all of which have margins much lower than that of online marketing. Our operating margin may also be negatively impacted from a greater proportion of revenue contributed by new business areas, which has grown faster than online marketing.
In addition, we may also sustain net loss from time to time. We experienced significant losses from investment write downs in the third quarter of 2019, and experienced foreign currency fluctuation from time to time. We may experience further investment impairment and currency losses in the future. Declining operating margin and investment impairment have caused us to experience a net loss in 2019 and the first quarter of 2020, and there is no guarantee that we will be profitable in the future.
Due to these factors and the evolving nature of our business, our historical revenue growth rate, historical operating margin and historical profitability may not be indicative of our future performance.
If we fail to continue to innovate and provide products, services and high-quality internet experience that attract and retain users, we may not be able to generate sufficient user traffic to remain competitive; we may expend significant resources in order to remain competitive.
Our success depends on providing products and services to attract users and enable users to have a high-quality internet experience. In order to attract and retain users and compete against our competitors, we must continue to invest significant resources in research and development to enhance our AI or other new technologies, improve our existing products and services, and introduce additional high-quality products and services. If we are unable to anticipate user preferences or industry changes, enhance the quality of our products and services on a timely basis or fail to provide sufficient content, or provide other consumer-facing services and products, including our maps and smart devices, to our users’ satisfaction, we may suffer a decline in the size of our user base. Our results of operations may also suffer if our innovations do not respond to the needs of our users, are not appropriately timed with market opportunities or are not effectively brought to market. As search, marketing and AI technologies and new forms of devices and apps continue to develop, we may expend significant resources in research and development and strategic investments and acquisitions in order to remain competitive.
If our content ecosystem fails to continually offer quality content in a cost effective manner, we may experience declines in user traffic and user engagement, our business and results of operations may be harmed.
Our content ecosystem consists of products developed for our partners, such as Baijiahao, Smart Mini Program, Managed Page, Baidu App Store and Baidu Union, and internally developed content and services products, such as Baidu Knows, Baidu Wiki, Baidu Healthcare Wiki, Baidu Wenku, Baidu Scholar, Baidu Experience, Baidu Post, Haokan, and iQIYI. The success of our content ecosystem depends on our ability to attract content creators and producers to contribute quality content to our platform by leveraging our user traffic and enhance user engagement through the provision of attractive content, so as to create a virtuous cycle. We have relied, and will continue to rely, on third parties for the majority of the content offered in our content ecosystem and some of our products include third party intellectual property. As the competition for quality content becomes increasingly intense in China, we cannot assure you that we will be able to manage our content acquisition costs effectively and generate sufficient revenues to outpace future increase in content spending. We may also be unable to renew some of our content or intellectual property licensing agreements upon their expiration or termination and any renewal of the content or intellectual property licensing agreements may involve higher costs or less favorable terms. If we are not able to license popular premium content on commercially reasonable terms or renew our content or intellectual property licensing agreements, our financial condition and results of operations may be materially and adversely affected. We have undertaken significant
 
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commitments of future minimum payments under
non-cancellable
agreements for produced content and licensed copyrights. If the content does not achieve anticipated popularity and commercial success, such commitments may not be recoverable. In addition, we rely on users to contribute content to our various products, including Baijiahao, Baidu Knows, Baidu Wiki, Baidu Healthcare Wiki, Baidu Experience, Baidu Post, Baidu Wenku, Haokan and iQIYI’s user generated content. If these parties fail to develop and maintain high-quality and engaging content, if our desired premium content becomes exclusive to our competitors, if we are unable to continue to grow our content offerings and stay competitive
vis-à-vis
other content platforms, or if a large number of our existing relationships are terminated, the attractiveness of our content offerings to users may be severely impaired. If we are unable to offer content that meets users’ tastes and preferences on a continuing basis, including continuously upgrading our content recommendation engines and in a cost effective manner, our user experience may deteriorate, we may suffer from reduced user traffic, our business and results of operations may be harmed.
We have been and may again be subject to legal proceedings, claims and investigations and could be adversely impacted by unfavorable results of legal proceedings and investigations.
We are subject to various legal proceedings, claims and government investigations, penalties or actions that have arisen in the ordinary course of business and have not yet been fully resolved, and new legal proceedings, claims, regulatory investigations, penalties or actions may arise in the future. In addition, agreements entered into by us sometimes include indemnification provisions which may subject us to costs and damages in the event of a claim against an indemnified third party. The existence of litigation, claims, governmental investigations and proceedings have adversely affected and may continue to adversely affect our reputation, business and the trading price of our securities. In 2020, the SEC’s Division of Enforcement asked our subsidiary iQIYI to produce certain financial and operating records and documents related to certain acquisitions and investments that were identified in the April 7, 2020 short-seller report on iQiyi released by Wolfpack Research (the “Wolfpack Report”). In sum and substance, the Wolfpack Report alleges that iQIYI inflated its user numbers, inflated its revenue and deferred revenue in connection with certain parts of iQIYI’s business, inflated its expenses and the purchase prices of certain assets to conceal revenue inflation, and provided misleading financial statements of cash flows by adopting an incorrect accounting method. Following the publication of the Wolfpack Report, the SEC requested iQIYI to produce certain financial, operating, and other documents and records primarily related to the allegations in the Wolfpack Report. iQIYI has voluntarily and publicly disclosed the SEC’s request for information, and, through its legal counsel, it has provided the SEC with requested documents and information. We are unable to predict the timing, outcome, or consequences of the SEC investigation of iQIYI, or from the SEC’s review of the documents and records requested from iQIYI. In the same year, iQIYI and certain of its current and former directors and officers were named as defendants in several federal putative securities litigations. Also in 2020, we and certain of our current and former officers were named as defendants in three federal putative securities class actions, two of which are in regard to certain of the key allegations contained in the Wolfpack Report. As explained further below, the court granted defendants’ motion to dismiss the third securities class action, which does not relate to the allegations in the Wolfpack Report, in April 2021, and plaintiffs voluntarily dismissed the action in its entirety with prejudice in May 2021. In 2021, we and certain of our former officers were added as defendants to a separate federal putative securities class action alleging that our subsidiary, iQIYI, made false and misleading statements relating to the allegations in the Wolfpack Report in its public disclosure documents in violation of federal securities laws. In the event that a court finds that iQIYI, Baidu and/or other defendants violated any of the applicable securities laws, or in the event that iQIYI, Baidu and/or other defendants choose to reach a settlement with plaintiffs, iQIYI and/or Baidu may be liable for civil monetary damages and the potential financial, operational and reputational impact on iQIYI and/or Baidu may be material. However, we cannot predict the timing, outcome or consequences of these class actions, and there is no basis to conclude at this point whether such actions will be successful or whether we will be subject to any damages, let alone how much. For more details, see “Item 8.A. Financial Information—Consolidated Statements and Other Financial Information—Legal Proceedings.” Regardless of the merit of particular claims, legal proceedings, government investigations and proceedings may result in reputational harm, be expensive to respond, time consuming, disruptive to our operations and distracting to management. In the event we or iQIYI
 
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does not prevail or we or iQIYI enters into settlement arrangements in any of these proceedings or investigations, we or iQIYI may incur significant expenses which may materially adversely affect our results of operations. Separately, in April 2020, we and certain of our current and former officers were named as defendants in a federal putative securities class action alleging, in sum and substance, that our disclosures were materially false or misleading as they misrepresented Baidu’s ability to monitor and filter illicit or improper content on its platform, and failed to disclose alleged investigations and violations of PRC regulatory requirements relating to the monitoring or filtering of illicit or improper content online. In April 2021, the U.S. District Court for the Northern District of California granted defendants’ motion to dismiss in its entirety, and in May 2021, plaintiffs voluntarily dismissed this action in its entirety with prejudice.
The outcome of legal proceedings and investigations is inherently uncertain. If one or more legal matters were resolved against us or an indemnified third party in a reporting period for amounts in excess of management’s expectations, our financial condition and operating results for that reporting period could be materially adversely affected. Further, such an outcome could result in significant compensatory, punitive or trebled monetary damages, disgorgement of revenue or profits, remedial corporate measures or injunctive relief against us that could materially adversely affect our financial condition and operating results.
In addition to the content developed and posted on our platform by ourselves, our users may post information on Baidu Post, Baidu Knows, Baidu Wiki, Baidu Wenku and other sections of our platform, our content providers may provide content through Baijiahao platform and our P4P customers may create text-based descriptions, image descriptions and other phrases to be used as text, images or keywords in our search listings, and users can also use our personal cloud computing service to upload, store and share documents, images, audio and videos on our cloud servers. We have been and may continue to be subject to claims and investigations for intellectual property ownership and infringement, defamation, negligence or other legal theories based on the content found on our platform, the results in our paid search listings or our other products and services, which, with or without merit, may result in diversion of management attention and financial resources and negative publicity for our brand and reputation. In November 2018, an individual, together with his related company, filed a complaint alleging acts of, among others, defamation and libel and commercial disparagement against, among others, us and Robin Yanhong Li in his capacity as our chairman and chief executive officer, in the Supreme Court of New York. The complaint alleged, among other things, that the defendants published articles containing false and defamatory statements concerning the plaintiffs, and sought damages in an aggregate amount of US$11 billion, including purported punitive damages of US$10 billion. The plaintiff filed a notice of voluntary discontinuance of the complaint in the Second State Court Lawsuit, and subsequently filed a nearly identical complaint in the U.S. District Court for the Eastern District of New York. In January 2020, the U.S. District Court for the Eastern District of New York dismissed that complaint in its entirety with prejudice, and the time for plaintiff to appeal that dismissal has expired. In February 2020, the Supreme Court of New York granted defendants’ motions to discontinue the Second State Court Lawsuit with prejudice. No appeal of that order has been filed as of the date of this disclosure. We believe these claims to be without merit and intend to continue to defend ourselves vigorously. See “Item 8.A. Financial Information—Consolidated Statements and Other Financial Information—Legal Proceedings.” Furthermore, if the content posted on our platform or found, stored or shared through our other products and services contains information that government authorities find objectionable, our platform or relevant products or services may be shut down and we may be subject to other penalties. See “—Risks Related to Doing Business in China—We may be subject to liability for information displayed on or linked to our websites, mobile apps, Smart Mini Program or Managed Page and negative publicity in international media and our business may be adversely affected as a result.”
We have been, and may again in the future be, subject to claims, investigations or negative publicity based on the results in our paid search listings. Claims have been filed against us after we allowed certain customers to register keywords containing trademarks, trade names or brand names owned by others and displayed links to such customers’ websites in our paid search listings. While we maintain a database of certain well-known trademarks and continually update our system algorithms and functions to guard against customers keywords containing the well-known trademarks that are owned by others, it is not possible for us to completely prevent
 
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our customers from bidding on keywords that contain trademarks, trade names or brand names owned by others. There has been negative publicity about fraudulent information in our paid search listings. Although we have been continually enhancing our technology, control and oversight to prevent fraudulent websites, web pages and information from appearing in our paid search listings, there is no guarantee that the measures we have taken are effective at all times. Claims, investigations and negative publicity based on the results in our paid search listings, regardless of their merit, may divert management attention, severely disrupt our operations, adversely affect our results of operations and harm our reputation.
If we fail to keep up with rapid changes in technologies and user behavior, our future success may be adversely affected.
Our future success will depend on our ability to respond to rapidly changing technologies, adapt our products and services to evolving industry standards and improve the performance and reliability of our products and services. Our failure to adapt to such changes could harm our business. In addition, changes in user behavior resulting from technological developments may also adversely affect us. For example, the number of people accessing the internet through mobile devices and internet of things, or IoTs, such as smartphones, tablets and smart (voice-activated internet) home devices, has increased in recent years, and we expect this trend to continue while 5G and more advanced mobile communications tec