The Chinese ad format change has a limited impact on the click through rate (CTR). The new ad law requires Baidu to clearly mark ads with the Chinese word for advertisement, and will incur a 3% tax on ad revenue, from September 1, 2017. The blended tax and surcharge rate will be slightly lower than 9%, since certain non-advertising revenue business is not subject to the incremental tax.
Traffic has been solid, while the cost-per-click (CPC) decline is mainly due to a clean-up of low quality health care advertisers, which usually have higher bidding. Revenue will gradually recover in the next 2-3 quarters as budgets from advertisers return. Revenue contribution from health care is 20-25%. The PC traffic mix is relatively stable, mobile organic traffic increases over time, and is already over 50%.
