Autohome Inc. (NYSE:ATHM) Q1 2023 Earnings Call Transcript May 11, 2023

Autohome Inc. beats earnings expectations. Reported EPS is $3.91, expectations were $3.53.

Operator: Ladies and gentlemen, thank you for standing by for Autohome’s First Quarter 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. As a reminder, this conference call is being recorded. If you have any objections, you may disconnect at this time. It is now my pleasure to introduce your host, Sterling Song, Autohome’s IR Director. Mr. Song, please go ahead.

Sterling Song: Thank you, Operator. Good evening, everyone. I’m Sterling Song. Welcome to Autohome’s first quarter 2023 earnings conference call. Earlier today, Autohome distributed its earnings press release and you may find a copy on the company’s website at www.autohome.com.cn. On today’s call, we have Chairman and Chief Executive Officer, Mr. Quan Long; and the Chief Financial Officer, Mr. Craig Yan Zeng. After the prepared remarks, our management team will be available to answer your questions. Before we continue, please note that the discussion today will contain forward-looking statements made under the Safe Harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from our current expectations.

Potential risks and uncertainties include, but are not limited to those outlined in our public filings with the U.S. Securities and Exchange Commission and the stock exchange of Hong Kong Limited. Autohome doesn’t undertake any obligation to update any forward-looking statements, except as required under applicable law. Please also note that Autohome’s earnings press release and this conference call includes discussions of certain unaudited non-GAAP financial measures. Please refer to our press release, which contains a reconciliation of the non-GAAP measures to the most directly comparable GAAP measures and is available on Autohome’s IR website. As a reminder, this conference call is being recorded. In addition, a live and archive webcast of this earnings conference call will also be available on Autohome’s IR website.

I will now turn the call over to Autohome’s Chairman and CEO, Mr. Long, for opening remarks. Please go ahead.

Quan Long: Thank you, everybody. Hello, everyone. This is Quan Long, Chairman and CEO of Autohome. Thank you for joining our earnings conference call today. We got off to a solid start in the first quarter with total revenue increasing by 4% year-over-year despite a challenging auto market. Media services saw robust revenue growth of 35.5% year-over-year. Notably, revenues from TPP and data products returned to their growth track and the revenue contribution from new energy brands continue to rise with the growth rate once again outperforming the market. We not only made solid progress in our businesses, we also improve our profitability. Adjusted net income attributable to Autohome for the first quarter was up by 10.5% year-over-year and our adjusted net margin remained at a comparatively high level of 31.5%.

We began the year by rolling out a series of initiatives to broaden the reach of our dual ecosystem, comprised of user service and customer service. On the user side, we launched our C-end user-centric create our [inaudible] and make car life better strategy to enrich our platform services, expanding from our previous focus on car consumption to capture all aspects of cars’ life span. This shift is transforming our platform’s overall content to address a wider range of automobile consumers’ needs. On the customer side, we have fully implemented our new Autohome Energy Space retail model and initiated franchise stores to quickly replace — replicate the service model according to plan. We have also made strides in product and technology creation, augmenting the application scenarios for our digital products and new AI-powered data products for dealers.

These advancements have broadened our business horizons with more comprehensive service offerings that help us maintain our competitive edge. Moreover, we also connected to Baidu’s ERNIE Bot becoming its first ecosystem partner in the automotive information industry. Going forward, Autohome and Baidu will jointly explore and propel the application of large language models. Looking into 2023, we are seeing positive trends in the automobile market and expected to maintain a steady upward trajectory. The penetration rate of new energy vehicles will continue to rise and greater consumer demand will be released. We also look forward to additional supportive government policies, which will help further stabilize the auto market and encourage auto consumption.

Meanwhile, we will strive to create a healthier and more vibrant ecosystem, serving our continuously expanding user groups and increasing our influence among top buyers and users. We remain committed to our open and inclusive development concept, leveraging our core business and technological innovation to reduce decision-making and transaction costs to our partners and achieving long-term high-quality development in this ever-changing environment. Now, with that, I will now turn the call over to our Chief Financial Officer, Craig Zeng for closer look at our first quarter operating and financial results.

Craig Yan Zeng: Thank you, Mr. Long. Hello, everyone. I am Craig Zeng, the CFO of Autohome. During the first quarter, we continued to implement our C-end ecosystem strategies. On one hand, we drive to advance content innovation and enhanced product experience to provide users with exceptional services. On the other hand, we focus on our content creator ecosystem, empowering creators across the areas of content, incentives, tools and services to holistically encourage high-quality content creation. We’ve also formed a diversified content metrics must drive multichannel user growth through new media and small program alliances. For example, at the beginning of the year, we introduced a series of incentives at Autohome Creators Conference, resulting in a significant increase in the number of new orders and the daily amount of new high-quality content posted our platform.

On the content front, we launched Made in China in the first quarter on a regional IP combining auto evaluation with cross-border elements. It attracted a massive audience, generating more than 130 million views and over 840,000 interactions across the entire network. In addition, for the Shanghai Auto Show we utilized AR and holographic car reading technology to provide users with an immersive experience. The Auto Show generated over 24,000 pieces of content, resulting in a total exposure of over 4.8 billion. According to QuestMobile, Autohome’s traffic scale has expanded rapidly since the beginning of the year. In March, our mobile DAUs increased by 42% year-over-year to reach a record high of 64.5 million, demonstrating our continuous leadership in the automotive media vertical.

For our traditional business, our lease subscription package provides customers with a comprehensive range of products, ranging from direct connection with users to intelligence empowerment of daily operations and the competitive landscape insights. By leveraging our advantages in traffic and data technology, we are able to support our dealer customer’s optimization and transformation with respect to user operations, expansion on profit front, operating decisions and more. As we enhance our core business, we use our deep understanding of the industry to identify trends that support our ability to explore new opportunities to create innovative models and expand our business to address potential growth avenues. For our new energy business, we have been continuously optimizing and adjusting the operations process as our first offline experience store in Shanghai since its launch last September by enriching user test driving scenarios and shortening user decision-making cycles on other sites [ph].

Our increased number of cooperative customers clearly demonstrate the efficiency of our multi-brand services model. We’ve already reached cooperation with more than 30 brands and have started the construction of franchise stores aiming to further expand the scale of our new retail services this year. In the fourth quarter, the revenue contribution from new energy vehicle brands continue to rise with a year-over-year increase of 67% significantly outperformed the growth rate of broader industry sales. Moving on to digital products. In addition to continuously upgrading our existing data products in the fourth quarter, we launched our EV Smart Cloud, a new product designed to address line spots in new energy vehicle data and provide manufacturers with integrated base solutions.

This product will greatly enhance our digital offerings value. As for data products for dealer customers, we increased and integrated new technology to launch Smart Selection, an AI-driven too, which have dealers quickly identified high net worth users effectively enabling dealers to release more production capacity and improve service quality. During the first quarter, we experienced a rapid upward trend in all of our key indicators for our data products for dealers. The number of dealer customers for data products, the average revenue of the data product per dealer store and the average number of data products adopted by each dealer stores all grew by double digits compared to the prior year period. We are now entering the era of active intelligence operations where model decision-making and human collaboration come together to create a powerful and efficient systems.

Regarding the used car business, fluctuating new car prices in the first quarter put some pressure on the used car industry. However, Autohome’s used car business unit, together with TTP, we achieved Y-o-Y growth, demonstrating the synergy between our businesses. Our used car business as a whole also maintain profitability. In the fourth quarter, through Autohome’s matching and auction services, our platform accounted for about 21.8% of all used car transactions in China, representing Y-o-Y growth of nearly 2% growth. In terms of products, we’ve taken our comprehensive vehicle conditions improved too for used cars to the next level. The two support queries, including general car repairs and maintenance, collision repairs and new energy battery conditions, providing sellers and buyers with the transparent and reliable consumption environment.

Going forward, we’ll remain at the forefront of the used car industry, creating a one-stop full service platform for used car users and dealers supported by our SaaS products. Overall, Autohome is staying ahead of the curve by tracking the other evolving markets and the user needs. We consistently pushed the limits of quality service, providing users with more comprehensive and diversified content tools and services in addition to auto information. As an industry pioneer, we are committed to the concept of development geoscientifics [ph] and technological innovation. As such, we are rapidly advancing our core technologies and introducing new models to lead industry developments. Looking ahead, we will continue to devote ourselves to empowering the industry with cutting-edge technology, amplifying our competitive advantages, open up new business areas and achieve long-term high-quality development.

Next, let me walk you through the key financials for the first quarter of 2023. Please note that as with prior calls I will reference RMB only in my discussion today unless otherwise stated. Net revenues for the fourth quarter were RMB1.63 billion, up 4.2% year-over-year. For a detailed breakdown, media services revenue came in at RMB361 million, an increase of 53% to 35.5% year-over-year. Lease generation services revenues were RMB681 million and the online marketplace and other revenues were RMB492 million. Moving on to costs. Cost of revenue in the first quarter was RMB340 million, compared to RMB255 million in Q1 2022. The increase was primarily attributable to the growth of operational costs. Gross margin in the fourth quarter was 77.8%, compared to 82.7% in Q1 2022.

Turning to operating expenses. Sales and marketing expenses in the first quarter were RMB523 million, compared to RMB592 million in Q1 2022. The decrease was primarily attributable to a decline in marketing and promotional spending. Product and development expenses were RMB324 million, compared to RMB355 million in Q1 2022. Finally, general and administrative expenses were RMB149 million, compared to RMB137 million in Q1 2022. So we delivered operating profit of RMB263 million in the first quarter, compared to RMB241 million in the corresponding period of 2022, representing an increase of 9.1% year-over-year. Adjusted net income attributable to Autohome Inc. was RMB484 million in the first quarter, compared to RMB438 million in the corresponding period of 2022, representing an increase of 10.5% year-over-year.

Non-GAAP basic and diluted earnings per share in the first quarter were both 0.98%, compared to both 0.87 in the corresponding period of 2022. Non-GAAP basic and diluted earnings per ADS in the first quarter were RMB3.92 and RMB3.91, respectively, compared to RMB3.47 for both in the corresponding period of 2022. As of March 31, 2023, our balance sheet remained very strong with cash, cash equivalents and short-term investments of RMB22.71 billion. We generated net operating cash flow of RMB1.03 billion in the first quarter of 2023. On November 18, 2021, our Board of Directors authorized a share repurchase program under which we were permitted to repurchase up to US$200 million of Autohome ADS for a period not to exceed 12 months thereafter. On November 3, 2022, our Board of Directors authorized an extension of the share repurchase program for another 12 months expiring on November 17, 2023.

As of May 5, 2023, we have repurchased approximately 3.94 million ADS for a total cost of approximately US$119 million. With that, we are ready to take your questions. Operator, please open the line for the Q&A session. Thank you.

Q&A Session

Operator: Certainly. [Operator Instructions] Our first question comes from the line of Brenda Zhao from CICC. Please go ahead.

Operator: Thank you. Our next question comes from the line of Ritchie Sun from HSBC. Please go ahead, Ritchie.

Operator: Thank you. Our next question comes from the line of Thomas Chong from Jefferies. Please go ahead, Thomas.

Operator: Okay. Our last question comes from the line of Brian Gong from Citi. Please ask your question, Brian.

Operator: Thank you. We have reached the end of the question-and-answer session. Thank you all very much for your questions. I’ll turn the conference back to management for closing remarks.

Quan Long: [Foreign Language]

Sterling Song: Thank you, everyone. Thank you very much for joining us today. I appreciate your support and looking forward to updating you on our next quarter’s earnings conference call in a few months’ time. So, in the meantime, if you have any questions or comments, please feel free to contact us. Thank you very much. Good-bye.

Quan Long: Good-bye.

Unidentified Company Representative: Thank you.

Operator: That concludes today’s conference call. Thank you for participating. You may now disconnect.