Autohome Inc. (NYSE:ATHM) Q1 2024 Earnings Call Transcript

Autohome Inc. (NYSE:ATHM) Q1 2024 Earnings Call Transcript May 8, 2024

Autohome Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Ladies and gentlemen, thank you for standing by for Autohome’s First Quarter 2024 Earnings Conference Call. At this time, all participants are in listen-only mode. A question-and-answer session will follow management’s prepared remarks. As a reminder, this conference call is being recorded. If you have any objections, you may disconnect at this time. A live and archived webcast of this earnings conference call will also be available on Autohome’s IR website. It is now my pleasure to introduce your host, Sterling Song, Autohome’s IR Director. Mr. Song, please go ahead.

Sterling Song: Thank you. Thank you, Operator. Hello everyone, and welcome to Autohome’s first quarter 2024 earnings conference call. Earlier today, Autohome distributed its earnings release, which can be found on the company’s IR website at ir.autohome.com.cn. Joining me today on today’s call are Chief Executive Officer, Mr. Tao Wu; and Chief Financial Officer, Mr. Craig Yan Zeng. Management will go through their prepared remarks first, which will be followed by a Q&A session, where they 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 Hong Kong Stock Exchange. 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 include discussions of certain unaudited non-GAAP financial measures. A reconciliation of the non-GAAP measures to the most directly comparable GAAP measures can be found in our earnings release. I will now turn the call over to Autohome’s CEO, Mr. Tao Wu for opening remarks.

Please go ahead, Mr. Wu.

Tao Wu: [Foreign Language] Thank you, Sterling. Hello, everyone. This is Tao Wu, CEO of Autohome. Thank you for joining our earnings conference call today. [Foreign Language] I’m pleased to report a solid start to the year with total revenue growing by 4.9% year-over-year to RMB1.61 billion. Revenues from the online marketplace and others continue to achieve double-digit growth, increasing by 7% year-over-year, rising to 34.5% of total revenues. Notably, we continue to see strong growth in revenues from our data products, which increased over 10% in the quarter from a year earlier, driven primarily by our smart series products. We also saw robust growth in our NEV business with revenues for the quarter increasing by 49.6% year-over-year.

Adjusted net income attributable to Autohome for the quarter was up 2.2% year-over-year to RMB494 million, while our adjusted net profit margin remained at a relatively high level of 30.7%. [Foreign Language] For our innovative business as new franchise doors are on track to open our Autohome space to expand further into a broader geographic area, driving the development of our online and offline integration. We also further strengthened our collaboration with Ping An Group through providing consumers with greater peace of mind and a more convenient user experience. In addition, we actively responded to the national trade-in for new policy, launching a series of initiatives such as the Hundred Cities Trade-in for New Car-Buying Festival in collaboration with Ping An Group allowing consumers to enjoy even more benefits.

[Foreign Language] Looking forward, we are committed to maintaining our professionalism and expertise while driving continuous innovation and offering even more convenient and high quality products and professional services to our users and clients. Meanwhile, we will continue to refine, improve, and optimize our overall business framework to ensure sustainable development in both traditional and emerging sectors. Additionally, we will fully leverage the Ping An Group’s vast resources to explore and develop opportunities in various areas, including automotive ecosystems, big data, cooperative car ownership services and the user benefits. Together, we’ll develop even greater synergies and push forward with new business initiatives. [Foreign Language] With that, I will now turn the call over to our CFO, Craig Zeng, for a closer look at our first quarter 2024 operating and financial results.

Craig Yan Zeng: [Foreign Language] Thank you, Mr. Wu. Hello everyone, I’m Craig Zeng, the Chief Financial Officer of Autohome. [Foreign Language] In the first quarter, we continued to focus on developing high quality content, practical tools and premium services to enhance Autohome’s brand influence. In March, amid a flurry of new car launches, we introduced our original IP content so far so task forecasting on eight major online platforms by offering comprehensive real world testing and in-depth analysis of the latest models, we provided a fresh content experience that has received widespread positive feedback from both users and clients. This new content tallies more than 500 million exposures across all platforms, significantly enhancing Autohome’s influence.

[Foreign Language] In addition, in response to escalating price competition and frequent fluctuations in vehicle pricing, we introduced a number of innovative tools, including a price trend tracker and a comprehensive model comparison tool. The former enables users to intuitively see pricing trends, while the latter provide enhanced, detailed comparisons to improve the comparison and decision making process. According to QuestMobile, average mobile DAUs reached 69.39 million in March, an increase of 8.1% from a year earlier, which clearly demonstrates the effectiveness of our content-focused strategy for user growth. [Foreign Language] Turning to NEV, Autohome Space continues to make significant progress. Autohome Space is not only present in major cities including Beijing, Shanghai, Guangzhou, Chongqing and Chengdu, but has also expanded into key second tier provincial capital cities including Kunming, Huiyang and Jinan, et cetera, as well as promising third and fourth tier cities like Zhoushan, Zhaoqing, and Shunyuan, et cetera, reaching broad market coverage.

During the quarter, we also granted franchise drives to partner in nine additional cities where stores are on track to open later this year. This expansion will significantly enhance the presence and the reach of our NEV services geographically expanding our reach to additional users. [Foreign Language] Our Autohome Space stores also function as an adaptive marketing platform equipped with substantial online and offline resources as well as advanced digital capabilities. Leveraging these advantages, we can provide OEMs with integrated one-stop marketing solutions. Currently, our 3D holographic car models cover more than 80 mainstream NEV models in the market. In the first quarter, our new retail business collaborated with more than 30 brands, launching over 100 marketing events, including new car launches, test drives, and a driving comparison.

Revenue from NEV brands in the first quarter this year increased by 49.6% from a year earlier, consistently outpacing industry growth rate. [Foreign Language] For digital products, we are committed to applying large language models, or LLM, more widely across our business. We are gradually replacing existing strategy-based chat bots with customized LLM that are tailored to the automotive industry. These LLM are now being used for AI’s outbound calls, customer services and the creation of marketing content, significantly enhancing the quality and efficiency of our existing data products. This initiative not only refines our product performance, but also expands the coverage of our clients. In the first quarter, the number of dealers that purchased our data products continued to increase driving revenue growth of 27% year-over-year for our dealer data products.

[Foreign Language] We have also applied our digital capabilities to the used car business, creating a transparent and trustworthy buying environment. For instance, for consumers, we provide a comprehensive set of tools to verify true vehicle conditions to help buyers accurately assess a vehicle and select quality car options. For dealership, we offer a broad range of tools including price and vehicle condition test as well as digital marketing solutions to help them improve operational efficiency. In the first quarter, the number of dealerships that queried our one-stop vehicle condition and pricing platform saw a year-over-year increase of more than 80%, reflecting dealerships recognition of Autohome’s expertise. [Foreign Language] In summary, Autohome achieved steady growth in revenue and profits in the first quarter this year, driven by the rapid development of our digital products and the NEV businesses.

Additionally, the introduction, replication, and iterative updates to our new innovative business models are increasingly contributing, diversifying and optimizing our revenue mix. Looking ahead, we will continue to explore new businesses, leverage Ping An Group’s unique advantages, discover new opportunities to collaborate and promote the sustained and healthy development of Autohome. [Foreign Language] Next, let me briefly walk you through the key financials for the first quarter of 2024. Please note that, as with prior course, I will reference RMB only in my discussion today unless otherwise stated. [Foreign Language] Net revenues for the first quarter were RMB1.61 billion. Breaking it down by segment, media services revenues were RMB327 million, leads generation services revenues were RMB726 million and online marketplace and others revenues were RMB555 million, up 13% year-over-year.

[Foreign Language] Cost of revenues in the first quarter was RMB301 million, compared to RMB340 million in the first quarter of 2023. Gross margin in the first quarter was 81.3% compared to 77.8% during the same period last year. [Foreign Language] Turning to operating expenses, sales and marketing expenses in the first quarter were RMB641 million, compared to RMB523 million in the first quarter of 2023. Product and development expenses were RMB336 million, compared to RMB324 million in the first quarter of 2023. Finally, general and administrative expenses were RMB150 million, compared to RMB149 million during the same period last year. [Foreign Language] Overall, we delivered an operating profit of RMB276 million in the first quarter, compared to RMB263 million in the corresponding period of 2023.

Adjusted net income attributable to Autohome was RMB494 million in the first quarter, compared to RMB484 million in the corresponding period of 2023. [Foreign Language] Non-GAAP basis and diluted earnings per share in the first quarter was RMB1.02, up from RMB0.98 in the corresponding period of 2023. Non-GAAP basic and diluted earnings per ADS in the first quarter were RMB4.08 and RMB4.07, respectively, compared to RMB3.92 and RMB3.91, respectively in the corresponding period of 2023. [Foreign Language] As of March 31, 2024, our balance sheet remains very strong with cash, cash equivalents and short-term investments of RMB23.65 billion. We generated net operating cash flow of RMB561 million in the first quarter of 2024. [Foreign Language] The above is our financial summary.

With that, now we are ready to open up the Q&A session. Operator, please open the line for the Q&A session.

Operator: Thank you. We will now begin the question-and-answer session. [Operator Instructions]. Our first question comes from the line of Brian Gong from Citi. Brian, please proceed with your question.

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Q&A Session

Brian Gong: [Foreign Language] Thanks management for taking my question. I have two questions. First is regarding the auto policy rollout by the government recently. Can management share your view on this, how the auto policy impacts the auto market in China and what measures Autohome will take to cater those policies? And the second question is regarding our data products for dealers, which has been key growth driver to the company over past several quarters. How should we look at the growth potentials for the segments in the future? Thank you.

Sterling Song: [Foreign Language] Okay. Thank you for raising this question. Since you raised the two questions, Mr. Wu Tao will take the first one.

Tao Wu: [Foreign Language] Okay. I think that the two policies you mentioned are actually the notice on action plan to promote large scale equipment revenue and consumer goods trading issue by the State Council in March of this year. And the other one is noted on implementation rules for automobile trading subsidies issued by the Ministry of Commerce and the other seven departments in April. These two notices released the policy of capital subsidies for auto mobile trade-in further clarifying scope and standards of the subsidy and also allow consumers to better participate in also trading activity by increasing the policy guidance and support. Therefore, promoting the trading of auto and other consumer groups has become the focus of cemented consumption promotion of this year.

I think that these two policies are pretty clear. For example, for one NEV client it will get a subsidy of RMB9,000, and for one IPV [ph] client it will get RMB7,000 in terms of the subsidy. So I do believe that it will further promote consumption. [Foreign Language] So after the policy was issued, what will be the impact on the auto market? I think that in Q1, the release of the two notices, there are several characteristics happening on the auto market. There are some direct as well as indirect impact. So next, I would like to elaborate on the topic from the CSA. [Foreign Language] Okay. Firstly, from the natural perspective, data released by CPCA shows that China’s auto market sales recovered in first quarter of 2024 with retail sales increasing by 13.1% year-on-year due to price cuts by OEM, consumption promotion campaigns carried out in different places, some demand for car purchases have been released in an accelerated manner.

This debating also showed how in April OEMs began to launch new brands and new models and the transit of the car market has also heated up significantly and the car market expects it to continue rebound in the future. [Foreign Language] And secondly, just as I mentioned before, the conscious volume has been constantly on a rise. This is attributable to the trading policies with the subsidy offered by both the government as well as the OEMs, of course, the consumption will be pushed up while on the other hand we should also see that the price competition in this industry is still quite fierce. According to the data released by CPCA, we also see that in the first quarter of this year, the passenger vehicle car price still is already 60% of that the same period last year and also the total price tax level of the year 2022.

So we think that with this happening there will still be a lot of pressure on the profit margin of the automaker, while on the other side the competition landscape is still quite uncertain. [Foreign Language] And the first thing we have to look at market structure. We see that from April 1 to April 14, new energy vehicle sales increased by 32% while volume and the penetration rate reached 50.1%, which is much faster than many people expected, with improvements of the range as well as the charging speed of the new energy vehicle, the completion of the charging facilities, as well as the decline of the cost. More and more consumers are beginning to accept a new energy vehicle. As a result, we will see that the multi-structure changes will be also faster than our expectations.

[Foreign Language] Next, I would like to elaborate on the concrete actions, which will be taken by Autohome. [Foreign Language] As I said before, you can see that the impact of these policies have both pros and cons on the market. But for Autohome’s, it is favorable to us because it can deliver benefits to the users and will also stimulate the demand on the market. So for Autohome’s, we will definitely grasp this opportunity and you can see that from our own side, we become the key cooperation unit of this campaign. Together with [indiscernible] communications as well as the other enterprises, we will actively respond to the call of the national policy, give full play to its platform advantage and study the Autohome ultimate view of market in GAAP, and publicized relevant national policies.

[Foreign Language] Next, I would like to talk about two concrete actions taken by Autohome. The first one is that the newly opened super trading season channel of our Autohome app is organized and integrated in detail for the subsidy policies of different cities and acquire companies to help consumers better understand the details of the random policy. While in the same time,, in collaboration with a number of automakers and Ping An Group would provide high quality sell own and buy new services to more than 20 Autohome new energy offline stores and would like to activate the consumption potential and promote the development of the car markets. [Foreign Language] The other thing is that comprehensively we can see that Autohome, we have been joining hands with PNC to create the initiative of Hundred Cities Trade-in for New Car-Buying Festival covering 108 cities on through to mobile photographic campaign caravans and PI insurance Oakland team and utilizing big data to accurately identify people with replacement needs, along with test to drive insurance and other service guarantees to activate automobile consumption potential.

On the other hand, we also launched a special super subsidy activity covering more than 100 brands nearly 1,000 car models with the highest subsidy of RMB6,000 effectively stimulate the market purchasing power. [Foreign Language] Also speaking the automobile industry will continue to be valued by the state as well as the government this year. So we think that with the actual implementation of various policies, if you similar market consumption vitality and promote high quality and steady development of the automobile industry this year, we’re pretty confident about that. [Foreign Language] Okay. That’s all for my answer to the first question. Thank you.

Operator: Thank you.

Craig Yan Zeng: [Foreign Language] The second question about the dealer’s data product future potential will be taken by Mr. Zeng. So the answer is that actually we see the total number of the paid merchants for dealer data products already exceeded 20,000. So the growth potential is pretty significant. [Foreign Language] So our objective is to let more merchants together utilize our modules to promote their own sales to help them to cut costs and improve efficiency. So in the future, we will continue to develop new models in this asset. We will also help this model to better operate so as to facilitate our merchants. On average, each of the merchants will purchase five products. But we do have another 11 established and a mature product.

Therefore, there is still a lot of potential for us to tap into. In Q1 of this year, we see that the growth of this business is already to 27%. It shows very strong competitive ads. So we believe that there will be a bit potential in the future.

Sterling Song: Okay. Operator, the next one.

Operator: All right. Thank you. Our next question comes from the line of Ritchie Sun of HSBC. Please proceed with your question, Ritchie.

Ritchie Sun: [Foreign Language] Thank you management for taking my questions. I have a question about the used car business. So I noticed that Ping An has some — has been under some impact from the new car price war in first quarter. So this actually is continues. So how should we think about the future growth trend and what is our strategy to tackle this? Thank you.

Tao Wu: [Foreign Language] Okay. I will take this question from three different aspects. First, from the market perspective, we see that in the first quarter, you can see that the used car grew by 7.6% year-on-year, a slowdown in the growth. By the end of March of this year, domestic used car trading PMI index has been below 50 point mark for 16 consecutive months. The industry as a whole is under some pressure. So I think that this is partly due to the price war. According to the data released by CPCA, you can see that the new car discount has been hit 18%, but in the previous year, it was only 12%. The new car price cost has been imposing a lot of pressure on their used car. So we see that this is happening. But in effect, this will not continue for a long time because it will only slowdown the replacement but with only some post deployments as well as delay, but it will not continue forever.

[Foreign Language] And the second part is from policy perspective; I think that this is favorable to the used car market. Ministry of Commerce launched the trading policy sell old and then buy new bringing new development about opportunities to the used car industry. So you can see that a large number of the car parts will also facilitate used car trading on this margin. And PPP is also a very important link in the consumption of trade-in sell old and buy new. So we believe that it will ensure a lot in the future. [Foreign Language] And the third part is from PPP itself, we can see that recently PPP launched a 30 minutes high speed online national bidding service, including on-site inspection, instant online bidding and online offers to sell cars quickly.

Consumers can drive to the site for free testing and then get quotes from the real buyers online within 30 minutes. This model greatly improves the efficiency of consumers’ car purchases, realize the seamless connection between selling olds and buy new. And combined with the new energy offline experience store, consumers can sell old and buy new in one-stop, which helps to activate the used car market as well as to promote the related transactions. And with the offline collaboration between Autohome and the Group as a whole, it will greatly support PPP’s future extensions.

Sterling Song: Okay. Operator, the next question, please.

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

Thomas Chong: [Foreign Language] Thanks management for taking my question. My first question is about management comments about the recent Beijing Auto Show and how we should think about the EV sector this year. And my second question is about the use of cash. Thank you.

Craig Yan Zeng: [Foreign Language] Okay. Thank you for raising the question. Let me take this one. So for this year’s Beijing Auto Show was the first Habibi [ph] Auto Show how embarrassing and possible use and therefore the most attention grabbing in recent years, attracting a large number of attention from all work supplies and vesting groups. In 10 days of the Auto Show, including the holiday, we attracted in total 900,000 visitors with the world debut of 117 vehicles and 378 new energy models. [Foreign Language] So in the year 2023, we see that the NEV production NCO’s accounted for more than 50% of the global total. China’s automobile going global campaign continued to heat up and intelligent development accelerated year by year with a strong product power as well as the technical strength.

Although the sales figures for the whole month of April are not yet available, but as Mr. Wu Tao mentioned, market penetration of domestic NEV sales in the first half of April already achieved 50%, exceeding traditional fuel vehicle sales for the very first time. So while in the same time, we also see that the new energy industry continue to diverge in NEV players. We can see that the players represented by BYD and Lee [ph] Alto still effective gradually appear and profitability continue to improve. But in this time, there are also part brands that may gradually lose market share and increase losses in a fierce price wall. The next three years will be an important period of competition for sales, cost, as well as technology and any big companies grow strong with strong product power expected to gain more market shares.

Autohome will also adapted to the market trend, relying on new energy offline experience stores and corporate various new energy brands and present our 3D holographic car models have already covered more than 18 mainstream new energy models. We have cooperated with most of the new energy brands and revenue from the new energy brand continues to outperform the industrial sales group. [Foreign Language] In terms of our cash used plan, we see that over the past year, all funds have been committed to continuously improving shareholders return. In year 2022, the Board of Directors updated the dividend payout policy, which is to distribute a fixed amount of RMB500 million, which is equivalent to 28% of the net profit of that year and the end of FY2023, the company further revised our dividend policy by announcing a decision to pay a dividend of RMB1 billion and we have completed this dividend payout in the first quarter of this year.

As for the three years from FY2024 to FY2026, we plan to pay dividend every six months and with the total annual dividend of no less than RMB1.5. So you can see that Autohome has balanced through a solid financial position, adequate cash reserves and strong cash flow. Over the past few years, we have been very strongly given return to our shareholders and we will continue to pay dividends and have been committed to continuously improving shareholders return. At the same time, we will also subsequently monitor the market trend and we will continue to give the next technology to our shareholders as our target.

Sterling Song: Operator, the next, please.

Operator: Thank you. Our next question comes from Xiaodan Zhang from CICC. Please proceed with your questions, Xiaodan.

Xiaodan Zhang: [Foreign Language] And so thanks management for taking my questions and instincts on the advertising budget for OEM is still tight this year. So what is your outlook for our media services business for the subsequent quarters? Thank you.

Craig Yan Zeng: [Foreign Language] Okay. Thank you for raising this question. I will take the question. We see that in terms of the sales of EV vehicles as well as NEV vehicles in first quarter, we see that actually, even though the sales volume increased by 4%, however, we see that actually all of the automakers have been purchasing the strategy — have been procuring their strategy of price for volume. As a result, their profit margin has been squeezed. We have been spending more budget on directly subsidizing consumers as to improve the volume. As a result, advertising budget has increased. [Foreign Language] Well, in the same time, we see that NEV companies have increased their advertising investments. For example, in first quarter Autohome’s media advertising revenue from any big players doubled [indiscernible] and it will continue to grow in the future.

And we also accept that the price call volume strategy of OEM will continue, but will not continue forever. So the advertising budget will still be under pressure in the short period of time. However, in the long run, we believe that actually we will continue to pay more attention to advertising and the advertising budget will come back to the normal track because the market will continue to follow the right direction.

Sterling Song: Okay. Operator, if there’s no extra question, we come to the end of this Q&A session.

Operator: Thank you, sir. There are no further questions at this time. I’ll turn the conference back to the management team for closing comments.

Tao Wu: [Foreign Language] Okay. Thank you, everyone. Thank you for joining us today. We appreciate your support and we look forward to updating you on our next quarter conference call in a few months’ time. And in the meantime, please feel free to contact us if you have any further questions or comments. Thank you, everyone. Thank you. Bye-bye.

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