Autohome Inc. (NYSE:ATHM) Q3 2023 Earnings Call Transcript

Autohome Inc. (NYSE:ATHM) Q3 2023 Earnings Call Transcript November 4, 2023

Operator: Ladies and gentlemen, thank you for standing by for Autohome’s Third Quarter 2023 Earnings Conference Call. At this time, all participants are in a 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 the 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, Heidi. Thank you. Hello everyone, welcome to Autohome’s third quarter 2023 earnings conference call. Earlier today, Autohome distributed its earnings press release, which can be found on the company’s IR website at www.ir.autohome.com.cn. Joining today on the call are Chairman and CEO, Mr. Quan Long; and Chief Financial Officer, Mr. Craig Yan Zeng. Management will go through their prepared remarks, 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 US 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 for the most directly comparable GAAP measures can be found in our earnings release. I will now turn the call over to Autohome’s Chairman and CEO, Mr. Long for opening remarks. Please go ahead, Mr. Long.

Quan Long: [Foreign Language] [Interpreted] Thank you, sir. Hello, everyone. This is Quan Long, Chairman and CEO of Autohome. Thank you for joining our earnings conference call today. In the third quarter, our new businesses continued to drive Autohome’s overall growth as we further optimized our revenue structure. This marks our 5th straight quarter of top line and bottom line growth on a year-over-year basis, while consistently maintaining a high net profit margin. Net revenues for the third quarter RMB1.91 billion. Revenues from online marketplace and others business increased 25.2% year-over-year, accounting for 31.4% of total revenue. Revenue from data products, in particular, generated strong growth momentum, increasing more than 30% compared to the same period last year.

We also made substantial progress in deepening our collaborative efforts with NEV automakers. Revenues from NEV brands were up by nearly 70% year-over-year as a result. Moreover, adjusted net income attributable to Autohome for the quarter was up 2.3% year-over-year with our adjusted net margin hedging 31.7%. During the quarter, we accelerated the build out of our content ecosystem, which combines efficient tools, content and services to offer users the information they are seeking motivates creators to produce content and engage with our community, I mean, and create a virtuous cycle that drives growth across the platform. We also continue to explore new ways to develop, integrate and create synergies between the diverse business models across our ecosystem.

The Autohome Energy Space franchise stores we recently launched in cooperation with TTP and Chengdu and Chongqing have given us the opportunity to further refine the new retail plus used car business model and drive further business development. In addition, we also upgraded the foundation of infrastructure and capabilities, our digital platform, to enhance the value of our data products and seamlessly integrate big data and the cutting edge technologies to empower the digital transformation of dealers. The rapid adoption of NEV is accelerating the transformation of the automotive industry, bringing new technologies and business models to the forefront. In this new market environment, we are focused on capitalizing on the major opportunities.

NEVs and digitalization present, supporting our partners in the transformation of their businesses and broadening the services we have our offer. This will ultimately create a one-stop ecosystem that spans the entire consumer cycle from the research and the purchase phase through to the use and exchange of cars to drive long-term sustainable growth. With that, I will now turn the call over to our Chief Financial Officer, Ms. Craig Zeng for a close look at our third quarter operating and financial results.

Craig Yan Zeng: [Foreign Language] [Interpreted] Thank you, Ms. Long. Hello everyone. I’m Craig Zeng, the CFO of Autohome. In the third quarter, we set up — set up our efforts to systematically develop tools and content, widen the platform out and broaden our profile across the industry. With interest in NEVs growing, for example, we tested nearly 100 popular models to provide users with comprehensive, easy to understand and professional analysis and information. To date, more than 2.6 million users have used our testing tools to assist their car buying decision making. In addition, we promoted Autohome’s August 18th Super Auto Festival our multiple platforms in collaboration with CCTV finance channel and other broadcast and social media platforms.

Total exposure exceeded 14.5 billion impressions, which further strengthens our profile in the industry. At the same time, we launched the next development place for our service system, which combines online content with offline experiences to further increase our mind-share among users. At the Chengdu Auto Show, we showcased our purchase assistance service for the first time, which offers consumers a hand on purchasing experience where they can view and evaluate various car models accompanied by our highly experienced editors. We also launched our shopping guide program to encourage content creators to produce and promote content that facilitates the decision making process for consumers and boost overall car consumption through our platform.

According to QuestMobile, mobile DAU in September increased 39.3% year-over-year to 63 (ph) — 69.01 million underscoring our ability to steadily strengthen our leadership position in the automotive media vertical. Following the launch of our first brick-and-mortar NEV experience store last September, we further refined this business model by integrating our used car business. In addition to providing a one-stop service for NEVs from multiple brands that span from car selection to purchase services, these stores now offer consumers the option to trade-in their cars and apply the proceeds towards the purchase of a new one. This will create additional opportunities for car sales and take advantage of TTP’s vehicle disposal capacity. Autohome Energy Space Chengdu store, which opened this past August, has become particularly popular among youngest consumers with its innovative marketing activities and automotive culture offering, including a car museum.

In addition, the Chongqing store, which officially opened two weeks ago, is our first location to feature a dedicated used car selection within the store. This provides consumers with a one-stop experience, allowing them to sell their old cars and then purchase a NEV or used car at the same time. This innovative service model capitalizes on the synergies between our new and the used car businesses, and offers consumers a complete field of additional services including vehicle inspection, purchase and replacement. Our new retail business at the movement is developing rapidly with the construction of new retail stores in certain cities, having already began. Over the next two years, we plan to increase the penetration of Autohome Energy Space franchise stores across the country, allowing Autohome to turn its online advantages to, into offline business across a broad range of market.

TTP will also leverage the Autohome Energy Space network to accelerate the expansion of its operations nationwide. On the digitalization front, we upgraded our technology and information channel to improve communication and the user profiling and strengthen the efficiency and accuracy of customer outreach. We also broadened the application of AI into our smart products to generate further labor saving, improve content quality and provide more value to dealer, customers. In the first nine months of the year, key metrics such as the average number of data products adopted by each dealer store and average revenue from data products per dealer store both increased by double digits when compared to the same period last year. We are rapidly expanding our digital product portfolio across a range of application scenarios in order to support dealers as a shift from human-driven to a digital-driven operations to improve our operational efficiency and ultimately lower the door prices for customers.

Turning to our used car business, in addition to our ongoing cooperation with new retail store, we launched a one-stop vehicle price inquiry products during the quarter based on used car auction and the new car transaction data. This platform provides used car dealers with the real vehicle transaction prices as well as valuation tools supported by large language module capabilities. Dealers can now accurately evaluate each vehicle by querying the transaction prices for new and used vehicles across different regions, brands and models. In addition, we’re also boosting the transaction conversion rate by increasing customer and the user satisfaction rate. In the third quarter Autohome’s matching and auction services platform accounted for about 24.4% of all used car transactions in China, a year-over-year increase of approximately 3% points.

In summary, we delivered steady revenue and profit growth during the quarter, while continuing to optimize our revenue structure. Our new retail business is gaining growth momentum as synergies among our diverse business lines begin to take hold, which will greatly strengthen overall growth prospects going forward. Looking ahead, we will continue to advance our ecosystem approach by creating new business models that connect the online and offline channels to help automakers transform and adapt to NEV trends. We are confident that our diversified business will drive Autohome growth to the next level. Next, let me walk you through the key financials for the third quarter of 2023. Please know that as with prior calls I’ll reference RMB only in my discussion today unless otherwise stated.

Net revenues for the third quarter were RMB1.91 billion, up 3.4% year-over-year. Breaking it down by segment media services revenues were RMB477 million, leads generation services revenues were RMB830 million and online marketplace and others revenues were RMB599 million, up 25.2% year-over-year, driven primarily by increasing revenue contribution from data products. Moving on to costs. Cost of revenues in the third quarter was RMB374 million compared to RMB331 million in the third quarter 2022. The increase was primarily attributable to an increase in content and operational costs. Gross margin in the third quarter was 80.4% compared to 82.1% in Q3 2022. Turning to operating expenses. Sales and the marketing expenses in the third quarter were RMB935 million compared to 6, to RMB863 million in Q3 2022.

The increase was primarily attributable to the increase in marketing and promotional spending. Products and development expenses were RMB355 million compared to RMB387 million in Q3 2022. The decrease was primarily attributable to a decline in personnel related expenses. Finally, general and administrative expenses were 141 million compared to 136 million in Q3 2022. Overall, we delivered operating profit of RMB166 million in the third quarter compared to RMB192 million in the corresponding period of 2022. Adjusted net income attributable to Autohome, Inc was RMB604 million in third quarter, compared to RMB590 million in the corresponding period of 2022, representing an increase of 2.3% year-over-year. Non-GAAP basic and diluted earnings per share in the third quarter were RMB1.23 respectively, compared to RMB1.18 respectively in the corresponding period of 2020.

Non-GAAP basic and diluted earnings per ADS in the third quarter were RMB4.93 and the RMB4.92 respectively, compared to RMB4.73 and the RMB4.72 respectively in the corresponding period of 2022. As of September 30 2023. our balance sheet remained very strong with cash, cash equivalents and short-term investments of RMB23.43 billion. We generated net operating cash flow of RMB425 million in the third 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 $200 million of Autohome’s ADS for a period, not 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 October 27, 2023, we have repurchased approximately $6.25 million ADS for a total cost of approximately $187 million. With that, we are ready to take your questions. Operator, please.

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Q&A Session

Operator: Thank you. [Operator Instructions] We will take our first question. Your first question comes from the line of Kenny Wang (ph) from CICC. Please go ahead. Your line is open.

Unidentified Participant: [Foreign Language] [Interpreted] Thanks management for taking my questions. And I’ve got two questions today. First of all, could you please share your views on market outlook for the upcoming quarters? And do you expect continued price competitions among OEMs. And secondly, could you update us on the progress of the new retail model for a NEV? Especially, could you share with us the key operating metrics of pioneer cities such as Shanghai or Chengdu? Thank you.

Quan Long: [Foreign Language] [Interpreted] Okay. I will take the first two questions. In Q3, the economy continued to recover and rebound. According to the statistics released by the National Bureau of Statistics, in Q3 our GDP grew by 4.9% year-on-year, higher than market expectation. I have, according to the data, from CPCA, in Q3 passenger vehicle retail sales were about 1.8%. In Q2, this number was 21.4%; you can notice there is a big slowdown of the growth speed. This is because of the high base number of the same period last year; while at the same time, the consumers continued to be precautious about the commodities consumption. As a result, there is still challenges for the entire auto industry. And according to the data from CPCA in the first nine months of 2023, the overall profit margin for the Chinese auto industry is 4.9%, much lower than 5.7%, which is the overall industrial company’s profit margin.

However, I think that this is because even though ICE cars are still making profit, but their market share is declining. NEVs experienced a high speed growth, but most of them are still suffering from losses. As a result, entire auto sector are still going on the restructuring. So far, Central and different levels of the local government, they have been paying great effort to uplifting and stabilizing the auto production. And also released a series of policies and incentives to promote auto consumption. For example, there is policy about optimizing the car purchase restriction management to support the trading of the old cars for the new ones and accelerate the development of the used car market and accelerate and strengthen the development of NEV supportive facilities.

We believe that with the above mentioned favorable policies, the auto sector consumption will continue to recover in a very speedy way. In terms of the outflow kind of trend for the auto market of last year, we think that there are mainly the following two aspects. First of all, NEV will continue to be the priority of the development. According to the data of CPCA, by the end of September, NEV passenger vehicle market penetration hit 36.9%. And Central as well as the local government continued to launch more targeted and effective measures to promote the consumption of the NEV. We estimate that in next year NEV penetration will continue to go higher. And the second trend is that the used car market will continue to expand its market potential.

We’ve noticed that the used car consumption quickly and rapidly emerge in China. In the first of nine months of 2023, the used car trading volume was 13.49 million units and the trading value was RMB859.8 billion. The used car market in China is indeed a trillion level market. And with the development of NEV, more and more consumers, they got the advantage of purchase and used car in the low cost, while at the same time, a separate endorsement policy and its implementation for the used car also delivered more development potential and phase for the car dealership industry. But I believe that there is a huge potential for the used car development in China. In a word, the Chinese auto sector in the medium and long-term will enjoy a stable and upward trend.

And we are very confident about the long-term development trend and its potential of the Chinese auto market. Autohome will continue to grow our NEV and used car business to grasp the new market opportunities and use diversified ecosystem to empower our long-term sales development and growth