Autohome Inc
NYSE:ATHM
Earnings Call Analysis
Q3-2023 Analysis
Autohome Inc
Autohome, a leading online service platform for the automotive industry, showcases a narrative of persistent growth throughout the third quarter results. The top and bottom lines have seen a year-over-year growth for a fifth consecutive quarter, up by 3.4% to RMB1.91 billion in net revenues, and a net profit margin that remains robust. Particularly impressive is the performance of the New Energy Vehicle (NEV) brands, with revenues surging by nearly 70%, underscoring the company's successful deepening of collaborative efforts in this rapidly expanding sector.
Autohome's growth strategy involves enriching its content ecosystem to serve both users seeking information and creators generating content. By launching innovative service models like the 'Autohome Energy Space' franchise stores and further integrating the new and used car businesses, Autohome aims to offer comprehensive solutions, such as vehicle inspection, purchase, and replacement services. These initiatives contribute to creating a vibrant community and a one-stop platform throughout the consumer cycle.
The company has been focusing on NEVs and digital transformations, which are the backbone for long-term, sustainable growth. Efforts to develop tools and contents like the NEV testing tools used by over 2.6 million customers, and an innovative service system that marries online content with offline experiences, illustrate Autohome's commitment to maintaining its position as a leader in the automotive media vertical.
To support efficiency improvements among dealers, Autohome has been upgrading its technological infrastructure and expanding its digital product portfolio. With enhancements such as the one-stop vehicle price inquiry product and the application of AI in smart products, dealers benefit from better customer outreach and more efficient operations. Double-digit growth in the average number of data products adopted per dealer store and revenue from data products year-over-year signifies progress in this direction.
Autohome demonstrates financial stability with a strong balance sheet, showcasing cash, cash equivalents, and short-term investments of RMB23.43 billion. A share repurchase program authorized by the board allows the company to repurchase up to $200 million of Autohome's ADS, with an extension for another 12 months, indicating a positive signal of returning value to shareholders.
The ever-adapting market has led to a decrease in sales from Internal Combustion Engine (ICE) car dealers by almost 9%, while NEV penetration has reached 37%. Autohome, committed to its partnership with dealers, has strategically refrained from increasing prices to generate profits and contends that empowering dealers through digital innovation and efficiency is a primary objective.
Autohome is poised to better adapt and reposition dealers to be more adaptable to market changes. By leveraging its new retail business model and digital products, the company positions itself to better navigate the future complexities of the automotive sector, aligning with the upward trends of NEV adoption and digital transformation.
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Ladies and gentlemen, thank you for standing by for Autohome's Third Quarter 2023 Earnings Conference Call. [Operator Instructions] As a reminder this conference call is being recorded. [Operator instructions]It is now my pleasure to introduce your host, Sterling Song, Autohome's IR Director. Mr. Song, please go ahead.
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 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 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 earning 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.
[Interpreted] Thank you, Sterling. 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 optimize our revenue structure. This marks our fifth 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 RMB 1.91 billion. Revenues from online marketplace and other businesses 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 hitting 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 and creates 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 Android Space franchise stores we recently launched in cooperation with TTP in 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 foundational infrastructure and capabilities of our digital platform to enhance the value of our data products and seamlessly integrate big data and cutting-edge technologies to empower the digital transformation of dealers.The rapid adoption of NEVs 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 a 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, Mr. Craig Zeng, for a close look at our third quarter operating and financial results.
[Interpreted] Thank you, Mr. Long. Hello, everyone. I'm Craig Zeng, the CFO of Autohome.In the third quarter, we set up our efforts to systematically develop tools and content, widen the platform mode 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 18 Super Auto Festival on multiple platforms in collaboration with CCTV Finance Channel and other broadcast and social media platforms. Total exposure exceeded 14.5 billion impressions, which further strengthened our profile in the industry.At the same time, we launched the next development phase for our service system, which combines online content with offline experiences to further increase our mindshare among users. At the Chengdu Auto Show, we showcased our Purchase Assistance service for the first time, which offers consumers a hands-on purchasing experience where they can view and evaluate various car models accompanied by our highly experienced editors.We also launched a shopping guide program to encourage content creators to produce and promote content that facilitates the decision-making process for consumers and boosts overall car consumption through our platform. According to QuestMobile, mobile DAU in September increased 39.3% year-over-year to 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, this store now offers consumers the options 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 Android Space Chengdu store, which opened this past August, has become particularly popular among younger store consumers with its innovative marketing activities and automotive culture offerings, including a car museum. In addition, the Chongqing store, which officially opened 2 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 purchase a NEV or used car at the same time. This innovative service model capitalizes on the synergies between our new and used car businesses and offers consumers a complete suite of additional services, including vehicle inspection, purchase, and replacement.Our new retail business at the moment is developing rapidly, with the construction of new retail stores in certain cities having already begun. Over the next 2 years, we plan to increase the penetration of Autohome Android Space franchise stores across the country, allowing Autohome to turn its online advantages into offline business across a broad range of markets. TTP will also leverage the Autohome Android Space network to accelerate the expansion of its operations nationwide.On the digitalization front, we upgraded our technology and information channels to improve communication and 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 savings, improve content quality and provide more value to dealer customers.In the first 9 months of the year, key metrics such as the average number of data products adopted by each dealer store and the 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 they shift from human-driven to digital-driven operations to improve their operational efficiency and ultimately lower the dual prices for customers.Turning to our used car business, in addition to our ongoing cooperation with new retail stores, we launched a one-stop vehicle price inquiry product during the quarter. Based on used car auction and 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 model 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 are also boosting the transaction conversion rate by increasing customer and user satisfaction rates. 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 percentage 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 note that as with prior calls, I will reference RMB only in my discussion today unless otherwise stated.Net revenue for the third quarter were RMB 1.91 billion, up 3.4% year-over-year. Breaking it down by segment, media services revenues were RMB 477 million, leads generation services revenues were RMB 830 million and online marketplace and other revenues were RMB 599 million, up 25.2% year-over-year, driven primarily by increasing revenue contributions from data products.Moving on to cost, cost of revenues in the third quarter was RMB 374 million, compared to RMB 331 million in the third quarter 2022. The increase was primarily attributable to an increase in content and operational costs. Growth margin in the third quarter was 80.4%, compared to 82.1% in Q3 2022.Turning to operating expenses, sales and marketing expenses in the third quarter were RMB 935 million, compared to RMB 863 million in Q3 2022. The increase was primarily attributable to the increase in marketing and promotional spending. Product and development expenses were RMB 355 million compared to RMB 387 million in Q3 2022. The decrease was primarily attributable to a decline in personnel-related expenses. Finally, general and administrative expenses were RMB 141 million, compared to RMB 136 million in Q3 2022.Overall, we delivered operating profit of RMB 166 million in the third quarter, compared to RMB 192 million in the corresponding period of 2022. Adjusted net income attributable to Autohome Inc. was RMB 604 million in the third quarter, compared to RMB 590 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 RMB 1.23, respectively, compared to RMB 1.18, respectively, in the corresponding period of 2022. Non-GAAP basic and diluted earnings per ADS in the third quarter were RMB 4.93 and RMB 4.92 respectively, compared to RMB 4.73 and RMB 4.72 respectively, in the corresponding period of 2022.As of September 30, 2023, our balance sheet remained very strong with cash, cash equivalent and short-term investment of RMB 23.43 billion. We generated net operating cash flow of RMB 425 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 USD 200 million of Autohome's 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 October 27, 2023, we have repurchased approximately 6.25 million ADS for a total cost of approximately USD 187 million.With that, we are ready to take your questions. Operator, please.
[Operator Instructions] Your first question comes from the line of [ Kannie Wang ] from CICC.
I've got 2 questions here. First of all, could you please share your views on market outlook for the upcoming quarters and do you expect continuous price competition among OEMs? And secondly, could you update us on the progress of the new retail model for an end use? Especially, could you share with us the key operating metrics of pioneer cities such as Shanghai or Chengdu?
[Interpreted] Okay, I will take the first question. 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 expectations. However, according to the data from CPCA, in Q3, passenger vehicle retail sales grew by 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. Well, at the same time, the consumers continue to be precautious about the commodities consumption. As a result, there are still challenges for the entire auto industry.And according to the data from CPCA, in the first 9 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, while NEVs experienced a high-speed growth, but most of them are still suffering from losses. As a result, entire auto sectors are still going on restructuring.So far, central and different levels of the local government we 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 free robot policies, the auto sector consumption will continue to recover in a very speedy way.In terms of the outlook and the trend for the auto market of next year, we think that they are mainly the following 2 aspects. First of all, NEV will continue to be the priority of 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 continue to launch more targeted and effective measures to promote 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 emerged in China. In the first 9 months of 2023, the used car trading volume was 13.49 million units and the trading value was RMB 859.8 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 purchasing a used car in a low cost. Well, in the same time, the separate endorsement policy and its implementation for the used car also offer more development potential and space for the car dealership industry. So 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 ecosystems to empower our long-term sales development and growth.
[Interpreted] So for the second question, the first thing we should look at is the number of the stores we build. Now actually, in Shanghai, Haikou and Chengdu and Chongqing, we already officially put our stores into operation. And besides, by the end of the year, we are going to build another 20 new shops.So this is a very important indicator for the number of the stores. Well, at the same time, you can see that now for the numbers and indicators we haven't disclosed this numbers in the essential cities. However, the speed of building our stores as well as the feedback we get from the consumers are pretty positive. And I think that this is a very popular trend in the future. And if you get a chance, we welcome all of you to visit our stores in different cities.And in the next 1 or 2 years, according to our development in different cities as well as our cooperation with different partners, we will continue to promote the number of our stores. We have not only with stores in Tier 1, Tier 2 and Tier 3 cities, but also Tier 4 and Tier 5, we see very strong vigor and vitality in different tiers of the cities. We plan that next year, we're going to cover another 50 cities and by the end of 2025, we're going to cover a total of 100 cities in China. We expect that with the further penetration of the NEV, in the future, new retail business will continue to contribute more in our financial contribution.
Your next question comes from the line of Ritchie Sun from HSBC.
I have 2. So firstly, after the previous question that talked about used car, can management further quantify the expectation towards the used car market growth outlook in the next year? And what is your expectation towards the revenue and margin for this business?Second of all, various internet platforms are using AI and large language models to improve ad monetization, content production and leads filtering efficiency. So what is Autohome's strategy in this trend and in media services, leads generation, data products and among these other business lines, do we see any room to improve efficiency further?
[Interpreted] Okay. Firstly, I will address the question about the used car market. Used car market is a very important segment in the entire auto sector and used car market always got high attention from the government. Recently, the government continuously released a series of incentives to promote the consumption on the used car market.According to the data of Auto Dealers Association, in the first 3 quarters of this year, our used car market trading volume hit almost 13.5 million, grew by 12.6% year-on-year. And also, according to the forecast of Auto Dealers Association, this year, our national used car trading volume is expected to hit a historical high. We expect that next year, used car market will continue to keep this year's good trend and continue to be very active and embrace a new stage of high-quality development.In terms of the revenue, you can see that this year, the new car price cuts and promotion campaigns do generate some challenges for the used car market. Now for Autohome, our used car business shows a very strong resilience. In the first 3 quarters, the overall used car business, including TTP, maintained a very good growth momentum.And TTP still makes profit so far. And next year, with more and more new retail shops and stores operating in different cities, I believe that TTP will also leverage the space station and to have their businesses all over China. And we're very confident that next year, the overall used car business revenue will continue to expand.And the second question, from the application side, we continue to apply AI and large language model-related technologies and to seek more business cooperation opportunities to improve our product competitiveness and customer satisfaction. In the beginning of the year, we entered into a strategic partnership with Baidu Ernie bot and we will leverage the capability of Baidu's smart cloud connecting with Ernie bot and based on our own data and technology strengths, we're going to have a comprehensive convergence of intelligent dialogue technology with the auto digital services. This is also the first application scenario of the AI large language model technologies on the auto sector in China.In product-wise, in the first half of this year, we have launched a AI-based intelligent tool which is called Smart Selection to facilitate and empower the dealers to quickly segment their clients and to reach out to the high-net worth individuals as soon as possible, release their capacity and improve service quality. And based on GPT model, we are also helping the users and the clients to select the cars and also help the dealers to do the operation analysis.And for another example, our AI smart writing instrument is also one of the functions in our intelligent assistant. It can actually facilitate and empower the dealers to complete high-quality and very good writing as well as the content release. We hope that by relying on this kind of large language model products, we can continue to help the dealers to cut costs and improve efficiency as well as to enhance their overall operation efficiency.Okay, next question.
Your next question comes from the line of Thomas Chong from Jefferies.
My first question is about the budget spent by OEM in the second half this year as well as 2024. My second question is related to the overall used car market as well as the strategies for [ Tantan pi ]?
[Interpreted] Okay. I will first take the question about the budget plan for the OEM in the second half as well as next year. In the second half of this year and in particular since Q4, we see that actually the OEM, they would like to invest more of their budget in promoting the transaction from the user side. For example, to support the leads generation as well as to invest on advertisement or directly subsidize the consumers.And for next year, just like Mr. Long mentioned, we think that actually for the market investment, we will continue to be cautiously optimistic because for the OEM, since their profit margin are under some pressure, they will pay more attention to the effectiveness of their budget investment. For example, they will prioritize the support to the dealers or directly subsidize the consumers. As a result, in terms of the ad investment, they will be more precautious and they tend to further diversify their investment. So they will also pay more and higher attention to the effectiveness of the ad.And looking into the future, I think that we will continue to grab the opportunities in particular in 2 areas. First of all, accelerate the digital application of AI and secondly, still prioritize and focusing on NEV. And by leveraging our strength, we will also try to win more customers and try to get their budget and investment.And for the used car market, I already mentioned that due to the price cut of the new vehicles and because of COVID-19, we do see that the used car market has been under some pressure as well as some restrictions. But I believe that in the future years, the price cuts for the new cars already come to a specific limit. And we believe that the used car market can expect a double-digit growth.And for TTP, TTP is already generating profits. It means that it has already gone through the stage of survival. It already entered into the stage of expansion and future development. In the future, we will continue to leverage resources from the group as well as the other partners to facilitate the development of TTP. And in the previous answer to the questions, we also mentioned the 3-in-1 service format. So we think that it will greatly help TTP to develop and will continue to facilitate its high-speed growth.Okay. Next question please.
Your final question comes from the line of Brian Gong from Citi.
Can management share when we will start contract renewal with dealers for next generation? And what's our expectation for the contract renewal this time? Do we still have room to risk our price? And along with the rising proportion of new auto sales from NEVs, how does management think about the numbers of dealers from traditional OEMs? Will the number gradually decline in the future?
[Interpreted] Thank you, Brian, for raising this question. Yes. We already initiated a contract renew with our dealers. However, we will not use price increase as a strategy for us to gain more profit. It has never been our strategy. Of course, sometimes you think that we charge more from the dealers. That is because we have been providing more services to our dealers including offering more digital products to them.And I think that we never take a price increase as a strategy for us to gain more and higher performance. And this year, as we know the dealers, they generally encounter some difficulties, so we will of course never raise the price. So from our side, we would like to empower and enable the dealers by offering more digital products and helping them to cut cost and improve efficiency. So in a word, in the past and in the present, we have never been using the price increase as a strategy for us to gain more profits.And the second thing about the number of the dealers in your question. In Q3, we see that the sales from the ICE car dealers dropped by a little bit less than 9%. Of course, the dealers are under some impact and I see that the sales of the ICE vehicles has been declining. However, at the same time, the NEV penetration has been on a rise. And you can see that in Q3, the penetration already hit 37%.So there are some rapid development trends for the NEV brands, while at the same time some traditional dealers are also transforming themselves into the NEV dealers. So for our new retail business model, we are also trying to help those NEV dealers to further expand and to tap deeper into this market, because the market in a whole is very vigorous and I believe that the number of dealers itself is not an issue at all.The thing is that how we can better adapt to all kinds of changes and dynamics to reposition those dealers so as to be more adaptable. So by offering those digital products and by facilitating them with our new retail model, I believe that we can do a better job in the future.
Operator?
There are no further questions at this time. I will turn the conference back to management for closing comments.
[Interpreted] Thank you, everyone. Thank you for joining us today. Appreciate your support and we look forward to updating you on our next quarter's conference call in a few months' time. And in the meantime, please feel free to contact us if you have any further questions. Thank you. Thank you. Bye-bye.Operator^ This concludes today's conference call. Thank you for participating. You may now disconnect.