Ladies and gentlemen, thank you for standing by for Autohome’s Third Quarter 2020 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, Anita Chen, Autohome’s IR Director. Ms. Chen, you may begin.

Thank you, operator. Hello, everyone, and welcome to Autohome’s third quarter 2020 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 CEO, Mr. Min Lu; Co-President, Mr. Haifeng Shao; Co-President, Mr. Jingyu Zhang; and CFO, Mr. Jun Zou. After the prepared remarks, Mr. Lu, Mr. Shao, Mr. Zhang, and Mr. Zou will be available to answer your questions. Before we begin, 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 Securities and Exchange Commission. Autohome does not undertake any obligation to update any forward-looking statements, except as required under applicable law. The earnings press release in this call also includes discussion of current unaudited non-GAAP financial measures. Our press release 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 is being recorded. In addition, a live and archived 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. Lu.

Thank you, Anita. Hello, everyone, and thank you for joining us today. I am pleased to report a great quarter with revenues exceeding the high end of our original guidance by RMB35.6 million. Revenues for our new initiatives increased by 31% year-over-year and contributed to 24% of the total revenues. Data products delivered robust growth with a 51% year-over-year increase and adjusted net margin increased by 6.6 percentage points year-over-year to 38.9%. In this third quarter, to meet the increasing digital demand from customers and as we continue building upon our shares, we are offering more differentiated higher value online services to support and complement customers’ offline operations with high efficiency. In September this year, the number of average DAUs who accessed our mobile websites, primary app, and the mini apps further increased to 39 million, an improvement compared with the prior year period ended June 2020. Regarding content, in the third quarter, we made a series of moves to optimize our product and content in order to enhance user experience. For example, we launched a light version of the Autohome application to attract a younger audience. We also rolled out the MicroPulse channel, allowing users to post their photos and make brief comments, encouraging them to synchronize their posts to specific car models. This provides OEMs with new channels to stimulate more content resources and their followers. Aside from these rollouts, our 818 Global Super Auto Show continued to be very popular with online video views exceeding 260 million, further demonstrating its influence in the industry. Our road trip channel allows automakers to extend their audience outreach to an even broader level. Through participating in various themed activities, users could improve their knowledge of auto brands and be motivated to generate their own related content. This content, in turn, benefits automakers by helping them further increase their brand recognition. In our efforts to explore new marketing approaches, we are encouraged to see that our flagship IT continued to scale up. In the past 4 months, we have worked with 9 automakers to promote their brands through the road trip initiative. In the first 9 months, the cumulative GMV for our road trip totaled RMB340 million, more than doubled compared with the number for the full year 2019. During the quarter, we further enriched our end-to-end SaaS platform, reflecting our unique capability in providing comprehensive digital services to our customers. For example, we are pleased to see that our data products continued to benefit from the digital transformation across the OEMs as we offer our customers a full scope solution for different spaces, providing them with better recommendations, helping them make better decisions, and supporting them in more efficient project implementation. In the first 9 months, a total of 38 automakers engaged in our data products, and notably our Intelligent New Car Launch and Intelligent Marketing Solutions collectively delivered over 100 programs, far exceeding the total number of programs for the full year 2019. In terms of data products to dealers, we aim to provide a comprehensive SaaS platform to dealer customers, firmly targeting visits, sales, and ultimately sales growth, covering the full spectrum of auto ownership and increasing the conversion rate at each step of the way. In addition, the number of paying dealers for Smart Store 2.0, a product generating incremental leads for dealer customers, has reached approximately 2,700 dealers. In the third quarter, revenues from our used car business unit achieved double-digit year-over-year growth as we deepen our B2B cooperation with TTP Car Inc. In October, we made a further investment in TTP of $168 million to help accelerate our growth in the used car sector. By integrating Autohome’s online capabilities with TTP’s offline presence, we believe that we are well positioned to unleash more value in the industry. For the auto financing business, in the third quarter, total GMV for consumer loans increased by 80% year-over-year. Moving to the overseas business, in the third quarter, we continued to focus on expanding our content offerings while actively exploring ways to build out brand awareness. Our library now covers almost all the major models in the market with the VR technology to enhance the user experience. In November, the total monthly unique visitors for Yes Auto exceeded 2 million, setting a solid foundation for our cooperation with customers. As of last, we’ve connected with over 3,700 dealers, and the total SKUs on our overseas platform have exceeded 700,000. Our first dedicated overseas Online Auto Show also received positive feedback; many customers expressed their interest in this format and are willing to participate in further trials with us. To conclude, as we move ahead, Autohome remains committed to developing innovative solutions and investing in strategic areas to strengthen our leadership position in the industry. With that, I will now turn the call over to our CFO, Jun Zou, for a closer look at our third quarter financial results, as well as the business outlook for the fourth quarter of 2020.

Thank you, Min. Hi, everyone. As Min has already highlighted, we are pleased to report a great third quarter. Please note that, as with prior calls, I will reference RMB only in my discussion today. Net revenues for the third quarter were RMB2.32 billion, a little under 7% higher than the same period last year and exceeding the higher end of our original guidance by approximately RMB36 million. For a detailed breakdown, media services revenue were RMB927 million; lead generation service revenue were RMB840 million; and online marketplace and others revenue increased by 31% year-over-year to RMB548 million, primarily driven by growth of data products. Moving on to costs, cost of revenue was RMB250 million compared to RMB247 million in Q3 last year. Gross margin remained stable at 89%. Turning to operating expenses, sales and marketing expenses in the first quarter were RMB979 million, compared to RMB956 million in Q3 last year. Product and development expenses were RMB349 million, compared to RMB361 million in the third quarter of last year. Now finally, G&A expenses were RMB140 million, compared to RMB109 million in Q3 2019. Overall, we delivered an operating profit of RMB744 million for the third quarter, compared to RMB641 million in the corresponding period of 2019. Adjusted net income attributed to Autohome Inc. was RMB902 million for the third quarter, compared to RMB702 million in the corresponding period of 2019. Non-GAAP basic and diluted earnings per share and per ADS for the third quarter were RMB7.55 and RMB7.52, respectively, compared to RMB5.92 and RMB5.88, respectively, in the corresponding period of last year. As of September 30, 2020, our balance sheet remained very strong with cash, cash equivalents, and short-term investments of RMB13.47 billion. We generated operating cash flow of RMB504 million in the third quarter of 2020. Let me now address our fourth quarter 2020 outlook, which reflects our current and preliminary view on market and operating conditions and may be subject to changes. At this point, we expect to generate net revenues in the range of RMB2.475 billion to RMB2.484 billion. In conclusion, we delivered better-than-expected top-line results as the new initiatives continue to drive overall growth. Non-GAAP net income increased significantly by about RMB200 million year-over-year reflecting the effectiveness of our spending and cost control. In addition, our follow-on investment in TTP will accelerate the development of our used car platform and further solidify our leading position in this area, bolstered by an expanded array of growth drivers, a more balanced revenue mix, and further enhanced operating efficiencies. We are well-positioned to achieve our long-term goals and create even greater shareholder value. With that, we are ready to take your questions. Operator, please open the line for Q&A.

Thank you, management. Thank you. Our first question is from Eddy Wang at Morgan Stanley. Please go ahead.

Thank you management for taking my question. So, my question is on the lead generation package side. So basically, we can see that this year, the auto market has been recovering quite well in the second half and if you look at our lead generation package this year, there have not been any price hikes. So, just wondering if we are approaching the year-end and I think we are just starting our new process very soon. So, can you give us some color on how you see the lead generation package's price hike chance next year? Thank you.

Okay. Let me take the question first and then I will invite Mr. Haifeng to follow up with the answers. It’s the right time every year to ask whether we are going to raise the price or not. As you know, last year, we experienced negative growth in the auto market. Thus, we decided not to raise the price, and this year we also experienced negative growth in the market and also added to that, we had the COVID-19 epidemic. So, that’s why we decided to follow the tide of the time. So, we are not going to raise the price, but our pricing mechanism – the pricing system may change.

That’s helpful.

Yes. To help forecast, let’s invite Mr. Haifeng.

As our Chairman, Mr. Lu has said, we are going to follow the tide and also we offered two ways for the pricing with OEMs and the dealers. They actually have two choices. Choice number one, which is a flat price as 2020, meaning there is no price hike. The second choice, they can choose a floating pricing model based on the new scenario. Well, for the floating pricing mechanism, we have targeted at those well-performing dealers. If they want to get more leads from Autohome, they can choose this second option, which is the floating pricing model. As you know, we generate better quality leads in the whole market. We have already communicated with a lot of OEMs and actually 30% of them have shown initial interest in the floating pricing model. With further communication and also contract negotiation with those dealers and OEMs, I believe that there will be more and more OEMs who may choose this floating pricing model. Another thing to mention is that when we are talking about the floating pricing model, we have already set a cap and a floor on the pricing. So, there would be a price range with the cap and floor. This way, the dealers and the OEMs can feel assured that the pricing is quite reasonable. As long as they get more leads, they can take the floating pricing model. If we do not generate enough leads, the price would also go down. Another point is that we have talked with four OEMs who are doing comprehensive CPL model with us.

Well, let me add on to that as well. The Smart Shop 2.0 is also actually generating incremental leads. So, we have already over 2,700 dealers participating in that program, and we expect more next year. With that, I guess, Eddy, we have answered your first question. Next one, operator?

Thank you. Our next question is from Miranda Zhuang from Bank of America. Please go ahead.

Thank you, operator. Thank you, management for taking my questions. I have a follow-up question on the pricing for the lead generation product. Can management give us more color on the details of the product, such as whether the floating price model is an add-on to these membership products or if it is a standalone product where the dealers can choose either option? Also, I would like to know how the pricing works for the leads; would it be set by the company or will there be some sort of bidding basis? And how are the leads sold? For example, are they sold as a package or on a one-by-one basis? Any detailed colors on the product that could be helpful? I also have a question regarding management's plan and strategy for the sales of the big data products in the next year. For example, will you bundle some of the products with the membership products for sale, or will all of the leads generation intelligent products be bundled together as an end-to-end SaaS offering for dealers? Will you negotiate with OEMs to set annual framework contracts for the intelligent marketing and intelligent new car launch products? Please share any details on your sales strategy for big data products next year. Thank you.

Now, regarding your first question about the floating pricing model, it is not complicated. It's quite simple. The auto market has experienced negative growth, and we have the COVID-19 epidemic. Based on this big picture, we are not going to raise the price, but we want to have a plus and minus 10% range on the floating pricing model based on how many leads they have—the more leads they have, the more pricing; the fewer leads, the lower pricing. We don’t calculate each individual lead's price because the price varies significantly—it depends on whether it's a big brand or a small brand, as well as different models. Therefore, we will not calculate the unit price for each model or brand. Usually, big brands generate many leads, while smaller brands have a smaller lead generation, which could lead to higher pricing. We would compare leads on the same brand. Actually, during our communication with OEMs and dealers, the floating pricing model has been well accepted by them, and it is easy to understand and implement. I mentioned the comprehensive CPL model, which we have already started to work with four OEMs. Regarding each lead, we will track how many leads there are. The more leads, the higher the price; the fewer leads, the lower the price. It’s an end-to-end pricing model. Our underlying technology, like intelligent marketing technology and big data applications, supports the lead generation business. On your second question regarding our big data business, we have worked diligently during this period and have achieved good revenue growth. If you look at the first three quarters, our revenue grew by 65% year-over-year, and in the third quarter alone, we grew by 51%. I believe many opportunities lie ahead, both with OEMs and dealers. However, we need to give our team more time. Regarding future opportunities on the dealer side, we will introduce more sales management systems like CRM for dealers. On the OEM side, we can create much value throughout the value chain from the OEMs. We have a range of big data products and comprehensive SaaS services available. This is part of our future strategy, which focuses on our industrial internet solutions. We will be hosting our Investors Open Day shortly. We would like to welcome you to participate in this exciting event. Thank you.

Next one, operator.

Our next question is from Brian Gong at Citi. Please go ahead.

Okay. I will translate myself. I still have a question, a follow-up question regarding the floating pricing model. So, management just mentioned that some customers have already signed for such pricing model. My question is, based on the sales leads plus the track record for those customers, what is management’s initial view regarding the impact on our revenue for next year? Thank you.

I will try to answer your question. I think the floating pricing model is a test of our ability to generate high-quality leads. In the past 7 to 8 years, our prices have gone up by 20% each year. In 2019, some dealers had complaints and differing opinions. As a platform company, we have to follow the market trends. In the past model, we just raised the price and did not consider whether lead numbers increased or decreased. Now, some OEMs and dealers are accepting our floating pricing model. That is to say we have to generate sufficient high-quality leads for them to generate more income. So on one side, if we want to raise the price, we must be aware of our ability to generate enough leads. If we cannot, then there will be a 10% deduction from the previous price, which is the floor 90%. However, if we can generate a very good number of leads, we can raise the price by 10%, resulting in a cap of 110%. I am confident in our team’s ability to generate high-quality leads using our intelligent marketing tools and big data applications. For those OEMs who signed the floating pricing contracts with us, we appreciate that they will have sufficient leads. Thank you.

Our next question is from Ritchie Sun at HSBC. Please go ahead.

I will translate the questions myself. Thank you for taking my questions. I have a question about the method of generating more high-quality leads in the future. Beyond methods involving big data and the technology behind the platform, what are the user growth drivers for the future or what’s the strategy? For instance, younger users could potentially be future car owners, yet Autohome’s user profile tends to be 30 years or older. Could management share other user acquisition strategies that could drive high-quality lead growth? Thank you.

Yes. In response to your question, we are actively working to penetrate smaller cities by introducing a lighter version of Autohome HP, which is quite different from our main app. We will focus on marketing and promotions for this version to attract younger users from these areas. Additionally, we are creating engaging content for our main HP. Our approach will be incremental to more effectively attract users who can generate leads. I have emphasized to our content team that while it's important to maintain a professional tone, our content also needs to be engaging and fun. For example, we've set up a youth channel and organized activities aimed at college students. We invited a popular celebrity to the 818 Super Auto Show, who appeals to a young audience. We intend to partner with more youth-focused websites in the upcoming year to draw in additional young users. Winning over young users is essential for capturing the market.

Just to add some context here, we have more than 216 million users on our platform, most of whom are young. Furthermore, in the last quarter, around 90% of our traffic came from Tier 2 and lower-tier cities. We are successfully penetrating younger demographics and lower-tier markets.

Okay, thank you.

Thank you. Our next question is from Thomas at Jefferies. Please go ahead.

Hi, good evening. Thanks management for taking my question. Can you comment on the outlook for the industry and the momentum in 2021? Thank you.

Regarding the outlook of the market for 2021, we have communicated with OEM and have our own observations. We believe that 2021 will reflect a growing market compared to 2020, anticipating growth around 6%. However, when comparing next year with 2019, it will still reflect a downturn. We also foresee a trend for next year, indicating greater concentration of brands in the market. For EV OEMs, we believe they will maintain a growing momentum.

Yes, to add to that, there are already 23 EV makers working with us this year in various capacities, whether in terms of entails, leads, or CPM. This presents a significant opportunity for us moving forward.

Thank you. Our next question is from Liping Zhao of CICC. Please go ahead.

Good evening management. Thanks for taking my questions. I have two questions here. First, a follow-up question on your data product. Could management help us break down the data products revenue by OEM and dealers? The second question is about the used car market. We noticed Autohome increased the investment in TTP this quarter; could management share with us updates on the used car business and future strategies? Thank you.

Thank you. To answer your first question, for our matured products, we have different offerings targeting OEMs and dealers. The ratio is approximately 50-50, though OEMs might have a slightly higher share. In the future, we plan to offer a total solution approach, which will be more converged. Talking about the used car business, we are placing significant importance on this sector, as it represents a growth market. Historically, the used car business has grown faster than new car sales, and this year reflects similar momentum even with the total volume down. In our investment in TTP, we integrated the online information flow with TTP’s offline transaction platform, thereby uniting both online and offline capabilities. Looking ahead, our strategy under Chairman Lu’s leadership is transparent; we aim for a light-access model and to be a platform provider helping OEMs digitize operations and establishing a C2B2C model, which is a closed-loop effort. We aspire to be the global number one in used car transactions and service platforms.

Just one thing to add, we are also integrating financing, insurance, and additional services into the entire transaction.

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

Okay. Thank you very much for joining us today. We appreciate your interest and look forward to the trading of our next quarter’s conference call in a few months' time. In the meantime, please feel free to get in touch with us if you have any further questions or comments. Operator?

Thank you. This concludes today’s conference call. You may disconnect.