Autohome Inc. Q3 FY2024 Earnings Call

Ladies and gentlemen, thank you for standing by for Autohome's Third Quarter 2024 Earnings Conference Call. As a reminder, this conference call is being recorded. 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.

On the company's 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, which will be followed by a Q&A session where they will be available to answer all your questions. Before we continue, please note that the discussion today will contain forward-looking statements made under the safe harbor provision 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 by 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 has been found in our earnings release today. I will now turn the call over to Autohome's CEO, Mr. Wu for the opening remarks. Please go ahead, Mr. Wu.

Thank you, Sterling. Hello, everyone. This is Tao Wu, CEO of Autohome, and thank you for joining our earnings conference call today. In the third quarter, we continued to advance our integrated online-to-offline ecosystem strategy, focusing on deepening engagement across the entire value chain while further optimizing our business structure. On the online front, we are leveraging our new professional content and product mix to strengthen our differentiated competitive advantages, which has led to a steady increase in our traffic scale. In September, our average mobile DAU increased 5.6% year-over-year to exceed RMB 70 million for the first time, reflecting our expanding influence among users. In terms of our offline offering, we are focused on low-tier markets with the deployment of initiatives like the Hundred Cities, Trade-in for New. In the first three months of this year, we successfully organized over 500 offline auto shows, providing consumers in this region with a one-stop service experience that spans from car selection, viewing, and test driving to purchase, making the process more convenient than ever. Additionally, by leveraging the products and services available through our franchise stores, we are able to offer comprehensive and integrated online-to-offline solutions that further optimize our customers' business operations, driven by robust growth in our new retail business. Revenues from online marketplace and others increased 3.1% year-over-year during the third quarter. Importantly, we significantly accelerated the expansion of our new retail business into lower-tier cities this quarter. To date, we have a nationwide network of more than 50 stores with Autohome-based stores in mid- to high-tier cities and satellite stores in middle to lower-tier cities. The growing scale of our channels not only demonstrates the adaptability of our business model across a wider range of cities, but also lays the foundation for integrating our platform capabilities, enabling collaboration with partners along the industry value chain and allowing us to explore and develop additional innovative business models in the future. In terms of digitalization, we are leveraging our combined capabilities in data, technology, and platforms to continuously enhance the coverage of our digital products. Additionally, we have expanded the application of artificial intelligence technologies across various products to enhance the quality and efficiency of our customers' operations. Furthermore, our cooperation with Ping An Group has reached new heights with the introduction of a series of innovative products and services across our traditional businesses, as well as data products, used cars, and aftermarket sectors, further strengthening our unique competitive advantages in these areas. Looking to the future, we will further strengthen our local presence in lower-tier markets to enhance our brand influence while adapting to evolving market dynamics. Our commitment to driving product innovation and broadening our business horizon remains firm as we contribute to the industry's development. At the same time, we will fully leverage Ping An Group's offline resources and aftermarket service capabilities to amplify synergies and solidify our differentiated competitive advantages. We are confident that these initiatives will enable us to create greater value for the industry and support our long-term sustainable development. With that, I will now turn the call over to our CFO, Craig Zeng, for a closer look at the third quarter 2024 operating and financial results.

Thank you, Mr. Wu. Hello, everyone. I'm Craig Zeng, CFO of Autohome. In the third quarter, we continued to enhance our content and tools by successfully introducing the Autohome AH+ content matrix and a real scenario intelligent evaluation system to create a rich array of high-quality content. Additionally, we launched an industry-leading scenario-based vehicle model library that integrates real-life car use scenarios, providing users with a more relevant and practical guide for vehicle selection. Specifically, our original content metrics now cover more than 13 programs encompassing 4 key segments, including new cars, car valuations, car culture, and the auto industry. We offer authentic and practical information to users through live streaming and video, addressing a wide range of challenges they encounter throughout the entire lifecycle of car ownership. Our intelligent evaluation system focuses on core product features such as advanced driver assistance and smart cockpit, combining professional evaluation capabilities with users' real-life scenarios through professional field tests, market dimension vehicle reviews and comparisons, and live streaming of technical insights we deliver the most critical and relevant smart evaluation results to our users. On tools, our scenario-based image library covers three core leading scenarios: nighttime, spatial, and intelligent car viewing. These innovative tools provide users with an intuitive understanding of our vehicles' authentic functionality and smart capabilities, significantly improving the efficiency and convenience of the car selection process. We also upgraded our benefits platform to aggregate various policies, subsidies, and other promotional information in real-time, providing users with a one-stop information platform to automatically match and calculate discounts. Additionally, leveraging our upgraded algorithm under the user and vehicle data we have mined, we have deployed tools such as AIGC and chatbots across multiple scenarios, including search, live streaming, and instant messaging. These deepen interaction with users, increase the speed and accuracy of response, and improve the overall user experience. According to QuestMobile, the number of our average mobile DAUs grew by 5.6% year-over-year, reaching 72.87 million in September, demonstrating our leading position in the automotive media vertical. Turning to NEV, our satellite plan was widely implemented in the third quarter. To date, we've established our safety franchise Autohome Space store and Satellite stores across China, marking the initial scaling of our expansion into lower-tier cities. The collaboration between Autohome Space and Satellite stores has facilitated the creation of an efficient network channel. This collaboration encourages resource sharing and offers complementary advantages, providing NEV manufacturers with channel support in cities where they don't have a presence. The ongoing expansion of our offline service network enables us to provide businesses and customers with localized and integrated online and offline solutions while also tapping into and collecting consumer needs in the middle to lower-tier cities. Going forward, we will further explore the potential of the regional Satellite stores, leveraging our platform advantages to integrate resources throughout the industry value chain and pursue even more innovative business models. In addition, we also leverage Ping An's unique resources to pilot financial insurance services in the stores, expanding the financial product offering available through Autohome space stores, broadening our service scope and diversifying revenue streams. For instance, we integrated Ping An's car owner service capabilities to launch a unique industry offering, price guarantee and service package, which provides purchase protection and healthcare for consumers who purchase cars through our franchise stores. We are pleased to see revenues from NEV brands continue to grow and consistently outpace the industry sales growth rates during the third quarter, increasing 54% compared to the same period last year. On the digital front, we combined Ping An Group's strength in upsell scenarios and offline service capabilities during the third quarter to launch an outbound core platform and maintenance assistance for upsell services, as well as digital services for vehicle tracking. The former enables maintenance possibilities to reduce customer acquisition costs and improve efficiency, while the latter utilizes the offline finance team to provide one-on-one consulting services to customers for trading vehicles across multiple scenarios. This effectively improves transaction conversion rates and has generated a positive impact on the market. During the first nine months of this year, revenue from data products increased by 8% year-over-year. For the used car business, we've effectively integrated the resources of Autohome and Ping An Group to strengthen the synergies with TTP. For example, leveraging our franchise stores and Ping An's offline team, we've increased the supply of vehicles for auction from 4S dealerships for TTP. Simultaneously, the Ping An Group's and Autohome's used car teams have assisted TTP in expanding its merchant buyer base nationwide, driving demand across regional car purchases. This initiative has effectively increased transaction volumes and prices and enabled TTP to expand its business while carefully managing costs. Overall, our businesses made steady progress in the third quarter. Our innovative businesses laid out earlier, have proven effective as we continuously optimize and expand the theoretical applications. This achievement drove the growth of the online marketplace and others revenue this quarter, as we deepen our cooperation with Ping An Group. We are gradually rolling out additional unique products across various business scenarios. At the same time, we are actively enhancing shareholder returns through dividends and stock repurchases. Looking ahead, we remain committed to optimizing operational efficiency to support our long-term high-quality development. Next, let me briefly walk you through the key financials for the third quarter of 2024. Please note that as with prior calls, I will reference RMB only in my discussion today, unless otherwise stated. Net revenues for the third quarter were RMB 1.77 billion. Breaking it down, Media Services revenues were RMB 326 million. Leads generation services revenue was RMB 831 million, and Online Marketplace and Others revenue was RMB 618 million, up 3.1% year-over-year. Cost of revenue in the third quarter was RMB 408 million compared to RMB 374 million in the third quarter of 2023. Gross margin in the third quarter was 77% compared to 80.4% during the same period last year. Turning to operating expenses, Sales and marketing expenses in the third quarter were RMB 877 million compared to RMB 975 million in the third quarter of 2023. Product and development expenses were RMB 339 million compared to RMB 355 million in the third period of 2023. General and administrative expenses were RMB 137 million compared to RMB 141 million during the same period last year. Overall, we delivered an operating profit of RMB 83 million in the third quarter compared to RMB 166 million for the same period of 2023. Adjusted net income attributable to Autohome was RMB 497 million in the third quarter compared to RMB 604 million in the corresponding period of last year. Non-GAAP basic and diluted earnings per share in the third quarter were RMB 1.02 compared to RMB 1.23 in the corresponding period of 2023. Non-GAAP basic and diluted earnings for ADS in the third quarter were RMB 4.09 and RMB 4.08, respectively, compared to RMB 4.93 and RMB 4.92, respectively in the corresponding period of 2023. As of September 30, 2024, our balance sheet remains very strong with cash, cash equivalents, and short-term investments of RMB 23.06 billion. We generated net operating cash flow of RMB 209 million in the third quarter of 2024. On September 4, 2024, our Board of Directors authorized a new 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. As of November 1, 2024, we repurchased approximately 244,000 ADS for a total cost of approximately USD 6.7 million. In addition, in accordance with our dividend policy, our Board of Directors has approved a cash dividend of USD 1.15 per ADS or USD 0.2875 per ordinary share payable in U.S. dollars to holders of ADS and ordinary shareholders of record as of the close of business on December 31, 2024. This aggregate amount of the dividend will be approximately RMB 1 billion and is expected to be paid to holders of ordinary shares and ADS of the company on or around March 14, 2025 and March 19, 2025, respectively. This reflects our strong confidence in our business and future developments as well as our strong commitment to maximizing shareholder returns. The above is our financial summary. With that we are ready to open up the Q&A session. Operator, please.

We will now take our first question from the line of Thomas Chong from Jefferies.

I'd like to ask about the ongoing price war and the trade-in program. What are the impacts to the industry and Autohome?

Okay. Thank you for raising the question. We see that with major car companies fighting a price war to grab market share, which has lasted for more than 1.5 years now. According to our observation, this trend has eased slightly recently, but there is no sign of ending in the short term. However, the ongoing price war did not bring the expected explosion of car sales growth. According to the latest data from CPCA, retail sales increased by only 2.2% year-on-year from January to September. The price war has also quickly hurt the profitability of car companies. From January to September, we see that the average profit margin of the auto industry was only 4.6%, much lower than the average level of industrial enterprise profit margins of 6.1% in the same period. Meanwhile, dealers are facing tremendous operating pressure due to the ongoing price war. According to a China Automobile Dealers Association survey on dealer survival in the first half of 2024, less than 30% of auto dealers accomplished their sales targets in the first half of the year, and a large proportion of them reached their sales targets by exchanging price for volume. In addition, the proportion of dealers operating at a loss reached 50.8%, expanding significantly compared to the same period of last year, and the average total gross profit of a single store also dropped significantly, especially in the new car business, with an average single-store loss of RMB 1.78 million. Generally speaking, the price war in the auto market has caused serious negative impacts on car enterprises and dealers. Under such circumstances, China has introduced a trade-in policy and upgraded vehicle scrapping to help release consumption potential in an orderly manner and promote the common development of both supply and demand sides. From the data disclosed by CPCA, with the simulation of the policy, the auto market has been picking up recently. The domestic retail penetration of NEV has exceeded 50% for three consecutive months. The retail sales of new energy vehicles in September increased by 10.6% from the previous month, and the wholesale of overall passenger vehicles hit a new record for the same month, which helped to restore confidence in the auto industry. The price war that has lasted from last year to now has resulted in serious declines in profits for automakers and has traction on the marketing budget of the OEMs. We have also been affected by the industry to a certain extent. However, in the long run, with the price war gradually slowing down, the continued development of the NEV industry, as well as the government's introduction of new favorable policies to support consumption, we believe that the auto market will have good potential for future growth in the long run, and we are optimistic about the longer-term development of China's auto industry. We will also be developing in a sound manner together with China's auto industry. Thank you.

Our next question comes from the line of Xiaodan Zhang from CICC.

My first question is on the new retail model of NEVs. So could you please update us on the progress of the satellite plan? And how should we think of the expansion pace for next year? Secondly, could you please give us more color on how we are going to look for more business synergies between Autohome and Ping An Group?

Okay. Thank you for raising this question. I'll first take the first question. Currently, the Autohome space stores and the satellite stores have already exceeded 50. In terms of city layout, the space stores mainly cover medium to high-tier cities, while satellite stores mainly cover medium to low-tier cities. This 1+N model with the space store at the core surrounded by satellite stores allows us to quickly penetrate lower-tier cities with a network service, reaching clients more effectively and facilitating the OEMs in their channel expansion in uncovered cities. Regarding the performance of the space stores and satellite stores, we see that they actually facilitate OEMs in realizing cost efficiency optimizations, while simultaneously helping OEMs lower their channel expansion costs and increase sales efficiency. Currently, we see that the overall market feedback is very positive. This also generates extra revenue for Autohome. With every increase in penetration of the NEV market, we see that with the good synergy of the space store and satellite store, we can quickly facilitate the upgrade from new retail network single-point coverage to comprehensive coverage, while at the same time, NEV brand revenue steadily grows. Furthermore, it continues to outperform the overall NEV market, showcasing a solid market adaptability and competitive edge. Looking to the future, we are also going to work on both fronts. On one hand, we are going to grow the number of stores and make our business model more sound and robust to gain further recognition from the OEMs. The existing franchise stores will keep upgrading, including the integration of industrial chains and in-store financial insurance, thereby covering a wider range of areas. In terms of the second question concerning synergies between Autohome and Ping An Group, we have co-hosted the 100 Cities, Trade-in for New campaigns to leverage the strengths of the Ping An offline team to reach uncovered cities of Autohome. We also jointly launched more than 500 offline auto shows covering over 250 cities nationwide, focusing on the lower-tier market to create transaction scenarios and build a differentiated competitive edge. In new retail, we leverage Ping An's resources and pilot our Autohome in-store financial services, including financial insurance, while also responding to the trading policy of the national government. We aim to integrate our service capabilities for auto buyers, providing offerings such as the price guarantee and heartfelt benefit package to bring one-stop service to consumers' doorsteps and ensure car purchase guarantees. Regarding data products, we utilize the strength of Ping An Group in after-market scenarios and offline service capabilities. We launched outbound core platforms, maintenance assistance, and digital services for trading vehicles. We also take good advantage of Ping An's offline team to provide one-on-one consulting services for trading car users across multiple scenarios to effectively promote conversions. In used cars, Autohome has integrated resources with Ping An Group to strengthen TTP's synergy. For example, the Ping An auto loan agent facilitated TTP in increasing vehicle sources from 4S dealerships, and the Ping An leasing team also helped TTP increase cooperation with merchants. All these measures effectively increased transaction volumes and enabled TTP to enhance their service capabilities for further business expansion. Generally speaking, we will leverage both online and offline strengths of Ping An Group, and explore more business models to expand our service delivery possibilities.

Our next question comes from Ritchie Sun from HSBC.

First of all, what is management's view on the 2025 used car market? And how does management view the goal for next year? Secondly, what progress has Autohome made in terms of shareholder return? And what is the plan for the future?

Okay. Thank you for raising this question. Let me first take the first question. As I mentioned earlier, based on the more than a year of price war in the new car market, it has indeed imposed a huge pressure on the used car market. With continuous downward pressure on new car prices, we see that users are quite reluctant to make their purchases. As a result, the used car market in China has been sluggish for several consecutive quarters. The auto dealers are not very enthusiastic in their car purchase. Even though there are policy updates such as scrappage, the cumulative trading volume of used cars only increased by 5.37% from January to September, a significant decline compared to the same period last year. Even with policy preferences, we see that automakers' profitability is lacking; the average price of used cars traded in September was only RMB 54,200, a drop of RMB 1,200 compared to the same period last year, with the strongest demand falling in the price range of RMB 50,000 to RMB 100,000. The profit margins for auto dealers are greatly squeezed, and their profitability has not improved. Looking to the future regarding TTP, many vehicle sources are moving to 4S dealership stores because we expect the new car price war will still pose a significant challenge for used vehicles next year. For TTP, while we previously excelled in the C2B aftermarket, we now anticipate more opportunities in the B2B market. Thus, besides previous strengths in C2B, we are preparing to make breakthroughs and transformations in the B2B market to tap into its potential. As for your second question about shareholder returns, Autohome has always been dedicated to increasing returns for our shareholders. Last year, we announced a shareholder return plan of RMB 1.5 billion, and we just announced an actual RMB 1 billion dividend payout. Consequently, the total dividend payout to our shareholders will be RMB 1.5 billion. In September, our Board also adopted a USD 200 million share buyback plan. We are implementing measures to reduce the volatility of our share price. Currently, we are using both dividend payouts and share repurchases to enhance shareholder returns. Looking to the future, we will continue to explore additional possibilities to increase shareholder returns.

Our next question comes from the line of Brian Gong from Citi.

Management just mentioned the ongoing price war in the auto industry. Given this background, how does management perceive OEMs' performance for the fourth quarter and next year? Additionally, what is the status of contract renewals with dealers, and what progress has been made? How does management view the overall contract renewal for this one?

Okay. Thank you for raising this question. The first question is about the OEM advertising budgets as well as their outlook for next year. As we approach Q4, which is actually the end of the year, the sales performance of OEMs is also coming to a close. Those expected to meet their sales targets will promote terminal sales or directly subsidize consumers with their budgets to incentivize transactions. In contrast, those OEMs with poorer performance will likely cut their advertising budgets. Generally speaking, OEMs are cautious regarding their advertising strategies. We believe that looking into next year, they will more reasonably balance their advertising budget with price war subsidies. The situation might improve next year, but it depends on their performance. For the contract renewals regarding the lead subscription package, this process will initiate at year-end and will last into the first quarter of next year. Based on past data, the contract renewal rate for Autohome's lead subscription package has always been very stable. Currently, Autohome covers the majority of dealers in the market, which reflects overall dealer recognition of our service and their reliance on us. As one of our core services, Autohome will continue to leverage big data technology and enhance service quality to empower dealers further and improve the precision of matchmaking and conversion efficiency. Additionally, this year, we will continue collaborating with Ping An Group to provide more diversified instruments to help dealers cope with fierce market competition and pressures on profit margins. In terms of progress on contract renewals, we will keep you updated on the latest developments.

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

Thank you very much for joining us today. We appreciate your support and look forward to updating you on our next quarter conference call in a few months' time. In the meantime, please feel free to contact us if you have any further questions or comments. Thank you very much, everyone. Thank you. Bye-bye.

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.