Earnings Call Transcript - ATHM Q1 2024

Operator, Operator

Ladies and gentlemen, thank you for standing by for Autohome's First Quarter 2024 Earnings Conference Call. As a reminder, this conference call is being recorded. If you have any objections, you may disconnect at this time. A live and archived webcast of this earnings conference call will also be available on Autohome's IR website. It is now my pleasure to introduce your host, Sterling Song, Autohome's IR Director. Mr. Song, please go ahead.

Sterling Song, IR Director

Thank you. Thank you, operator. Hello, everyone, and welcome to Autohome's First Quarter 2024 Earnings Conference Call. Earlier today, Autohome distributed its earnings release, which can be found on the company's IR website at ir.autohome.com.cn. Joining me today on today's call are Chief Executive Officer, Mr. Tao Wu; and Chief Financial Officer, Mr. Craig Yan Zeng. Management will go through their prepared remarks first, which will be followed by a Q&A session where they will be available to answer your questions. Before we continue, please note that the discussion today will contain forward-looking statements made under the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from our current expectations. Potential risks and uncertainties include, but are not limited to, those outlined in our public filings with the U.S. Securities and Exchange Commission and the Hong Kong Stock Exchange. Autohome doesn't undertake any obligation to update any forward-looking statements, except as required under applicable law. Please also note that Autohome's earnings press release and this conference call include discussions of certain unaudited non-GAAP financial measures. A reconciliation of the non-GAAP measures to the most directly comparable GAAP measures can be found in our earnings release. I'll now turn the call over to Autohome's CEO, Mr. Tao Wu, for opening remarks. Please go ahead, Mr. Wu.

Tao Wu, CEO

Thank you, Sterling. Hello, everyone. This is Tao Wu, CEO of Autohome. Thank you for joining our earnings conference call today. I'm pleased to report a solid start to the year with total revenues growing by 4.9% year-over-year to RMB 1.61 billion. Revenues from the online marketplace and others continued to achieve double-digit growth, increasing by 13% year-over-year, rising to 34.5% of total revenue. Notably, we continue to see strong growth in revenues from our data products, which increased over 10% in the quarter from a year earlier, driven primarily by our smart series products. We also saw robust growth in our NEV business with revenues for the quarter increasing by 49.6% year-over-year. Adjusted net income attributable to Autohome for the quarter was up 2.2% year-over-year to RMB 494 million, while our adjusted net profit margin remained at a relatively high level of 30.7%. For our innovative business, as new franchise stores are on track to open, our Autohome Space will expand further into a broader geographic area, driving the development of our online and offline integration. We also further strengthened our collaboration with Ping An Group through providing consumers with greater peace of mind and a more convenient user experience. In addition, we actively responded to the national trade-in-for-new policy, launching a series of initiatives such as the Hundred Cities Trade-in for New Car-Buying Festival in collaboration with Ping An Group, allowing consumers to enjoy even more benefits. Looking forward, we are committed to maintaining our professionalism and expertise while driving continuous innovation and offering even more convenient and high-quality products and professional services to our users and clients. Meanwhile, we will continue to refine, improve and optimize our overall business framework to ensure sustainable developments in both traditional and emerging sectors. Additionally, we will fully leverage the Ping An Group's vast resources to explore and develop opportunities in various areas, including automotive ecosystem, big data, cooperative ownership services and user benefits. Together, we will develop even greater synergies and push forward with new business initiatives. With that, I will now turn the call over to our CFO, Craig Zeng, for a closer look at our first quarter 2024 operating and financial results.

Craig Yan Zeng, CFO

Thank you, Mr. Wu. Hello, everyone. I'm Craig Zeng, the Chief Financial Officer of Autohome. In the first quarter, we continued to focus on developing high-quality content, practical tools, and premium services to enhance Autohome's brand influence. In March, amid a flurry of new car launches, we introduced our original IP content, which was available on 8 major online platforms by offering comprehensive real-world testing and in-depth analysis of the latest models. We provided a fresh content experience that has received widespread positive feedback from both users and clients. This new content carries more than 500 million exposures across all platforms, significantly enhancing Autohome's influence. In addition, in response to escalating price competition and frequent fluctuations in vehicle pricing, we introduced a number of innovative tools, including a price tracker and a comprehensive model comparison tool. The former enables users to intuitively see pricing trends while the latter provides enhanced detailed comparisons to improve the comparisons and decision-making process. According to QuestMobile, average mobile DAUs reached 69.39 million in March, an increase of 8.1% from a year earlier, which clearly demonstrates the effectiveness of our content-focused strategy for user growth. Turning to NEV, Autohome Space is making significant progress. It is now present in major cities like Beijing, Shanghai, Guangzhou, Chongqing, and Chengdu, as well as key second-tier provincial capital cities such as Kunming, Guiyang, and Jinan, along with promising third and fourth-tier cities like Lushan, Zhaoqing, and Heyuan, achieving broad market coverage. During the quarter, we granted franchise rights to partners in nine additional cities, with stores slated to open later this year. This expansion will greatly enhance our NEV services' geographic presence and extend our reach to more users. Our Autohome Space stores also serve as effective marketing platforms, equipped with significant online and offline resources and advanced digital capabilities. By leveraging these assets, we can offer OEMs integrated one-stop marketing solutions. Currently, our 3D holographic car models encompass over 80 mainstream NEV models. In the first quarter, our new retail business partnered with more than 30 brands, launching over 100 marketing events, including new car launches, test drives, and driving comparisons. Revenues from NEV brands in the first quarter rose by 49.6% compared to the previous year, consistently exceeding the industry growth rate. For digital products, we are committed to applying large language models more widely across our business. We are gradually replacing existing strategy-based chatbots with customized models tailored to the automotive industry. These models are now being used for AI outbound calls, customer services, and creating marketing content, significantly enhancing the quality and efficiency of our existing data products. This initiative not only improves our product performance but also broadens our client coverage. In the first quarter, the number of dealers purchasing our data products continued to rise, driving a 27% year-over-year revenue growth for our dealer data products. We have also leveraged our digital capabilities in the used car market, creating a transparent and reliable buying environment. For consumers, we offer a comprehensive set of tools to verify true vehicle conditions, helping buyers accurately assess vehicles and choose quality options. For dealerships, we provide a wide range of tools, including price and vehicle condition checks, as well as digital marketing solutions to enhance their operational efficiency. In the first quarter, the number of dealerships using our vehicle condition and pricing platform saw over an 80% year-over-year increase, reflecting the industry’s recognition of Autohome's expertise. In summary, Autohome achieved steady growth in revenue and profit in the first quarter of this year, driven by the rapid development of our digital products and the NEV businesses. Additionally, the introduction, replication, and iterative updates to our new innovative business models are increasingly contributing to, diversifying, and optimizing our revenue mix. Looking ahead, we will continue to explore new businesses, leverage Ping An Group's unique advantages, discover new opportunities to collaborate, and promote the sustained and healthy development of Autohome. Next, let me briefly walk you through the key financials for the first quarter of 2024. Please note that, as in prior calls, I will reference RMB only in my discussion today unless stated otherwise. Net revenues for the first quarter were CNY 1.61 billion. Breaking it down by segment, Media services revenues were CNY 327 million. Leads generation services revenues were CNY 726 million, and Online marketplace and others revenues were CNY 555 million, up 13% year-over-year. Cost of revenues in the first quarter was CNY 301 million compared to CNY 340 million in the first quarter of 2023. Gross margin in the first quarter was 81.3% compared to 77.8% during the same period last year. Turning to operating expenses, sales and marketing expenses in the first quarter were CNY 641 million compared to CNY 523 million in the first quarter of 2023. Product and development expenses were CNY 336 million compared to CNY 324 million in the first quarter of 2023. Finally, general and administrative expenses were CNY 150 million compared to CNY 149 million during the same period last year. Overall, we delivered an operating profit of CNY 276 million in the first quarter compared to CNY 263 million in the corresponding period of 2023. Adjusted net income attributable to Autohome was CNY 494 million in the first quarter compared to CNY 484 million in the corresponding period of 2023. Non-GAAP basic and diluted earnings per share in the first quarter were CNY 1.02, an increase from CNY 0.98 in the same period of 2023. Non-GAAP basic and diluted earnings per ADS in the first quarter were CNY 4.08 and CNY 4.07, respectively, compared to CNY 3.92 and CNY 3.91 in the same period of 2023. As of March 31, 2024, our balance sheet is very strong with cash, cash equivalents, and short-term investments totaling CNY 23.65 billion. We generated net operating cash flow of CNY 561 million in the first quarter of 2024. The above is our financial summary. With that, we are now ready to open the Q&A session. Operator, please open the line for questions.

Operator, Operator

Our first question comes from Brian Gong from Citi.

Brian Gong, Analyst

I have two questions. The first is about the recent auto policy rollout by the government. Can management provide your perspective on this? How will the policy affect the auto market in China, and what actions will Autohome take to align with these policies? My second question concerns our data products for dealers, which have driven significant growth for the company in recent quarters. How should we assess the growth potential for this segment moving forward?

Tao Wu, CEO

Thank you for your questions. Since you asked two, Mr. Wu Tao will address the first one. The two policies you mentioned are the notice of action plans to promote large-scale equipment renewals and consumer goods trade-in issued by the state councils in March of this year, and the notice on implementation rules for automobile trade-in subsidies from the Ministry of Commerce and seven other departments in April. These notices clarify the capital subsidy for automobile trade-ins, detailing the scope and standards for the subsidy and allowing consumers to engage more effectively in auto trade-in activities. Thus, promoting the trade-in of automobiles and other consumer goods has become a primary focus for domestic consumption this year. The policies clearly outline that for one new energy vehicle, a subsidy of CNY 9,000 will be provided, while for one internal combustion engine vehicle, a subsidy of CNY 7,000 will apply. I believe this will further boost consumption. Following the policy release, there are several impacts on the auto market. Since the first quarter, several trends have emerged. I will discuss these trends from three perspectives. Firstly, from a macro perspective, data from the CPCA indicates a recovery in China's auto market sales in the first quarter of 2024, marked by a 13.1% year-on-year increase in retail sales due to price cuts by manufacturers, various consumption promotion campaigns, and heightened demand for car purchases. With the Beijing Auto Show in April, manufacturers began launching new brands and models, leading to a significant recovery in the car market, which is expected to continue in the future. Secondly, car sales volume is on the rise due to the trade-in policies. With subsidies from both the government and manufacturers, consumption will indeed increase. However, it is important to note that price competition remains fierce in the industry. According to CPCA data, in the first quarter of this year, the passenger vehicle price levels were already at 60% of those from the same period last year and at the total price level of 2022. This indicates ongoing pressure on automakers' profit margins, coupled with uncertainties in the competitive landscape. Thirdly, we need to analyze the market structure. From April 1 to April 14, new energy vehicle sales surged by 32%, achieving a penetration rate of 50.1%, exceeding expectations. With enhancements in the range and charging speed of new energy vehicles, the expansion of charging infrastructure, and decreasing costs, an increasing number of consumers are accepting new energy vehicles. Consequently, changes in the market structure are occurring more rapidly than anticipated. Now I would like to discuss specific actions that Autohome will take. As I mentioned, the impact of these policies has both advantages and challenges in the market. However, for Autohome, it is advantageous as it delivers real benefits to users and stimulates market demand. We will seize this opportunity, being a key player in this initiative. Together with various partners, we will actively respond to national policy, leverage our platform advantages, conduct in-depth studies of the automobile market, and promote relevant national policies. Regarding two specific initiatives by Autohome: the newly launched super trading season channel in our Autohome app is designed to detail subsidy policies from various cities and car companies, helping consumers better understand these policies. Additionally, in partnership with several automakers and Ping An Group, we provide high-quality services for selling old vehicles and buying new ones through over 20 Autohome new energy offline stores, aiming to unlock consumption potential and support the growth of the car market. Moreover, Autohome, in collaboration with Ping An P&C, has initiated the Hundred Cities Trade-in for New Car-Buying Festival, reaching 108 cities through mobile holographic camping caravans and the Ping An insurance offline team. We utilize big data to identify individuals with replacement needs and offer test drives, insurance, and other services to stimulate automobile consumption. We also launched a major super-subsidy activity that encompasses over 100 brands and nearly 1,000 car models, offering subsidies of up to CNY 6,000 to effectively boost market purchasing power. Overall, the automobile industry is expected to remain a priority for the state and government this year. We believe that the implementation of various policies will further invigorate market consumption and support the stable, high-quality development of the automobile sector this year. We are confident in this outlook. That concludes my response to the first question. Thank you.

Craig Yan Zeng, CFO

The second question about the future potential of the dealer's data products will be addressed by Mr. Zeng. The answer is that we have already exceeded 20,000 paid merchants for dealer data products, indicating significant growth potential. Our goal is to enable more merchants to effectively utilize our modules to boost their own sales, reduce costs, and enhance efficiency. Moving forward, we will continue developing new modules in this area and ensure that these modules work together to aid our merchants. On average, each merchant purchases five products, but we have an additional eleven mature products available. Therefore, there is still substantial potential for us to explore. In the first quarter of this year, we observed a 27% growth in this business, demonstrating strong competitive recognition. We believe that there is considerable potential ahead.

Operator, Operator

Our next question comes from the line of Ritchie Sun of HSBC.

Ritchie Sun, Analyst

I have a question about the used car business. I've noticed that Tiantian Paiche has faced some challenges due to the new car price wars in the first quarter. If this trend continues, how should we view future growth and what strategies do we have in place to address this?

Unknown Executive, Executive

Okay. I will address this question from three different angles. First, from the market viewpoint, we observed that in the first quarter, used car prices rose by 7.6% compared to last year, indicating a slowdown in growth. By the end of March this year, the domestic used car trading PMI index had been below the 50% mark for 16 straight months, putting pressure on the industry overall. This situation is partially a result of the price war. According to data from CPCA, new car sales increased by 18%, up from 12% the previous year, which places significant pressure on used car prices. While we recognize this trend, we believe it won’t persist long-term; what we’re seeing will mainly lead to a slowdown in replacement, with some postponement and delays, but it won’t go on indefinitely. The second aspect is from a policy standpoint, which seems to favor the used car market. The Ministry of Commerce has initiated a trade-in policy that encourages consumers to sell their old cars and buy new ones, creating significant opportunities for the used car industry. We anticipate that this will facilitate many trade-ins in the market. The third aspect is related to our service, TTP. Recently, TTP introduced a 30-minute high-speed online national bidding service that includes online inspections, instant bidding, and quick offers for selling cars. Consumers can visit the site for free testing and receive quotes from real buyers online within 30 minutes. This approach significantly enhances the efficiency of car purchases, ensuring a smooth transition from selling old cars to buying new ones. Coupled with offline experiences at our new energy stores, consumers can complete both transactions in one visit, which will help stimulate the used car market and promote related sales. Additionally, our collaboration with Autohome will significantly bolster TTP's future growth.

Operator, Operator

Our next question comes from the line of Thomas Chong from Jefferies.

Thomas Chong, Analyst

My first question is about management's comments on the recent Beijing Auto Show and how we should view the EV sector this year. My second question is regarding the use of cash.

Craig Yan Zeng, CFO

Thank you for your question. This year's Beijing Auto Show was the first major automotive event in the city in four years, making it particularly significant and attracting a diverse range of merchants and visitors. Over the 10 days of the show, including the holiday period, we welcomed 900,000 visitors who witnessed the world debut of 117 vehicles and 378 new energy models. In 2023, new energy vehicle production and sales accounted for over 60% of the global total. China's initiative to promote its automobiles on the global stage has intensified, and the intelligent development of vehicles is accelerating annually with strong product and technical capabilities. Although we do not yet have the full sales figures for April, as noted by Mr. Wu Tao, domestic new energy vehicle sales achieved a market penetration of 50% in the first half of the month, surpassing traditional fuel vehicle sales for the first time. At the same time, the new energy sector is increasingly polarized; companies like BYD are seeing scale effects and improving profitability, while some brands may struggle with market share and growing losses amid fierce price competition. The next three years will be crucial for competition based on fuel costs, appealing technologies, and companies with strong product offerings are likely to capture more market share. Autohome plans to adapt to these market trends, leveraging offline experience stores for new energy vehicles and partnering with various new energy brands. Additionally, our 3D holographic car models now encompass over 18 popular new energy models, and we've partnered with most of the new energy brands, with revenue from these brands consistently exceeding that of the industrial sales group. In terms of our cash use plan, over the past few years, Autohome has been dedicated to enhancing shareholder returns. In 2022, the Board of Directors updated the dividend payout policy to distribute a fixed amount of CNY 500 million, which represents 28% of that year's net profit. By the end of FY '23, we revised our dividend policy again, deciding to pay a dividend of CNY 1 billion, which we completed in the first quarter of this year. For the three years from FY '24 to FY '26, we plan to pay dividends every six months, with an annual total of at least CNY 1.5 billion. This shows that Autohome has a strong financial position, sufficient cash reserves, and robust cash flows. We have consistently provided returns to our shareholders and will maintain our dividend payments while focusing on continuously improving shareholder returns. Additionally, we will closely monitor market trends and strive to maximize returns for our shareholders.

Operator, Operator

Our next question comes from Xiaodan Zhang from CICC.

Xiaodan Zhang, Analyst

It seems the advertising budget for OEM is still tight this year. What is your outlook for our Media services business in the upcoming quarters?

Unknown Executive, Executive

Okay. Thank you for your question. I will address this. In the first quarter, we observed a 4% increase in sales volume for both ICE and NEV vehicles. However, all automakers are focused on a price-for-volume strategy, which has led to squeezed profit margins. They are allocating more budget to subsidize consumers to boost sales, resulting in increased advertising expenditures. Meanwhile, NEV companies have also ramped up their advertising investments. For instance, Autohome's media advertising revenue from NEV companies doubled year-over-year in the first quarter and is expected to keep growing. We anticipate that the price-for-volume strategy among OEMs will persist, though it won't last indefinitely. Consequently, advertising budgets will remain under pressure in the short term. Yet, in the long run, we expect a shift back to a stronger focus on advertising as the market continues to move in the right direction.

Sterling Song, IR Director

Okay, operator, if there's no extra question, we come to the end of this Q&A session.

Operator, Operator

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

Unknown Executive, Unknown

Thank you, everyone, for joining us today. We appreciate your strong support, and we look forward to updating you on our next quarter's conference call in a few months. In the meantime, please feel free to reach out if you have any further questions or comments. Thank you and goodbye.

Operator, Operator

Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.