Earnings Call Transcript - ATHM Q4 2022

Operator, Operator

Ladies and gentlemen, thank you for standing by for Autohome's Fourth Quarter and Full Year 2022 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 Sterling Song, Autohome's IR Director. Mr. Song, please go ahead.

Sterling Song, IR Director

Thank you, operator. Hello everyone. Good evening. Welcome to Autohome's fourth quarter and full year 2022 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'll have Chairman and Chief Executive Officer, Mr. Quan Long and Chief Financial Officer, Mr. Craig Yan Zeng with us. After our prepared remarks, our management team will be available to answer your questions. Before we continue, please know that the discussion today will contain forward-looking statements made under the Safe Harbor provisions of the US Private Securities Litigation Reform Act of 1995. Forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from our current expectations. Potential risks and uncertainties include, but are not limited to those outlined in our public filings with the US Securities and Exchange Commission and The Stock Exchange of Hong Kong Limited. Autohome does not undertake any obligation to update any forward-looking statements except as required under applicable law. Please also know that Autohome's earnings press release and this conference call includes discussions of certain unaudited non-GAAP financial measures. Please refer to our press release which contains a reconciliation of the non-GAAP measures to the most directly comparable GAAP measures and is available on Autohome's IR website. Again, as a reminder, this conference call 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. Long for opening remarks. Please go ahead, Mr. Long.

Quan Long, Chairman & CEO

Thank you, Song. Hello everyone. This is Quan Long, Chairman and CEO of Autohome. Thank you for joining us today in our earnings call. In the fourth quarter, Autohome's business witnessed an accelerated pace of recovery with total revenues up by 12% year-over-year. Notably, media services delivered robust revenue growth at 64% year-over-year, while boosting our topline growth. We also maintained good profitability and a high profit margin level. Our adjusted net income for the first quarter surged by 43% year-over-year, with an adjusted net margin reaching 35.3%, closing out 2022 on a high note. Against the backdrop of the pandemic and other uncertainties throughout the year, Autohome successfully overcame adversity, once again demonstrating the resilience and vitality of our business. Building our large and engaged user base, solid business fundamentals, and industry-leading innovation capabilities, Autohome is well-positioned to navigate market cycles and achieve healthy long-term development as we continue to blaze trails and become the industry frontrunner. Looking back at 2022, we achieved significant progress in two key areas: content ecosystem construction and exploration of new initiatives. On the content front, we successfully leveraged our big IP brands to promote our video-based strategy and formed partnerships, organizing cross-promotional activities with multiple Internet platforms to explore new automotive lifestyle experiences. In terms of new initiative exploration, we made huge strides in exploring the industrial value chain and promoted in-depth development across our business, supported by our continuous new achievements in NEVs, used cars, data products, and other fields. Driven by our relentless efforts in Phase 2 areas, we continued to expand new business boundaries, establish new standards, and foster new types of business. With our multi-dimensional business roadmap and extensive development concepts, we've built a brand new ecosystem in the automotive industry, propelling Autohome to new heights. Heading into 2023, with improvement in the macro environment, restoration of industry order, and local government policies stabilizing growth, the auto industry is expected to maintain a steady upward trend. Benefiting from the industry's recovery, Autohome will continue to empower business partners and promote industry-wide digital transformation, while also increasing shareholder returns and achieving a win-win situation for all parties. With that, I will now turn the call over to our Chief Financial Officer, Craig Yan Zeng, for a closer look at our fourth quarter and full year operating and financial results.

Craig Yan Zeng, Chief Financial Officer

Thank you, Mr. Long. Hello, everyone. I'm Craig Yan Zeng, the Chief Financial Officer of Autohome. As Mr. Long just mentioned, we have made ongoing efforts to advance content creation and build core IT to establish the Autohome IT matrix, constructing a useful and fun video-based content ecosystem. For example, our flagship vehicle testing IT project, regulatory inspection, has consistently produced useful content since its launch in 2019, greatly assisting users in choosing and buying cars. In 2022, vehicle inspection covered 58 newly launched popular electric vehicles and has accumulated nearly 300 million views across the entire network to date. Autohome's four original IPs, including Super Test and our travel journal, have accumulated nearly 800 million views worldwide, leading the market in terms of the overall size of our original IP matrix. Additionally, we held more than 550 online auto shows this year, providing users a seamless experience for searching and choosing cars anytime and anywhere. We also introduced engaging elements such as the metaverse, metahuman, and virtual assets to our content creation portfolio to encourage greater participation and deeper engagement from younger users, enhancing our user stickiness. Furthermore, we have established strategic cooperation with multiple partners such as AMAP, Huawei Cloud, and the Beijing Institute of Technology and Information, among others, to explore greater business synergies. We've also collaborated with various online platforms to explore new automotive lifestyle experiences. These creative tactics have significantly increased user traffic in our ecosystem and expanded our user base. According to QuestMobile, Autohome's mobile DAU in December 2022 rose by 16.1% year-over-year, reaching a record high of 54.39 million, further solidifying our leadership position in the industry. Regarding our dealership business, despite the immense challenges faced by the auto market in 2022, Autohome continued to maintain steady growth momentum in the fourth quarter, particularly through the continuous upgrading of our lead generation tools and dealer membership products. We have successfully reduced our customers' decision-making and transaction costs through advanced technology, thereby helping our dealer customers lower overall costs and enhance efficiency. As a result, over 13,000 dealers purchased our premium version, and nearly 8,000 dealers opted for our basic version, totaling over 21,000 dealers acquiring high-end lease subscription packages in the fourth quarter. In terms of exploring new initiatives, we accelerated the development of our second growth curve, achieving major breakthroughs in new business types, models, and products by allocating resources and investing in key areas. Let me elaborate on this. First, regarding our New Energy Vehicle business, Autohome has proactively adapted to the continuous increase in EV penetration. In September 2022, we launched our first offline experience store, introducing a unique multi-brand retail model known as Energy Space. This retail model connects online activities with offline transactions, providing users with a one-stop selection and purchasing experience while gaining recognition from OEMs. Currently, we have partnered with 26 brands, establishing new retail partners in the industry. In 2022, revenue from EV brands grew significantly, increasing by 153% year-over-year and outperforming the industry's sales growth. Looking ahead, Autohome will continue to explore the integration of various business types, improve the penetration rate of offline stores in different cities, and lead the transformation of the car purchasing experience. In our data product sector, we achieved significant progress in 2022, providing OEMs with five series of data tools catering to their diverse needs, ranging from user private domain operations to the digitalization of back-end services. We have established partnerships with more than half of the automakers in China's auto market, and our data products have helped dealer customers improve profits and efficiency. For the entire year of 2022, both the average revenue of data products per dealer store and the average number of data products used by each store increased by over 20% year-over-year. Moving to our used car business, we expedited the integration of resources from the Autohome Ping An Group and Tiantian Paiche, significantly advancing our comprehensive transaction service platform for used cars and making solid improvements for both buyers and dealers. For buyers, we offered vehicle condition and price inquiries through our car history service, effectively addressing their purchasing concerns. On the dealer side, we assisted in enhancing operating efficiency by establishing a used car digital cloud-based platform. In addition, we improved TTP's efficiency through refined operations. In 2022, our platform accounted for approximately 21.5% of all used car transactions in China, marking a 5% year-over-year growth. Moving forward, we will continue to expand our presence across the entire industry chain and create data products for used NEVs through strategic cooperation, differentiating ourselves and building our competitive edge in the used car market. To summarize, despite the complex microenvironment and various uncertainties in 2022, we are pleased with the substantial progress made across all business segments. We have demonstrated upward growth for two consecutive quarters, achieving a perfect V-shaped rebound, outpacing the overall market and achieving excellent results. As the leader in China's auto vertical media industry, Autohome will continue to bolster its competitive advantages by reinforcing our traditional business facets and maintaining our market share and customer base. Simultaneously, we will further nurture our innovative business segments to build a comprehensive auto ecosystem platform, providing our users with services throughout the full lifecycle of automobile ownership. We are committed to driving the digital upgrades and transformation of the automotive industry while delivering lasting value for all our users, customers, and shareholders through outstanding market performance. Let me now present the key financials for the fourth quarter and the full year 2022. Please note that I will refer to RMB only in my discussion today unless otherwise stated. Net revenues for the fourth quarter were RMB 1.89 billion, reflecting an 11.8% year-over-year increase. For a detailed breakdown, media services revenue was RMB 610 million, up 63.7% year-over-year. Leads generation services revenue grew by 1.1% year-over-year to RMB 787 million, while online marketplace and other revenues totaled RMB 496 million. Regarding costs, the cost of revenue in the fourth quarter was RMB 371 million, compared to RMB 262 million in Q4 2021, primarily due to our ongoing investment in content. The gross margin for the fourth quarter was 80.4%, down from 84.5% in Q4 2021. Turning to operating expenses, sales and marketing expenses were RMB 673 million in the fourth quarter compared to RMB 803 million in Q4 2021, reflecting a decrease primarily due to reduced marketing and promotional spending. Product and development expenses were RMB 330 million, down from RMB 395 million in Q4 2021. Lastly, general and administrative expenses amounted to RMB 103 million, down from RMB 128 million in Q4 2021. Overall, we achieved an operating profit of RMB 530 million in the fourth quarter, compared to RMB 177 million in the same period of 2021. Adjusted net income attributed to Autohome was RMB 669 million in the fourth quarter, up from RMB 469 million in the corresponding period of 2021. Non-GAAP basic and diluted earnings per share were RMB 1.36 and RMB 1.35 respectively for the fourth quarter, compared to RMB 0.93 in the same period of 2021. Non-GAAP basic and diluted earnings per ADS were RMB 5.42 and RMB 4.41 respectively, compared to RMB 3.71 and RMB 3.70 in the corresponding period of 2021. Now, let me briefly summarize our financial results for the full year of 2022. Total revenues reached RMB 6.94 billion, including media services revenues of RMB 1.96 billion, leads generation services revenues of RMB 3.06 billion, and online marketplace and other revenues of RMB 1.92 billion. Additionally, we reported an adjusted net income attributable to Autohome of RMB 2.17 billion. As of December 31, 2022, our balance sheet remains robust with cash, cash equivalents, and short-term investments totaling RMB 22.08 billion. We generated net operating cash flow of RMB 2.57 billion in 2022. On November 18, 2021, our Board of Directors authorized a share repurchase program, committing to repurchase up to US$200 million of Autohome's ADS for a maximum duration of 12 months. Subsequently, on November 3, 2022, our Board authorized an extension of the share repurchase program for another 12 months, expiring on November 17, 2023. As of February 10, 2023, we have repurchased about 3.69 million ADS for an approximate total cost of $111 million. I'm also pleased to announce that our Board approved an amendment to establish an annual cash dividend of at least RMB 500 million from 2022 to 2026, further enhancing our ongoing increases in shareholder returns. Our Board has also approved a dividend of about $0.58 per ADS or $0.45 per ordinary share for fiscal year 2022. Autohome's long-term stable operations, ample cash reserves, and healthy cash flow, combined with our active stock repurchase program and consistent dividend payouts, demonstrate our commitment to improving capital allocation efficiency and our longstanding dedication to our investors. As we enter 2023, we will continue to pursue new initiatives that promote long-term healthy growth while remaining focused on delivering shareholder value. With that, we are ready to take your questions. Please open the line for the Q&A session.

Operator, Operator

Thank you. We will now begin the question-and-answer session. Our first question comes from Thomas Chong from Jefferies. Please ask your question.

Thomas Chong, Analyst

Thanks, management for taking my questions and congratulations on a solid set of results. I have two questions. My first question is about the outlook for the auto industry for this year. And number two is about our cash usage and capital allocation. Thank you.

Quan Long, Chairman & CEO

Thank you for the question. My name is Long Quan. I’m addressing your inquiry regarding the situation in January, where you may have observed that production and sales data have been released. When we compare production and sales with the same period last year, we see a significant decline. This trend is also evident when compared to the previous month. There are two main reasons for this. First, the long holiday for the Chinese Spring Festival took place in January. Second, the favorable policies and subsidies for combustion vehicles and NEVs diminished at the end of last year. Despite this, I remain optimistic about 2023 for several reasons. The auto industry has historically been a key sector in China, with the government placing great emphasis on it. The January meeting of the State Council highlighted the need to balance supply with consumer demand and promote consumption as a pillar to stimulate the economy. There will be various policies aimed at boosting auto consumption and revitalizing retail businesses. Notable initiatives have been introduced since the January State Council meeting. Additionally, while national subsidies have temporarily decreased, local governments have implemented new measures to stimulate NEV consumption. In cities like Shanghai and Hunan, trade-in subsidies for NEV cars continue, and Shaanxi province is encouraging cities to enhance subsidies and explore trade-in opportunities to drive consumption. With the end of the zero COVID policy and the reopening process, we expect the auto show to bounce back, along with the gradual introduction of new car models to the market. As a result, we think the auto consumption market will experience progress. Looking specifically at the sales structure, NEV sales are on an upward trend. Even though national subsidies have lessened, new policies are emerging to support NEV consumption, leading us to believe that the NEV market will shift from policy-driven to market-driven. While we may see some short-term sales slowdowns, we anticipate sustained growth of around 40% over the long run. The NEV market is becoming increasingly divergent, with top players likely to gain advantages, enabling them to invest more in branding. I’d also like to comment on the used car market, which we expect will see the full effect of new policies in 2023. This market will likely transition from personal transactions to corporate leasing and shift from an agent-based model to a dealership-based model. We predict overall growth in the used car market to be around 8% in 2023, as the government encourages the scalability of the used car business and pushes for more standardized operations. These actions will contribute to a healthier development of the used car market. Overall, with the implementation of various supporting policies, we believe consumption needs will rise, stimulating demand. This is why I am quite confident about the domestic auto market in 2023. Now to discuss cash allocation, I would like to invite Mr. Zeng Yan to answer that question.

Craig Yan Zeng, Chief Financial Officer

Well, thank you for the question. Talking about the cash. We have abundant reserve cash, and our cash flow has been very healthy. We also attach great importance to the shareholders' interest. We have the net inflow of RMB 2.1 billion of cash last year. According to our BOD meeting last quarter, we will extend the share buyback initiative. And in this quarter, we already improved the dividend payout ratio by about 16% compared with the last year. So actually, the dividend payout would be RMB 500 million, and it will continue to grow in the future. So that is the way we are trying to actually give back to our shareholders. Now talking about the business side, we have a lot of new initiatives. We have new investments into the content, video-based, live streaming-based, metaverse-based, and AR-based products. According to our new business, the data product has been thriving. We are also looking into some other opportunities to explore the M&A deals and make our business more globally present. So thank you for the question.

Operator, Operator

Thank you. Our next question comes from the line of Ritchie Sun from HSBC. Please ask your question, Ritchie.

Ritchie Sun, Analyst

I will translate myself. Thank you to management for addressing my questions. I have two inquiries. First, what will our key performance indicators be for data products in 2023, and what new launches can we anticipate? Secondly, as we move into this year for the used car business, what will our key performance indicators and focus be, and how should we consider the long-term adjusted net margin for this sector? Thank you.

Quan Long, Chairman & CEO

Now discussing the digitalized product, our main goal is to assist our clients in reducing costs and improving efficiency, whether they are OEMs or dealers. We aim to enhance their efficiency and continuously introduce new models. Additionally, we seek to expand our client coverage and empower them with our latest models. Regarding the future direction of the new business, we are exploring opportunities in new autos as well as the used car market, where we have numerous innovative initiatives. Focusing on the used car business, we aim to establish a comprehensive transaction and service platform. Our first goal is to create a closed-loop transaction process that encompasses the entire used car business chain, addressing a significant pain point in the market. We are also planning to launch used car SaaS services and other data products. In 2022, Autohome completed our operational enhancements, improving resource coordination and management on both consumer and business fronts, which led to significant breakthroughs. For instance, we introduced innovative trading businesses, used car SaaS products, and data services related to car history and condition through partnerships. Moving forward, Autohome aims to build comprehensive solutions for auto purchasing and sales, along with SaaS products as part of our strategic objectives. Regarding the used car business model, which is still evolving in the market, we have made our used car business profitable. The third-party platform reached breakeven in the latter half of last year. Our goal is to further develop our used car business, expecting the margins to be comparable to those of our dealership operations.

Operator, Operator

Thank you. Our next question comes from the line of Brian Gong from Citi. Please ask your question, Brian.

Brian Gong, Analyst

Good evening management. Thank you for taking my question and congratulations on the solid results. I have two questions. First, regarding GDP, you mentioned that we expect the used car industry to have an 8% year-on-year growth for 2023. With this number, how should we anticipate overall growth this year? Secondly, you mentioned expecting some favorable policies for the auto industry this year. Could you provide more specifics on the types of policies we can expect? Thank you.

Craig Yan Zeng, Chief Financial Officer

Well, thank you for the question. Talking about COVID pandemic, it affected the used car business because the transaction of used cars needs a lot of offline face-to-face communication. That's why in 2022, the used car business in domestic markets dropped and experienced actually 9%. So now, the good news is that with more and more supportive policies released and with the reopening of the society post-pandemic, we believe the used car market will experience very good growth this year. According to some market reports, which said the growth can be 8%. We hope that this 8% is achievable and it will even achieve beyond 8%. Autohome's growth would be better than the market. Well, according to the auto market policy, as Mr. Long had already introduced to you, we believe that the auto market would benefit from the policies. Auto is a large amount of consumption for individuals or for families. It is different from housing because housing is non-movable; it's real estate. So that's why we believe that in March, there will be new policies released to further support the market. The market can be quite good. There are three factors I want to mention. The first one is the policy is trying to stabilize the sales of the new cars. Secondly, NEV continues to be the strategic focus of the market. And thirdly, for the used car, we believe that it has a lot of potential to grow. If you look at the breakdown of the used cars compared with the new car sales, it only accounts for 60% of the car sales. But in some of the mature markets, the used car transaction volume is double or even triple the new car. In this way, we believe the used car market has a lot of potential.

Operator, Operator

Thank you. Thank you all for your questions. I'll turn the conference back to the management team for closing comments.

Quan Long, Chairman & CEO

Thank you, everyone. 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. Thank you. Bye.

Operator, Operator

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