Earnings Call Transcript - ATHM Q3 2025

Operator, Operator

Ladies and gentlemen, thank you for standing by for Autohome's Third Quarter 2025 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, Mr. Sterling Song, Autohome's IR Director. Mr. Song, please go ahead.

Sterling Song, IR Director

Thank you, operator. Hello, everyone, and welcome to Autohome's Third Quarter 2025 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 on today's call is our Chief Financial Officer, Mr. Craig Yan Zeng. Management will go through the prepared remarks, which will be followed by a Q&A session, where it is 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 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 Chief Financial Officer, Mr. Craig Yan Zeng, for opening remarks. Please go ahead, Craig.

Yan Zeng, CFO

Thank you, Sterling. Hello, everyone. This is Craig Zeng. Thank you for joining our earnings conference call today. In the third quarter, we continued to advance our AI and O2O strategies. On AI, we significantly strengthened the integration of AI technologies with our products, fostering business innovation while enhancing both user experience and customer operational efficiency. On O2O, we continuously improved our O2O platform by integrating online and offline resources, optimizing the end-to-end user experience and building a comprehensive closed-loop ecosystem that spans the entire customer journey from initial traffic acquisition to transaction completion to after sales services. In terms of AI technology applications, we completed a comprehensive upgrade of our AI assistant by strengthening model capabilities, integrating user inquiries with specific vehicle models and expanding usage scenarios. We achieved precise matching between user queries and car models. This has created a decision-making loop of content that drives engagement, engagement leads to action. In addition, we've also introduced two new features, the AI car selection system and AI vehicle diagnostics, providing users with more intuitive and efficient tools for their car-related needs. In September, we launched the inaugural Global AI Technology Conference. This established a premium platform for technical exchange among leading enterprises, showcased cutting-edge advances in China's intelligent automotive technologies, and elevated the collective image for Chinese auto brands. The conference's success also serves as a testament to Autohome's professional influence as a trusted media platform. The conference received authoritative endorsements from five major automotive associations and was strongly supported by 14 key corporate partners. Seven top executives from leading companies in the industry delivered impactful keynote speeches. Following the conference, over 30 automotive brands engaged with Autohome's official Weibo account, while more than 60 professional editors, technical experts, and PGC creators formed a multidimensional communication matrix that drew widespread attention across the industry. In building our auto ecosystem, we soft-launched our Autohome Mall on September 20, marking a major milestone and significant progress in our one-stop online to offline strategy. This initiative further improves our new retail business model through continuous upgrades and makes our model more complete. This strategy extends Autohome's role from being a decision-making hub for car selection and research to the final car purchase and ordering per transaction, creating a fully digitalized closed loop for the entire car purchase experience and significantly increasing the value of our traffic. Specifically, on content, we strengthened our content matrix by increasing professional depth and expanding the breadth of perspective while continuously advancing our diversified content ecosystem. For our 2025 series of coverage on domestic and international auto shows, we adopted a dual-track approach to achieve comprehensive reach from global influence to local penetration. At the Munich Auto Show, we took a global perspective, focusing on world premiers and the Chinese brands going global. We built a professional and exclusive content matrix through intensive bilingual live streaming and video production that leveraged global mainstream media networks to amplify China's automotive innovation and brand recognition worldwide. At the Chengdu Auto Show, we focused on new car launches and purchase guidance, integrating resources from 18 automakers to create Autohome exclusive live streaming sessions. This provided users with an immersive auto show experience. On the first day of the auto show, we achieved 100% coverage of all new car launches. Beyond our professional auto show coverage, we made significant strides in developing a content-centered interactive ecosystem. The newly established Autohome Media MCN is committed to building a multi-category influencer matrix that centers on automotive vertical while expanding into technology, travel, and overseas content. We've also developed a rich and diverse content ecosystem that combines professional and engaging PGC content, in-depth and authoritative OTC insights, and authentic user-generated experiences that resonate. To date, we have gathered over 200 high-quality creators across multiple platforms covering professional car reviews, technology, travel, and other areas, continuously enhancing Autohome's platform influence. According to QuestMobile, the average mobile DAUs reached 76.56 million in September 2025, up by 5.1% from the same period last year. In NEVs, we continue to focus on user and client needs while building a comprehensive automotive ecosystem. Our online platform, centered around our newly soft-launched Autohome Mall introduced in late September, provides transaction services, while our offline network of franchise stores, CARtech outlets, and used car dealerships is designed to integrate the entire process from online ordering to offline delivery and service. Building on the success of trial, we plan to officially launch the Autohome Mall during the Double 11 shopping festival. By integrating resources from across the industry value chain, we are committed to providing users with more precise, professional, and efficient car purchasing experiences. Furthermore, total revenues from NEVs in the third quarter, including those from the new retail business, have continued to grow, increasing by 58.6% from last year. On digitalization, our five major digital intelligence product lines are leveraging Autohome's platform capabilities of full lifecycle data tracking to continuously help clients improve targeting accuracy and service efficiency. Furthermore, at the Global AI Technology Conference, we officially launched the Tianshu Intelligence Service Platform powered by Autohome's proprietary Cangjie Large Language Model; the platform uses an open toolkit and service distribution capabilities to redefine collaboration among users, the platform, and the ecosystem partners. This advancement drives Autohome's transformation from an automotive information platform to an industry-wide intelligent hub, further strengthening our field advantages in technology and ecosystem. For our used car business, we continue to advance the standardization of both transactions and services. The AI car inspection expert, developed based on historical transaction data and algorithmic models, has achieved industry-leading accuracy in vehicle valuation. Meanwhile, our flagship certified used car stores have further expanded their network of partner dealers. In the future, we will continue to uphold integrity and standardization as our foundation, deepen our collaboration with high-quality used car dealers, and continuously strive to provide consumers with a more reliable and worry-free used car buying experience. In summary, this year, we focused on AI and O2O to comprehensively accelerate our business expansion. Looking ahead, we will continue driving innovation in both products and business models, building a more efficient automotive ecosystem and service system that creates sustained value for the industry and ensures our long-term stable development. With that, now please let me briefly walk you through the key financials for the third quarter of 2025. Please note that I will reference RMB only in my discussion today, unless otherwise stated. Net revenues for the third quarter reached RMB 1.78 billion. To break it down further, media services revenues contributed RMB 298 million, leads generation services revenues were RMB 664 million, and the online marketplace and others revenues increased by 32.1% year-over-year to RMB 816 million. With respect to cost, cost of revenues in the third quarter was RMB 646 million compared to RMB 408 million in the third quarter of 2024. Gross margin in the third quarter was 63.7% compared to 77% during the same period last year. Turning to operating expenses. Sales and marketing expenses in the third quarter were RMB 620 million compared to RMB 877 million in the third quarter of 2024. Product and development expenses were RMB 279 million compared to RMB 339 million in the third quarter of 2024. General and administrative expenses were RMB 125 million compared to RMB 137 million during the same period last year. Overall, we delivered an operating profit of RMB 147 million in the third quarter compared to RMB 83 million for the same period of 2024. Adjusted net income attributable to Autohome was RMB 407 million in the third quarter compared to RMB 497 million in the corresponding period of 2024. Non-GAAP basic and diluted earnings per share in the third quarter were RMB 0.87 and RMB 0.86, respectively, compared to RMB 1.02 for both in the corresponding period of 2024. Non-GAAP basic and diluted earnings per ADS in the third quarter were RMB 3.47 and RMB 3.45 respectively, compared to RMB 4.09 and RMB 4.08, respectively, in the corresponding period of 2024. As of September 30, 2025, our balance sheet remains robust with cash, cash equivalents and short-term investments of RMB 21.89 billion. We generated net operating cash flow of RMB 67 million in the third quarter. On September 4, 2024, our Board of Directors authorized a new share repurchase program under which we are permitted to repurchase up to USD 200 million of Autohome's ADS for a period not to exceed 12 months thereafter. On August 14, 2025, the Board approved an extension of the term of this program through December 31, 2025. As of October 31, 2025, we have repurchased approximately 5.48 million ADS for a total cost of approximately USD 146 million. In addition, in accordance with our dividend policy, our Board of Directors has approved a cash dividend of USD 1.20 per ADS or USD 0.30 per ordinary share payable in U.S. dollars to holders of ADS and ordinary shares of record as of the close of business on December 31, 2025. The 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 February 12, 2026, and February 19, 2026, respectively. On September 30, 2025, the company announced the approval of a cash dividend of approximately RMB 500 million. Overall, the company has fulfilled its commitment to shareholders to distribute no less than RMB 1.5 billion in dividends for the full year of 2025. Looking ahead, we remain committed to maintaining a long-term stable and proactive approach to shareholder returns, and we sincerely thank our shareholders for their continued strong support of the company. So that concludes our financial summary. We are ready to open up Q&A session.

Operator, Operator

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

Thomas Chong, Analyst

I have two questions. The first question is about the outlook for the 2026 auto market. How should we think about the industry trend? And my second question is about AI. You mentioned AI in our prepared remarks. So, I just want to get some more color on the progress of our AI product offerings.

Yan Zeng, CFO

Thank you for your question. First, let me share some recent developments and future trends with you. First of all, the price war in the auto market has shown some signs of easing, and the automakers are accelerating their intelligent technology efforts. In recent months, multiple government agencies have rolled out intensive policies calling for the industry to end devolution and provided policy guidance to ease the ongoing price war in the auto sector. So, all these measures have helped to cool down the price war in the auto market. We have also observed that over 20 automakers have gradually phased out their fixed price promotions. Since the start of this year, major automakers have successfully announced their plans for intelligent driving technologies to accelerate the adoption and application of intelligent driving. So, from this, it's quite clear that future industry competition will depend more on the company's comprehensive capabilities in integrating intelligent technology, user scenarios and meeting user needs, rather than any single technological advantage. So, for next year, the price competition is expected to shift more towards a battle of technological cost-effectiveness. Secondly, the NEV market still remains the core growth driver, even though this year, their growth number is comparatively a little bit slower than last year. But according to the data from the China Passenger Car Association (CPCA), the NEV penetration rate exceeded 50% in seven out of the first nine months of this year, driven mainly by the extension of favorable policies. We believe that for next year, the overall auto market is expected to continue to undergo structural adjustments, which will redefine how consumers make their purchasing decisions. At the same time, China's auto industry continues to remain under high pressure, which has been lasting for a long time. This pressure includes severe overcapacity, declining profit margins, and intense market competition. We see both traditional automakers and dealers also undergoing such business pressure. So, confronted with both price wars and shrinking profits and margins, we see OEMs and dealers alike have raised their expectations for both online consumer acquisition and offline sales conversion efficiency. Looking ahead to next year, we believe there are short-term challenges, but they coexist with long-term opportunities because the auto market still faces significant short-term pressures, mainly stemming from the shift of the NEV purchase tax exemption policy from full exemption to half exemption and the expiration of tax incentives for the internal combustion engines (ICEs). Combined with the price war in traditional ICEs, all these factors may further impact the auto market. Despite the above short-term pressures that we just mentioned, there are still upgrades in intelligent technologies, improvements to and recovery in the market order, and if further supported by the introduction of additional long-term policies, we believe it will still stimulate consumer demand in the auto market, and the market is expected to achieve modest and steady growth in 2026. For us at Autohome, we will continue to deepen our AI and auto strategies. On one hand, we will keep advancing product innovation and upgrades, accelerating the application of AI technology across content, intelligent customer services, and scenario-based services, etc. On the other side, we will continuously explore ways to leverage our online and offline resources to achieve integration, build a closed loop for auto transactions, and better serve our users and clients. Regarding our AI product progress, we have already completed the strategic layout of multiple products, built a technology product mix spanning the entire life cycle of auto consumption and continuously drive improvement in both user experience and customer business efficiency. For our users, our AI smart assistant and the used car AI smart buyer are continuously being upgraded. The new generation of the smart system has moved beyond simple question-and-answer models to proactive understanding and links provision. It can automatically identify the car models and series mentioned in the conversation and directly push product links, thus shortening the users' search process and improving our decision-making efficiency. For our clients, we have deployed five major AI product lines covering core business scenarios such as marketing insights, online customer acquisition, store visit invitation, dealer store operations, and used cars. Through the intelligent tools, we can continuously empower our business team members to realize the full chain of digital operations. Regarding our technology foundation, we have our own proprietary Cangjie large language model. For example, our used car AI smart buyer is powered by this Cangjie engine, and it is combined with Autohome's unique data assets, enabling it to deliver highly accurate and efficient recommendations and achieve a high degree of matching between the vehicle sources and user needs. Currently, Autohome is comprehensively and vigorously promoting the AI-driven upgrade of its products, achieving a comprehensive transformation from the underlying architecture to application scenarios. In the future, we will continue to deepen the integrated application of AI across multiple scenarios, using technological innovation to drive an efficiency revolution in the auto sector.

Operator, Operator

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

Xiaodan Zhang, Analyst

So can management share your outlook on the traditional business for the upcoming quarters? And also, is there any update on the shareholder return plans?

Yan Zeng, CFO

Thank you for your question. In the third quarter, we do see that the OEM promotional discount still remains at a high level, and the price war has been ongoing for a long time. The overall discount for OEMs has already exceeded 23%. Regarding the car sales volume and profit, I still remain concentrated among the leading companies. The price-cutting volume strategy has forced many OEMs to control their marketing budgets. For the media services revenue in Q3, we still saw a year-over-year decline, but the decline has narrowed down significantly. The continued decline is mainly due to the ongoing pressure from the OEM price war in the market. As Q4 approaches and the year-end, we believe OEMs are expected to maintain high professional discounts to boost their sales revenues, which will still put pressure on our media services revenue. Therefore, we do expect a slight year-over-year decline. For our lead generation business, due to the market inventory backlog and the inverted pricing, dealers continue to face operational pressure, and we find that over 50% of dealers operated at a loss in the first half of the year, which looks bleak for many dealers' survival. Accordingly, our lead generation services also faced ongoing pressure in the second half of the year. Nevertheless, our customer penetration rate still remains good. As the market and customer operating conditions improve, our traditional business can hit the bottom, rebound, and stabilize. As I just mentioned, our media segment has already narrowed its decrease. On the other hand, our innovative business developed quite strongly and offsets the situation of our traditional businesses to some extent. Regarding shareholder returns on dividends, today we just announced a cash dividend of RMB 1 billion for the second half of this year. Combined with the RMB 500 million we announced in September, we have fulfilled our commitment to a total annual cash dividend of no less than RMB 1.5 billion for the whole year 2025. Our Board of Directors will continue this stable dividend policy. Regarding the share repurchase program, of the USD 200 million share repurchase program, we have completed over 70% until today, and its overall execution is progressing well. Over the next few months, we will continue to carry out the remaining share repurchase program. For a long time, we have been committed to building a comprehensive shareholder return plan centered on continuous dividends and share repurchases, providing shareholders with predictable, stable returns. In the long term, we are confident in our business operations and will continue to uphold a stable and proactive approach to shareholder returns. We sincerely thank all shareholders for their long-standing support of the company.

Operator, Operator

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

Ritchie Sun, Analyst

I have two questions. First of all, the gross profit margin has been dropping year-on-year and Q-on-Q in the first quarter. So, why is that? And what is the trend going forward? Secondly, I want to ask about the energy space stores and satellite stores. What is the development progress and the 2026 target?

Yan Zeng, CFO

Thank you for your question. Since the beginning of 2025, we have been actively developing our new innovative businesses and this increased our upfront investments, consequently resulting in higher costs. Specifically, our innovative business, such as the new retail business, has surged in the third quarter compared to the same period last year. For example, we soft-launched the Autohome Mall business in September. Although this model is still in its early stage, we are receiving quite positive market feedback. We believe such staged investments are crucial for our future growth and creating room for further development. Hence, the gross margin of our transaction business cannot be compared to our traditional business; for example, the media business and lead generation business, which has much lower margins than our traditional business. Moving forward, we will adhere to our consistent practice of strict cost controls and manage the scale of our investment prudently while paying attention to changes in our gross margin. Regarding the Autohome space station and satellite stores development, our offline network can streamline the car purchasing process and improve transaction efficiency using our digital technology. Our advantage lies in covering areas in low-tier markets where OEMs or dealers do not reach, which helps them expand their sales networks. This business model is continuously upgraded and iterated. As I mentioned earlier, we are integrating online and offline resources to transform from an auto content-oriented platform to a transaction service platform. Following the completion of our controlling shareholder, we will continue combining our online and offline efforts to provide platform services that are more convenient and efficient, and we will look for new growth avenues beyond our traditional business model.

Operator, Operator

Our final question comes from Brian Gong from Citi.

Brian Gong, Analyst

The used car market seems still a little bit weak recently. How does management view the outlook for the used car market ahead?

Yan Zeng, CFO

Thank you for your question. Since the beginning of this year, the used car market has generally shown a trend of rising transaction volume and falling prices. According to the China Automobile Dealers Association (CADA), for the first half of this year, the transaction volume for used cars rose 2% year-over-year, while the average transaction price decreased by 12% year-over-year. At the same time, we see two notable structural trends in the market. First is the increased cross-regional flows. Second is the rapidly increasing sales of NEV used cars. While transaction volumes are expanding, the operational pressures in the industry continue to intensify due to the impact of price wars in the auto market. We see the proportion of loss-making used car companies growing to over 70%, along with lengthening average inventory cycles, continued high customer acquisition costs, and intensified homogeneous competition. However, despite this situation, positive factors still remain. Trade-in policies have stimulated replacement demand and added more high-quality used cars to the market, with new energy used cars becoming a key growth engine. CADA forecasts that for the full year, used car transaction volumes could exceed 20.5 million units, marking an increase of 4% to 5% year-over-year. Currently, the used car sector is undergoing deep adjustment and value chain reconstruction. The negative impact from the price-cutting volume model is gradually becoming apparent. However, China's large vehicle ownership base and relevant consumer demand provide strong support for the mid- to long-term development of the used car industry. Autohome will continue to collaborate with industry partners to address challenges through refined operations and service upgrades, while exploring new business models to unlock new value and advance the used car industry toward high-quality development.

Operator, Operator

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

Yan Zeng, CFO

Thank you very much for joining us today. We appreciate your support and look forward to updating you on our next quarter's 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, everyone.

Operator, Operator

This concludes the conference for today.