Earnings Call Transcript - ATHM Q4 2023

Operator, Operator

Ladies and gentlemen, thank you for standing by for Autohome's Fourth Quarter and Full Year 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow management's prepared remarks. 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 the 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. Thank you. Hello everyone and welcome to Autohome's fourth quarter and full year 2023 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, 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 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 for the most directly comparable GAAP measures can be found in our earnings release. I will now turn the call over to Autohome's CEO, Mr. 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 us in our earnings conference call today. We delivered solid operational and financial results in 2023 with overall growth primarily driven by our new businesses. Total net revenues for the year grew by 3.5% year-over-year to RMB7.18 billion. Revenues from the online marketplace and other businesses increased by 14.6% year-over-year and accounted for 30.6% of total revenue. Notably, we continue to see strong growth in revenues from data products and TTP, which each increased by more than 10% compared to 2022. We also saw robust growth in our NEV business, with revenues for the year increasing by over 80% year-over-year and accounting for nearly 18% of total revenue. Adjusted net income attributable to Autohome for the year was RMB2.16 billion with an adjusted net margin of 30.1%. We also completed a US$200 million share repurchase program and significantly increased the dividend payout to shareholders, demonstrating our commitment to generating returns for investors. In 2023, we made breakthroughs in AI applications and innovative business models. We launched new AI-driven data products, deployed large language models in various business scenarios, and combined model-based decision-making with human expertise to enhance service quality. We also made rapid progress in expanding our physical retail presence, particularly in mid- to low-tier cities, where we see significant growth potential as the NEV market evolves. Our Autohome Energy Space stores serve as a strong offline channel to complement our online capabilities and are now present in 20 cities across the country, helping us build brand awareness among NEV users. Autohome has always been at the forefront of digitalization and business innovation, proactively promoting and leading the digital transformation of the entire automotive industry in China. Looking ahead, we are committed to maintaining our leadership in these key areas and creating unique advantages through several strategies. First, we will accelerate collaboration with Ping An Group, focusing on creating a closed-loop ecosystem for car owners and leveraging their resources to enhance our service capabilities. Second, we will enhance the quality of our content, reinforcing Autohome as the go-to brand for all things automotive, creating a strong and lasting brand image as the leading authority in this space. Third, we will put users at the center of our efforts, providing convenient access to high-quality, comprehensive services throughout the entire car ownership lifecycle. Fourth, we will deepen our innovative business models, focusing on developing our Autohome Energy Space stores and TTP. We believe that by aggregating industry resources and leveraging Ping An's potential opportunities, we can create a unique value proposition and establish a diverse and dynamic ecosystem that empowers our long-term growth. With that, I will now turn the call over to our Chief Financial Officer, Craig Zeng, for a closer look at our fourth quarter and the full year 2023 operating and financial results.

Craig Yan Zeng, CFO

Thank you, Ms. Song. Hello, everyone. I am Craig Zeng, the CFO of Autohome. In 2023, we focused on enhancing user experience by creating a comprehensive system of content, tools, and services aimed at delivering high-quality, convenient, and efficient auto consumption experiences. In the fourth quarter, we introduced the NEV Breakthrough Plan, a thorough evaluation program that assesses the safety of new energy vehicles across collision, battery, and intelligent driving dimensions. This initiative addresses user concerns and expedites decision-making, achieving 325 million impressions and over 200 million views across networks. Additionally, we launched the NEV Super Test, a two-month program to evaluate NEV performance in real-world conditions. This initiative allows us to collaborate on building a more consumer-focused vehicle evaluation system, expand the NEV category, and assist automotive brands in enhancing their products for improved user experience. Moving forward, we will continue to address the evolving needs of users to foster a rich and diverse content ecosystem that adds value and drives engagement. Moreover, we will utilize various online channels to maximize the reach of our high-quality content. According to QuestMobile, our mobile Daily Active Users rose by 25.4% year-over-year, reaching 68.19 million in December, which highlights the success of our content-based user growth strategy. Our NEV business has expanded quickly, with the Autohome Energy Space now in 20 cities nationwide. We have enhanced our brand, technology, and store services, providing quality consumer experiences across various regional markets in China. We've also increased the number of energy space brand partners and expanded our offering of 3D holographic car models to over 70 mainstream models. We are optimistic about this new retail model, characterized by its cross-brand and digital approach. In 2024, we plan to broaden our reach by introducing franchise stores in approximately 30 additional cities. By year-end, our NEV service ecosystem will cover around 50 cities, which will allow us to deliver a full range of high-quality, convenient automotive services to consumers nationwide. For the full year 2023, revenue from NEV brands rose by 81.6%, showcasing the strength of our offerings in this sector and our capability to surpass industry sales growth rates. Additionally, we made substantial strides in our digitalization efforts in 2023, applying AI technology and large language models across many of our products and services. We launched tools like cloud smart selection that utilize our AI technology and big data capabilities to assist dealers in engaging high-value users and managing instant messages in various scenarios. We also rolled out applications based on large language models, helping our dealer customers lower costs and enhance efficiency. The average revenue generated from data products per dealer store and the number of data products adopted by each dealer store both increased by over 20% compared to last year, contributing to a 38% year-over-year growth in dealer data revenue. We anticipate that our digital products will maintain robust growth, contributing to a diversified revenue mix for Autohome. In our used car business, we provide a variety of products to streamline daily operations for used car dealers. For instance, our all-in-one platform for vehicle condition price inquiries offers a convenient means for dealers to access vital information, which has received favorable feedback. Additionally, we've launched a membership product tailored for used cars, delivering a comprehensive information management platform for dealers. We have also successfully grown TTP’s business through new retail stores, achieving over 10% revenue growth year-over-year in 2023. In conclusion, we have consistently increased revenue while improving our revenue mix and significantly boosting user traffic. Our new retail business is expanding quickly, and our overall operations are progressing steadily. Looking ahead, we will continue to invest in new models, technologies, and products while actively pursuing opportunities to optimize business resources and user synergies with Ping An Group. Through these initiatives, we aim to cultivate new growth momentum and position ourselves for ongoing success. Let me summarize our key financial results for the fourth quarter and full year 2023. Please note that I will reference RMB only in my discussions unless stated otherwise. Net revenues for the fourth quarter amounted to RMB1.91 billion, with media services revenues at RMB500 million, lead generation services revenues at RMB841 million, and online marketplace and other revenues at RMB569 million, reflecting a year-over-year increase of 14.8%. In terms of costs, the cost of revenues for the fourth quarter was RMB368 million compared to RMB371 million in Q4 2022. The gross margin for the fourth quarter stood at 80.8%, up from 80.4% in Q4 2022. Regarding operating expenses, sales and marketing expenses for the fourth quarter were RMB730 million versus RMB633 million in Q4 2022. Product development expenses reached RMB356 million compared to RMB313 million in Q4 2022. Lastly, general and administrative expenses totaled RMB157 million versus RMB103 million in Q4 2022. Overall, we achieved an operating profit of RMB367 million in the fourth quarter compared to RMB513 million in the same period last year. Adjusted net income attributable to Autohome was RMB503 million in the fourth quarter compared to RMB669 million in the prior year. Non-GAAP basic and diluted earnings per share for the fourth quarter stood at RMB1.04 compared to RMB1.36 and RMB1.35 in the corresponding period last year. Non-GAAP basic and diluted earnings per ADS were RMB4.15 and RMB4.14 compared to RMB5.42 and RMB5.41 respectively in the same quarter last year. Now, let me summarize our full year 2023 results. Total revenues reached RMB7.18 billion, an increase of 3.5% year-over-year. This included media services revenue of RMB1.87 billion, lead generation services revenue of RMB3.11 billion, and online marketplace and other business revenue rising by 14.6% year-over-year to RMB2.2 billion. We also recorded an adjusted net income attributable to Autohome of RMB2.16 billion, with an adjusted net margin of 30.1%. As of December 31, 2023, our balance sheet remains strong, with cash, cash equivalents, and short-term investments totaling RMB23.55 billion. In 2023, we generated net operating cash flow of RMB2.45 billion. In November 2021, our board authorized a share repurchase program aimed at acquiring up to US$200 million of Autohome's ADS over 12 months. This program was extended in November 2022 for an additional twelve months. By December 31, 2023, we completed this share repurchase effort, buying back approximately 6.73 million ADS at a total cost of around US$200 million. We are now prepared to take your questions.

Operator, Operator

Thank you. We will now begin the question-and-answer session. The first question comes from the line of Thomas Chong from Jefferies. Please go ahead.

Thomas Chong, Analyst

Thank you to management for addressing my questions. I'm interested in the industry outlook. Could management provide insights on the performance of the industry in 2023 and share thoughts on the trends and outlook for 2024, including potential opportunities? Thank you.

Tao Wu, CEO

Thank you very much for the question. In 2023, we observed a pattern in the auto market in China that started with low momentum and then picked up. The sales volume reached a historical high. According to the CPCA, we witnessed a swift recovery in auto sales during Q4, particularly in retail sales, which increased by 13.8% year-over-year and 1.4% quarter-over-quarter in the third quarter. This was largely due to various nationwide promotions as the year came to a close, including offline auto shows and the distribution of consumption vouchers and coupons for car purchases, along with some de-stocking of combustion cars that did not meet the National Six Standards. Consequently, this contributed to boosted sales. Regarding 2023, passenger car sales rose by 5.3%, mainly driven by NEV cars. We also acknowledge some challenges in the industry, such as intense competition that has led to price wars and squeezed margins. According to the CPCA data, for 2023 the overall auto sector saw a revenue increase of 12%, but margins were only at 5%, compared to an overall industrial corporate margin of 5.8%. The auto market margin remains quite low, and based on CADA data, in the first half of 2023, 50.3% of dealers reported losses, which is quite challenging for the fewer stores. Looking ahead to 2024, we are confident that the auto market will remain a key industry for the national economy, supported continuously by the government. At the start of 2024, many local governments have rolled out supportive policies to promote car purchases. For instance, Guangzhou has launched subsidies for car buyers, and Chenzhou has issued consumption coupons for car purchases. This will help stimulate market demand and drive sales in the auto market. According to CPCA, we expect the auto market to stabilize in 2024, providing a solid growth momentum with a projected 3% growth rate. Furthermore, the NUV segment has been rapidly expanding, with its penetration rate climbing from 28% in 2022 to 35% in 2023, and it is anticipated to reach 40% in 2024. With this greater penetration, we are seeing shifts in buyer preferences, and we believe competition in the traditional combustion car market will become even more intense. Many traditional car manufacturers, both domestic and joint venture brands, are working on launching numerous NUV models to penetrate this growing market. This will also encourage OEMs to be more innovative and competitive. Overall, with an increasing number of supportive policies being implemented, we are optimistic that this will further stimulate the market and revitalize consumption. We have strong confidence in the 2024 auto market in China.

Operator, Operator

Thank you for the questions. One moment for the next question. Next questions we have the line from Xiaodan Zhang from CICC. Please go ahead.

Xiaodan Zhang, Analyst

Thank you to management for addressing my questions. I have two inquiries. Firstly, we observed a decline in both gross margin and operating profit margin year-on-year in 2023. What are your expectations for the margin trend in Q1 2024 and beyond? Secondly, could you elaborate on your strategies for enhancing synergies between Autohome and Ping An Group? Thank you.

Craig Yan Zeng, CFO

Thank you for the question. Regarding the gross profit margin, we did observe a slight decline in 2023 compared to 2022. This is partly due to our efforts to create a more diversified content ecosystem, which has increased some costs. To enhance the user experience, we've focused on attracting new customers through promotions and have expanded our offline experience stores for renewable energy vehicles. Additionally, we've provided promotional subsidies and support to dealers, including training and resources to draw local consumers for test drives and boost car sales. In terms of content, we've made significant investments in high-quality materials, including text, images, videos, and live streaming, which also contributes to increased costs. We've intensified our marketing efforts, launching events like the 818 Auto Show, a global auto show, and an online auto show, while also investing in high-quality intellectual property through initiatives like the NEV Breakthrough Plan and NEV Super Test. While the entire industry is facing challenges, Autohome remains stable in terms of profit. By tightly managing our costs and expenses and focusing on long-term efficiency, we believe we can maintain a good balance moving forward.

Tao Wu, CEO

Now, addressing the second question regarding the synergy between Autohome and the Ping An Group, I would like to share some insights. Autohome and the Ping An Group each possess unique characteristics and resources, making our businesses complementary. For instance, Autohome attracts significant traffic, with approximately 70 million daily active users. We provide professional content, tools, and a variety of enhanced services for both consumers and businesses. On the other hand, the Ping An Group has around 60 million car owners among its insurance clients, with a total of about 200 million registered users on their platform. They also offer enriched services and experiences for both consumers and businesses. Regarding service quality, we believe that each company can capitalize on our respective strengths, allowing us to create a seamless online and offline connection. This will enhance the experience for car owners throughout the entire lifecycle of car ownership, from purchasing to post-sales services, ultimately forming a closed-loop ecosystem. With respect to tools, content, and services, we are confident in our ability to create significant synergies. By consolidating resources, we aim to achieve an effect greater than the sum of our parts. Through this partnership, Autohome plans to leverage Ping An Group's resources to boost investment returns, improve efficiency, and move towards our goal of becoming a premier international provider of content, tools, and services, as well as a unified platform for auto purchasing, sales, and service.

Sterling Song, IR Director

Thank you. Operator, please go ahead.

Operator, Operator

Thank you. Your next question comes from the line of Brian Gong from Citi. One moment, please.

Brian Gong, Analyst

I will translate myself. Thanks, management, for taking my question. I have two quick questions. The first one is regarding the rising share from NEV traditional OEMs and their declining scale, which also affects the scale of the dealer store. How does this impact our business, particularly in terms of lead generation? My second question is about the dividends we announced at the end of last year. How should we view our dividend plan moving forward? Thank you.

Tao Wu, CEO

Thank you for the question. Regarding the market, traditional combustion cars continue to dominate sales, with 60% of the market still reliant on these vehicles. In 2023, roughly 336 million combustion cars were sold compared to only about 20 million renewable energy cars. We believe that to effectively serve this core market, a significant number of dealerships and stores will still be necessary. However, as electric vehicle sales increase, we expect to see a gradual reduction in the number of stores and a shift in the dealership model, although this won't happen abruptly. During this transition, we plan to collaborate with dealerships to adapt our business model. In terms of our ecosystem and service system, we are working closely with traditional combustion car dealers to create synergies. Our performance in the NEV car market looks promising, with revenue growth outpacing the market average. NEV OEMs initially took on responsibilities across the entire value chain, which is quite risky. As a result, some have started to shift towards using dealerships and a franchising model, leveraging platforms like Autohome to boost their sales. We are confident about our lead businesses and future growth. We are also adjusting our operations to fit the new market dynamics and are identifying new opportunities. For example, we launched the Autohome Energy Space store to help OEMs enter lower-tier cities and improve their market access. This model promotes better collaboration with NEV brands and is expected to enhance sales significantly, generating additional revenue for Autohome. Regarding our dividend payout plan, Autohome has consistently aimed to provide good returns to shareholders. Prior to 2021, our dividend payout ratio was 20% of net profit. In 2022, our Board restructured the dividend policy and committed to a minimum payout of RMB500 million, which was 28% of that year's net profit. By the end of 2023, we adjusted the payout ratio again, promising approximately RMB1 billion in dividends and a minimum of RMB1.5 billion from 2024 to 2026. In summary, over the past few years, Autohome has consistently improved its dividend payout system, demonstrating strong financial health and a commitment to returning value to shareholders. This is a commitment not commonly seen in the market. We not only enhanced the payout ratio but also increased the total amount paid out. Moving forward, we will closely monitor market trends and provide timely updates to our Board as we strive to deliver better returns to our shareholders.

Sterling Song, IR Director

Thank you, Operator. Our next question comes from the line of Ritchie Sun from HSBC. Please go ahead.

Ritchie Sun, Analyst

Thank you, management, for addressing my questions. I would like to inquire about the Energy Space stores. We plan to open in 30 more cities in 2024. Could management provide insights on the expected revenue contribution in 2024 and the cost allocation for this expansion plan? Thank you.

Tao Wu, CEO

First, thank you for the question. Yes, we established around 20 Autohome Energy Space stores in 2023. In 2024, our goal is to launch 30 new stores in Tier 1, Tier 3, and Tier 4 cities, utilizing a franchising model. Consequently, the cost of opening new stores won't significantly impact our expenses as we offer extensive support functions. This approach helps us maintain steady, healthy, and prudent growth, as we are still in the exploratory phase of this new venture. Regarding revenue, particularly in Q4 of 2023, it surpassed RMB10,000, specifically reaching RMB16 million. We anticipate that as more stores mature in their operations, our retail revenue will increase. However, it is too early for me to provide specific revenue guidance for 2024, but I assure you that we will keep you updated as we generate more revenue in the future.

Sterling Song, IR Director

Thank you. Operator?

Operator, Operator

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

Tao Wu, CEO

Thank you, everyone for joining us today. We appreciate your support and look forward to updating you in our next quarter’s conference call in a few months. In the meantime, if you have any further questions, please feel free to contact us. Thank you. Goodbye.