Earnings Call Transcript - ATHM Q4 2021

Operator, Operator

Ladies and gentlemen, thank you for standing by for Autohome’s Fourth Quarter and Full Year 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. A questions-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, Venus. Hello, everyone, and welcome to Autohome's Fourth Quarter and Full Year 2021 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 have Chairman and Chief Executive Officer, Mr. Quan Long, Co-President, Mr. Haifeng Shao, Chief Technology Officer, Mr. Bibo Xiang, Vice President, Mr. You Zhou; as well as Finance Director, Ms. Hong Jiang. After our prepared remarks, our management team will be available to answer all your questions. Before we begin, 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 Securities and Exchange Commission. Autohome doesn't undertake any obligation to update any forward-looking statements, except as required under applicable law. The earnings press release in this call also includes discussions of certain unaudited non-GAAP financial measures. Our press release contains a reconciliation of the non-GAAP measures to the most directly comparable GAAP measures and is available on Autohome's IR website. As a reminder, this conference is being recorded. In addition, a live and archived webcast of this earnings conference call will also be available on Autohome's IR website. Next, I will now turn the call over to Autohome's Chairman and CEO, Mr. Long. Mr. Long, please go ahead.

Quan Long, Chairman & CEO

Thank you everyone. Hello, and thank you for joining us today for the earnings call. 2021 was another unusual year for all of us. Despite the challenging macro environment, we are incredibly proud of Autohome's resilient performance throughout the year and its ongoing efforts to transform and upgrade its business. We are also proud of the continued recognition we receive from both the industry and our customers, including being listed as one of China's Top 100 Internet Companies for the ninth consecutive year, ranking 20th in 2021. We delivered total revenue of RMB7.24 billion for 2021, with the contribution from new business rising from 23.2% in 2020 to 30.9% of total revenue in 2021, reflecting an 11.6% year-over-year growth in new business revenue. Our adjusted net profit for the year was RMB2.58 billion, with an adjusted net margin of 35.7%. In 2021, we achieved two significant milestones. In mid-March, Autohome was successfully listed on the Hong Kong stock exchange. We are delighted to have reached this milestone and to embark on this new journey to increase Autohome's visibility in Hong Kong's capital market. During our Investor Day in September, we unveiled our ecosystem strategy to enhance Autohome's integration with Ping An's auto ecosystem, enabling our unique suite of full-cycle auto ecosystem services and our leading-edge platform to reach a broader base of individual customers, OEM partners, and other collaborators in the auto space. We maintained our annual dividend payout at around 20% of net income for the year and initiated a USD 200 million share repurchase program to reward our long-term shareholders, representing our commitment to our strategic upgrade and our confidence in future performance. Amid the challenges faced over the past year, we sought new opportunities and explored new areas while maintaining robust momentum in our traditional business and preserving our leadership in the auto media sector. We are actively exploring new business areas to establish a solid foundation for our next growth trajectory. For individual customers, we continue to focus on expanding video content and other engaging offerings aimed at younger users. With a growing, diversified, and high-quality content library, we have continued to increase our user base. In December 2021, Autohome achieved an all-time high mobile Daily Active Users (DAU) of 46.9 million, an 11.4% year-over-year increase, further cementing our industry leadership. Additionally, we formed a strategic alliance with AMAP to broaden the use cases benefiting from our traffic across the ecosystem. In terms of new businesses, our ongoing efforts to engage and collaborate with NEV automakers resulted in significant revenue growth from NEV brands, more than doubling year-over-year. Our digital dealer solutions also continued to see breakthroughs in the adoption of our data products, with an 18% year-over-year increase in the average number of data products used by each dealer. Furthermore, by leveraging our integration with TTP, we strengthened our position in the used car market, contributing to about 17% of all used passenger vehicle trades in China. I will now provide more details in several areas. In terms of traffic, according to QuestMobile, Autohome's mobile DAU reached 46.9 million in December 2021, up 11.4% year-over-year, surpassing the combined total DAU of the second and third largest competitors in the market. Additionally, according to Jiguang Aurora's data, Autohome's app maintained its top position in the auto media sector and retained its status as the preferred platform for users looking to review, buy, and use cars. Notably, 37% of high-end users possess smartphones valued over RMB5,000, significantly higher than the industry average. This valuable user base, with strong purchasing power, has enabled us to generate the most revenue within the auto media vertical. Building on our partnership with AMAP, we plan to introduce new selections and in-store visit patterns while increasing traffic from AMAP's navigation services, thereby establishing a solid foundation for sustainable growth. In terms of content, we are actively creating innovative offerings, including short videos, live streaming, and content for NEV-focused online communities, to enhance our product capabilities and strengthen our content. We are prioritizing the creation of blockbuster content and IP to boost user engagement and retention, aiming to become the leading auto vertical video platform and the largest online auto vertical live streaming platform. Autohome pioneered the Global 818 Super Auto Show, now a well-known auto IP that has successfully run for three consecutive years, garnering nationwide attention. During the 2021 Global 818 Super Auto Show, we recorded over 500 million visits, drove more than 90 million interactions, and generated over 15.5 billion search results. This event showcased our ability to connect users, OEMs, and dealers, highlighting our influence on the industry while promoting its development. At the November 2021 Guangzhou Auto Show, Autohome innovated live streaming experiences that enhanced online shopping immersion. Our KOL and dealer live streaming reached an average of 500 broadcasts per day, leading to improved dealer conversion rates and total views hitting 700 million, boosted by increased user interaction. Besides the Guangzhou Auto Show, we organized Power Fest 2021 to create networking opportunities for auto enthusiasts and a competition for young innovators, raising Autohome's brand visibility among younger generations with a collective exposure exceeding 100 million. Furthermore, we developed the largest online auto owners' manual library, as well as libraries for motorcycle models and auto modifications, improving user experience with robust 3D modification tools. Despite the setbacks caused by the chip shortage and rising raw material costs impacting the auto industry and reducing manufacturers' marketing budgets, Autohome's traditional business remains stable and retains its position as the number one player in the auto media space. Additionally, we introduced an innovative resource-to-solution model, empowering OEMs with integrated solutions. The expansion of our new business effectively alleviated downward pressure on our traditional business during these challenging times. In our lead generation business, we have met our dealer-customers' needs through product upgrades and differentiation. The renewal rates for our annual leads subscription package exceeded expectations, achieving an 88% renewal rate for our premium and tech versions. According to Analysis China, in 2021, Autohome was a leader in the industry regarding both sales leads volume and connection rates. We continue to strive to support automakers' digital transformation through our AI and 3D applications. We have launched new data products, such as Private Domain Operations and VI Sales Packages. For dealer digitalization, we launched SiNan and Smart QC to help dealers visually manage performance. In 2021, the average number of digital products purchased by each dealer customer rose 18% year-on-year to 3.59. In line with the rapid growth in the NEV market, we upgraded our NEV commerce services to provide a comprehensive solution for NEV companies covering branding to advertisement tracking. Our NEV commerce service helps them improve brand visibility and sales growth. Autohome collaborated with 22 mainstream NEV brands in 2021, resulting in a 128% year-on-year increase in revenue from NEV business and capturing a 60% market share in the media vertical among mainstream emerging NEV players. Going forward, we will continue to expand our NEV initiatives through content upgrades, innovative channels, and user engagement to build the largest online media vertical and trading platform for NEVs. For our used car business, Mr. Haifeng Shao, Autohome's president, has assumed the role of Chairman of TTP. We have further developed our business by deepening synergies with TTP, creating an integrated platform that connects information, operations, and trades. Our used car business emphasizes an asset-light and platform-focused strategy, leading to continuous improvement in TTP's financial performance. We have built an extensive database of car usage history for buyers and sellers, achieving 98% coverage in car insurance history and 80% in maintenance history, establishing us as the industry leader and allowing us to effectively address buyers' concerns during used car purchases. Additionally, Smart Invitation products empower dealers to enhance lead quality and improve transaction efficiency. Moving forward, Autohome's used car business will pursue a comprehensive sector strategy by digitizing used car information and dealer operations. We aim to consolidate our leadership as China's largest online used car trading platform, ensuring a standardized merchandise and transparent process. We will fully integrate into the Ping An auto ecosystem and leverage its advantages to create our unique presence within the auto industry. With broader and deeper collaborations, we'll benefit from Ping An's large offline team, providing us with unique advantages compared to other internet companies. By connecting with Ping An's substantial high-value customer base and over 140 million car owners, our partnership aims to establish the industry's first complete automotive ecosystem. The year 2022 is likely to present both opportunities and new challenges. Looking ahead, as we continue to uphold our value proposition and vigorously promote our ecosystem strategic transformation, we are dedicated to our mission of empowering customers with top-quality products and services, aiming for long-term sustainable growth. Simultaneously, we'll promote the comprehensive implementation of strategic upgrades through new business investments, positioning Autohome for rapid growth. We remain fully confident in the long-term development of China's auto market and Autohome's ongoing growth in the future.

Hong Jiang, Finance Director

Thank you, Mr. Long. Now, let me walk you through the key financials for the fourth quarter and the full year 2021. Please note that, as with prior calls, I will reference RMB only in my discussion today unless otherwise stated. Net revenues for the fourth quarter were RMB1.69 billion. For a detailed breakdown, media services revenue came in at RMB373 million, leads generation services revenues were RMB778 million, and online marketplace and others revenues were RMB543 million. Moving on to costs. Cost of revenues was RMB262 million, compared to RMB268 million in the fourth quarter of 2020. Gross margin was 85% in the fourth quarter compared to 89% in the same period of 2020. Turning to operating expenses, S&M expenses in the fourth quarter were RMB803 million, compared to RMB871 million a year ago. The decrease was primarily due to the decrease in promotional spending and continuous budget control. Product and development expenses were RMB395 million, compared to RMB397 million in the fourth quarter of 2020. Finally, G&A expenses were RMB128 million, compared to RMB71 million in the fourth quarter of 2020. The increase was primarily due to the consolidation of TTP. Overall, we delivered an operating profit of RMB177 million for the fourth quarter, compared with RMB947 million in the corresponding period of 2020. Adjusted net income attributable to Autohome Inc. was RMB470 million for the fourth quarter, compared to RMB1,192 million in the corresponding period of 2020. Non-GAAP basic and diluted earnings per share for the fourth quarter was RMB0.93 and RMB0.93, respectively, compared to RMB2.49 and RMB2.48, respectively, in the corresponding period of 2020. Non-GAAP basic and diluted earnings per ADS for the fourth quarter was RMB3.71 and RMB3.71, respectively, compared to RMB9.95 and RMB9.91, respectively, in the corresponding period of 2020. Now let me turn to a short summary of our 2021 full-year results. Total revenues were RMB7.24 billion. Of that, media services revenues were RMB2.01 billion, leads generation services revenues were RMB2.99 billion, and online marketplace and others revenues increased by 11.6% year-on-year to RMB2.24 billion, primarily attributable to the consolidation of TTP. In addition, we delivered an adjusted net income attributable to Autohome Inc. of RMB2.58 billion, which excluded certain non-cash charges or non-operating items. As of December 31, 2021, our balance sheet remained very strong with cash, cash equivalents and short-term investments of RMB20.73 billion. We generated operating cash flow of RMB3.52 billion in 2021. On November 18, 2021, our Board of Directors had authorized a share repurchase program under which we may repurchase up to USD 200 million of Autohome's ADSs for a period not to exceed 12 months thereafter. As of February 22, 2022, we had repurchased 432,653 ADSs for a total cost of approximately USD 12.7 million. I'm also pleased to announce that our Board has approved a cash dividend of approximately USD 0.53 per ADS, or USD 0.1325 per ordinary share. Following this dividend payment, we still have ample capital resources to invest in our business and further strengthen our leadership position going forward. With that, we are ready to take your questions. Operator, please open the line for Q&A.

Operator, Operator

We will now start the question-and-answer session. Our first question comes from Mr. Thomas Chong from Jefferies. Please proceed.

Thomas Chong, Analyst

Thank you for taking my question. I have a question on our view on the auto industry outlook in the coming quarters and the competitive landscape?

Quan Long, Chairman & CEO

Thank you very much. I'm glad to take the question. I'm the chairman and the CEO. My name is Long Quan. According to statistics from the Passenger Car Association, in January of 2022, the Chinese auto market is expected to grow by about 5%. Nevertheless, sales of new electric vehicles are projected to exceed 5.5 million, achieving a market penetration rate of 25%. The sales growth rate for NEVs in the Chinese market is anticipated to be around 70%. Now, let me discuss Autohome. We have two main areas of business: the traditional and the new business. Focusing on the traditional business, with the recovery of the Chinese auto market, we believe our traditional business will return to a normal trajectory. Last year, the Chinese auto market experienced a significant decline, which adversely affected our traditional business. Nonetheless, I want to emphasize that we remain the leader in the auto vertical media market. Now, turning to the new business, we have three major pillars. The first is digitalized products; we believe in 2022, revenue from this segment will significantly increase its contribution to total revenue. The second pillar is NEVs; we are collaborating with all NEV brands in China, which will continue to grow and add to total revenue. The third area is used cars; as you know, Mr. Haifeng Shao has been appointed as Chairman of the TTP, and he will enhance the strategic collaboration between TTP and Autohome, further driving revenue growth.

Operator, Operator

Thank you. Our next question comes from Ritchie Sun from HSBC. Please go ahead.

Ritchie Sun, Analyst

Let me translate the questions myself. Thank you very much for taking my questions. Two questions: first is about 2022, your view on the used car market outlook? Second, what is our used car business goal or priority in 2022? Is it about profitability or top line? Thank you.

Quan Long, Chairman & CEO

Thank you for the question. We believe the used car market will continue to grow, and we expect it to maintain a 20% growth rate in 2022. This market has unique characteristics, notably that it is price segmented and consists of many small players, with no dominant leader. Additionally, trust issues between auto sellers and buyers create significant challenges. For our used car business and TTP, we have a solid strategy. Our goals are: first, to grow our revenue faster than the market average; second, to reach breakeven; and third, to increase the volume of used car transactions to boost revenue. Moreover, we plan to enhance the digital aspects of our used car segment, which will be recognized by dealers and contribute to revenue growth.

Operator, Operator

Thank you. Our next question comes from an unidentified analyst. Please go ahead.

Unidentified Analyst, Analyst

Thanks for taking my question. We can see some pressure on the operating margin this quarter. I'm wondering if we still have some ongoing investments in the digital transformation, or if we are considering some cost controls in the future? And when do we expect the operating margin to improve? Thank you.

Hong Jiang, Finance Director

Thank you. Regarding the 2022 outlook for the auto market in China, we anticipate a recovery in the traditional auto market, which would be beneficial for our core business. On the business-to-business side, we plan to enhance efficiency and reduce operating costs to improve cost effectiveness. Additionally, we will allocate more resources toward innovative new business initiatives, particularly in the development of new business models and research and development for the B2B segment. For the consumer side, we aim to introduce more innovative products, such as live streaming and new energy vehicles. We intend to create a dedicated area for new energy vehicles to attract younger consumers and generate new traffic. We will focus on increasing customer engagement and user operations to draw in more young users. With increased investments in sales, marketing, and R&D, we are committed to ensuring the efficiency of our investments, which will not adversely impact our operating margin. We believe that with the recovery of the Chinese auto market in 2022, our margin is also poised to improve.

Quan Long, Chairman & CEO

Now I want to focus on the NEV. The sales have already established a strong momentum, which is quite positive, because in 2021, the sales growth was about 160%. In January, the growth also exceeded 100%. We expect NEVs to continue experiencing robust growth in 2022, as our Chairman mentioned earlier, this segment will already account for 25% of the total passenger car market in China.

Sterling Song, IR Director

Operator?

Operator, Operator

Thank you. There are no further questions at this time.

Sterling Song, IR Director

Operator, let's continue.

Operator, Operator

Sorry. There are no further questions at this time.

Sterling Song, IR Director

Okay. Can you see if there are no follow-up questions…

Unidentified Analyst, Analyst

Yes, if nobody has more questions. I have a follow-up question on the dealers' leads. Is there any update on the leads of the dealers? Thank you for providing some more insight on this.

Haifeng Shao, Co-President

Thank you. Regarding the dealer leads product, particularly our lead management services, we have maintained our relationship with the dealers. In 2021, we implemented a strategy where the price for the ordinary version stays the same, while the VIP version saw a 20% increase. We focus on adding value for the dealers in the NEV business, helping them improve their operational efficiency. We also offer a range of operational toolkits for the dealers. As our Chairman mentioned, we strive to differentiate ourselves in the market. We keep the price of the ordinary version stable to ensure widespread dealer coverage, while capable dealers can choose the VIP version, which is priced 20% higher but offers more value. We have organized numerous campaigns and activities to support the dealers and improve their operations. Our renewal rate for 2021 was very positive, surpassing expectations, with an 80% coverage rate during the renewal phase. In summary, I would like to emphasize that we anticipate strengthening our competitive position among the three major players in 2022.

Sterling Song, IR Director

Thank you. Operator?

Operator, Operator

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

Quan Long, Chairman & CEO

Thank you very much for joining us today. We appreciate your support and look forward to providing updates on 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, everyone. Goodbye.

Operator, Operator

This concludes the conference call. You may now disconnect your lines. Thank you.