Earnings Call Transcript - ATHM Q4 2020

Operator, Operator

Ladies and gentlemen, thank you for standing by for Autohome's Fourth Quarter and the Full Year 2020 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. It is now my pleasure to introduce your host, Anita Chen, Autohome’s IR Director. Ms. Chen, you may begin.

Anita Chen, IR Director

Thank you, operator. Hello everyone and welcome to Autohome's fourth quarter and full year 2020 earnings conference call. Earlier today, Autohome distributed its earnings press release and you may find a copy on the company's website. On today's call we have Chairman and CEO, Mr. Quan Long; Co-President, Mr. Haifeng Shao; Co-President, Mr. Jingyu Zhang; and CFO Mr. Jun Zou. After the prepared remarks Mr. Long, Mr. Shao, Mr. Zhang and Mr. Zou will be available to answer 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 does not undertake any obligation to update any forward-looking statements, except as required under applicable law. The earnings press release in this call also includes discussion of current 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. I will now turn the call over to Autohome’s Chairman and CEO, Mr. Long.

Quan Long, Chairman and CEO

Thank you, Anita. Hello everyone and thank you for joining us today. Before we start discussing our results, on behalf of everyone at Autohome, I would like to express my sincerest gratitude to Mr. Min Lu, our previous Chairman for his extraordinary contributions over the past several years. I would also like to take this opportunity to thank shareholders for your continued support. And I look forward to working closely with you as we move ahead. I'm very honored to be joining Autohome and to be working with such a talented and passionate team. It is by far the most well-known automobile media brand in China serving the largest number of automobile user communities in the industry. Even further, this company has a healthy business model, solid fundamentals and always stands at the forefront of innovation in the digital automotive industry. I'm also very encouraged by Autohome's strategic initiatives in the new car and used car area, which I believe will be a huge benefit for our long-term development. Prior to joining Autohome, I served in various roles at Ping An Property & Casualty Insurance Company for over 20 years. Ping An Property & Casualty is one of the leading automotive-related insurance providers in China. Through my time there, I gained a comprehensive understanding of the automotive industry. In addition, my experience with Lufax Holding and the Ant Group gives me tremendous practical exposure to the integration of online and offline business models, which will be invaluable for me at Autohome. In summary looking ahead, I'm confident that with my experience and what Autohome has already established, we can take Autohome to the next level of success. Before our CFO, Jun, provides more details of our business, let me delve into high-level key financials and provide some color on some of our strategic business. Total revenues for the year reached RMB8.66 billion, an increase of 2.8% year-over-year, once again, outperforming the new car market in China. During the year revenue from our online marketplace and others increased by 34.4% year-over-year and contributed to 23.2% of total revenues. Notably, data products delivered robust year-over-year growth of 70%. Adjusted net income for the year continued to expand and increased by 6.2% year-over-year. As is well-documented, China's auto industry was heavily hit by the COVID-19 pandemic in early 2020, yet began to gradually recover during the year. The sector saw a significant increase in demand for digital transformation along with the continuous value migration from offline to online across the industry. As a leading platform, we further leveraged our strength and established a comprehensive matrix of data products and solutions ranging from R&D sales and marketing to aftersales. This has demonstrated our ability to empower the digital development of automakers and dealers throughout the value chain. With this proven ability, we once again were able to outperform the market with steady growth even when China's total new passenger vehicle sales fell 6% during 2020. In regards to our used car business, our annual investment in TTP Car Inc. marks an important milestone for Autohome's development in this area. Autohome, in combination with TTP, has become a leading player in China's used car market. Bolstered by Autohome's strong online platform, TTP is able to expand access to a wider upstream supply of used cars, while facilitating connections among users, automakers, and dealers to improve transaction efficiency. Leveraging the transaction business, we are able to further develop our auto financing operations and expand our service capability. Despite the decline in China's used car transactions in 2020, the transaction volume of TTP still achieved year-over-year growth. As the used car market in China further develops, we believe that our used car platform will be readily equipped to capture market share and be another contributor to our overall growth. Looking back at 2020, we rolled out a set of favorable practices to support our automakers and dealer partners. During this unprecedented and difficult COVID-19 period, as we move ahead, we will continue to work closely and serve these partners by leveraging our extensive industry know-how while adding more value in their digital transformation. With that, I will now turn the call over to our CFO, Jun, for more business details and a closer look at our fourth quarter and full year financial results as well as the business outlook for the first quarter of 2021.

Jun Zou, CFO

Thank you, Quan. To start, let me go through some of our key businesses first. In December 2020, the number of average DAUs who accessed our mobile websites, primary app, and mini apps grew further to 42.1 million, representing an increase of 14.4% compared to last year. On the content front, we continue to make progress in enhancing the user experience by providing expanded content offerings and optimizing useful tools. For example, we're encouraged to see the light version of the Autohome application has started to gain recognition in lower-tier cities with a market appeal to a younger demographic. During the year, we also delivered 15 total road trip activities helping auto brands attract users. In 2020, the cumulative GMV for the road trip businesses grew to about five times that of 2019. In terms of data products, in 2020, a total of 45 automakers engaged with our data products and the total number of programs for Intelligent New Car Launch and Intelligent Marketing Solutions more than doubled compared to 2019. In the fourth quarter of 2020, over 17,000 dealers purchased our data products. For auto financing business, our total GMV for consumer loans increased by 20% on a year-over-year basis in 2020. Now I will walk you through the key financials for the fourth quarter of 2020. Please note that as with prior calls, I will reference RMB only in my discussion today unless otherwise restated. Now net revenues for the fourth quarter were RMB2.48 billion, a 6.6% increase compared to the corresponding period of the previous year. For a detailed breakdown, media services revenue was RMB1.03 billion, lead generation services revenue was up to RMB847 million and online marketplaces and others revenue increased by 35.5% on a year-over-year basis to RMB607 million, primarily driven by the growth of our data products. Now moving to costs. The cost of revenues was RMB268 million compared to RMB265 million in Q4 of 2019. Gross margin remained stable at 89% in the fourth quarter. Turning to operating expenses. Sales and marketing expenses in the fourth quarter were RMB871 million compared to RMB735 million in Q4 of 2019. P&D expenses were RMB397 million compared to RMB300 million in Q4 of 2019. Finally, G&A expenses were RMB71 million compared to RMB60 million in the fourth quarter of 2019. Overall, we delivered an operating profit of RMB947 million for the fourth quarter compared to RMB1.1 billion in the corresponding period of the previous year. Adjusted net income attributed to Autohome Inc. was RMB1.19 billion for the fourth quarter compared to RMB1.15 billion in the corresponding period of 2019. The non-GAAP basic and diluted earnings per share or per ADS for the fourth quarter were RMB9.95 and RMB9.91 respectively compared to RMB9.67 and RMB9.62 respectively in the corresponding period of 2019. Now let me turn to a short summary of our 2020 full year results. We continue to drive growth in total revenues, which increased by 2.8% year-over-year to RMB8.66 billion. Media services revenue was RMB3.46 billion. Lead generation services revenue was RMB3.2 billion. Online marketplace and others revenue increased by 34.4% year-over-year to RMB2 billion primarily attributable to the increased contribution from our data products service line. In addition, we delivered an adjusted net income of RMB3.62 billion, representing a 6.2% year-over-year growth. As of December 31, 2020, our balance sheet remained very strong with cash, cash equivalents and short-term investments of RMB14.63 billion. We generated operating cash flow of RMB3.33 billion in 2020. I'm pleased to announce that our Board of Directors has approved a cash dividend of approximately US$0.87 per ADS or US$0.2175 per ordinary share after reflecting the proposed four-for-one share split. Following this dividend payment, we still have ample capital resources to invest in our businesses and further strengthen our relationship position going forward. Let me now address our first-quarter 2021 outlook which reflects our current and preliminary view on the market and operating conditions and may be subject to changes. At this point, we expect to generate net revenues in the range of RMB1.81 billion to RMB1.84 billion. The revenue guidance includes approximately RMB100 million impact from the consolidation of TTP Inc. for the first quarter of 2021, which was acquired at the end of December 2020, and the operating results of which will be fully included in the company's consolidated financial statement for the fourth quarter of 2021. In conclusion, as mentioned earlier, but important to reiterate, despite the challenging automobile sales, our efforts throughout 2020 to develop new initiatives enabled us to achieve another solid year. Our data products continue to lead our overall growth, driven by high data product adoptions. In addition, the expanded adjusted income also reflected our enhanced operating efficiency. Looking ahead, we'll continue to invest strategically in our ecosystem to remain at the forefront of innovation in the digital automotive space while maintaining a disciplined cost structure in our core business. With that, we are ready to take your questions. Operator, please open the line for Q&A.

Operator, Operator

The first question is from Eddy Wang at Morgan Stanley. Please go ahead.

Eddy Wang, Analyst

Hello. Thank you for taking my question. My question is about the guidance for the first quarter. Your guidance actually is around 17% to 19% year-over-year growth. If stripping out the consolidation of TTP Car, we still have low-teen growth for the first quarter revenue. So we know that the OEMs are starting to do the annual budget around Chinese New Year. I just wonder if you have some initial color from the OEMs in terms of the budget this year, which is a little bit better than expected or it is because that we have very strong growth momentum of data products, especially given that in the fourth quarter, data products growth is over 80% year-over-year. Thank you.

Haifeng Shao, Co-President

Thank you for the question. I would like to take this question first then Mr. Jun may have some add-on opinions. First of all, let me comment on the market. According to the association, in 2021, the total sales in the auto market are expected to grow between 7% to 9%. For the automakers, their budget usually would grow together with their sales. That’s why we foresee they would have a higher budget if the sales are growing. Compared to 2020, we will see new models released to the market. In 2020, due to the negative impact of the COVID-19, there were some delays in the launch of new car models and some chose to launch online. We foresee new car launching will happen in 2021. There are some not-so-positive news, as we see some outbreaks of the epidemic in some local regions in 2021. However, this is only local and regional. As to how much that would affect the automakers, we are still under estimation and investigation and survey. It is still too early to make any further predictions. Thank you.

Jun Zou, CFO

Yes. Just to add to Mr. Shao's comment, our traditional businesses will return to positive territory, but at least in the first half, our primary growth drivers will still be our data business and our used car businesses. Thank you Eddy. That's our answer.

Operator, Operator

Thank you. Our next question is from Miranda Zhuang at Bank of America Securities. Please go ahead.

Miranda Zhuang, Analyst

Thank you. My question is about the used car business. Can management elaborate more about how you will integrate TTP with your existing business? What's your new business plan for your overall used car business? It would also be helpful if you could share TTP's operating metrics such as transactional volume, market share and their trends. Lastly, could you comment on how the consolidation of TTP could potentially impact revenue and profitability in 2021? Thanks.

Haifeng Shao, Co-President

Thank you for the question. I would like to join Mr. Zou to answer this question, especially related to the integration and planning of the used car platform business. After we acquired shares of TTP, we continued our Autohome used car strategy. To summarize, we are adopting a light asset model and making it a platform. We are using dual cloud to serve our customers. We also want to connect the full value chain and create a closed loop of C2B and B2C. We are dedicated to bringing this platform as the biggest used car online transactional platform. In this regard, we have brought the most critical part, which is the transactional part, into this whole loop. For TTP, in terms of transactional volume in the C2B model, it is already the largest in China. Despite a challenging home market in 2020, TTP, on the contrary, is growing its business. Our next step would be to join hands together with Ping An Bank and Ping An P&C. We want to create synergies and help to optimize costs and enhance inventory handling. In this way, we can create more value.

Jun Zou, CFO

To add on what Mr. Shao said, we also narrowed our losses last year, despite a declining used car market. They are expected to break even sometime in the second half of this year. They will have a minor impact on our bottom line, but the contribution to our top line will definitely be positive. All used car online platforms have seen a decline in sales volume and revenue last year in China, except for TTP. They were already the largest online transaction platform in the Chinese used car market last year. Thank you. That's our answer.

Operator, Operator

Our next question is from Thomas Chong at Jefferies. Please go ahead.

Mavis Lam, Analyst

Thank you. This is Mavis asking on behalf of Thomas. I'm not sure if you can comment about our data product strategy in 2021. Can you also comment about the online advertising outlook this year on the back of the recent outbreak of COVID? Thank you.

Jingyu Zhang, Co-President

Thank you. I would like to take the data product question. If you look at 2020, our year-over-year data product growth was 70% and we had 45 clients. In 2019, this number was only 36, meaning we added nine new customers in 2020. In terms of intelligent new car launch and intelligent marketing solutions, we doubled the number. For the smart series offerings to dealers, we already have business relations with more than 17,000 dealers. For 2021, we already have some new products planned, and we will continue to serve the OEMs and dealers and further expand our market share. We are also going to enhance our R&D side solutions. In this way, we are going to add new products in 2021 and launch the industrial Internet network, building a comprehensive business model.

Haifeng Shao, Co-President

Now, I want to take your second question. In terms of 2021, there is some bouncing back after COVID-19 in certain regions. The situation is different from 2020. In 2021, only one or two regions have outbreaks which are local and regional. The state government has taken strict anti-epidemic measures to control it. Thus, we observe that only one or two regions may see a decline in sales. Regarding the OEM budgeting, during the epidemic, a lot of our expenditures transformed from offline to online, concentrating more on top players. Moreover, the overall expenditure on the budget will correspond with sales growth. If the sales grow, then the budget will also grow. If the epidemic only occurs in some local areas, it will only impact sales in those regions. How it will affect overall online advertising budgets remains too early to determine. Thank you.

Operator, Operator

Our next question is from Liping Zhao. Please go ahead.

Liping Zhao, Analyst

Thanks for taking my questions. I have two questions here. The first is related to the TTP consolidation. Can management share the growth expectation of TTP for the next two to three years and the key growth drivers behind it? My second question is about new clean energy cars, as we see many new OEMs appear in the market. What will be the impact on Autohome's business operations? Thank you.

Jun Zou, CFO

Hi. I will take the first half of your question, and Mr. Shao will address the other half. TTP's growth drivers are several. The primary driver will be the growing used car market in China, which we believe will grow much faster than the new car market. They are the largest online transaction platform already, not just the auction platform in China. With our help providing them with leads and financing from Ping An, they are expected to grow their online C2B and B2B auction and provide value-adding services to sellers, buyers of used cars, dealers, and other players in the value chain. The integration has gone smoothly. We remain optimistic about a winner-take-all scenario in the online used car sector for TTP together with us.

Haifeng Shao, Co-President

I would like to take your second question related to renewable energy cars. We have strong collaboration with the new players in the renewable car business. We have entered this sector early and planned well in terms of content, channels, and business models. We adopted innovative models that differ from our collaboration with traditional OEMs. Regarding our collaboration with EV car OEMs, we help them select the most suitable EV car for consumers. We also provide a comprehensive, one-stop solution to the EV car OEMs. If you look at total EV car sales in the Chinese market, it only accounts for 5% of the total. In Autohome, our EV business already exceeds 5% of our revenue.

Operator, Operator

Our next question is from Brian Gong at Citigroup. Please go ahead.

Brian Gong, Analyst

Thanks management for taking my question. Congratulations on the solid results, especially for data products. Given our penetration on the OEM side further increases and our base further enlarges, may I know what's the management view on the growth rate for data products for 2021? Any new data products this year? I remember management mentioned that the SaaS segment for OEM and dealers is going to be over RMB20 billion in 2025. Do we have any internal target or plan for market share for Autohome by 2025? Thank you.

Jingyu Zhang, Co-President

Thank you for the question. Talking about the data products, in addition to intelligent marketing solutions, we are going to enhance our market share. We’ll also launch new products that cover non-marketing solutions, especially for the digitalization part and R&D side for OEMs. This will be an incremental new part of our business and help us establish a strong blueprint for the next few years. We aim to capture more market share in the digitalization process.

Jun Zou, CFO

To answer your second part of the question, despite the high growth seen in 2020 for our data products, the overall market is expansive as you mentioned, with many car models for us to help with intelligent new car launches or intelligent marketing. We plan to roll out more services to dealers this year. We believe that in the mid-to-long term, the only ceiling to our growth in that sector is probably our ambition. That’s our answer. Thank you.

Operator, Operator

Our next question is from Ritchie Sun at HSBC. Please go ahead.

Ritchie Sun, Analyst

Thank you management for taking my questions. My first question is about the user growth strategy. We saw 4Q had strong user growth, with teen-level growth again. I wonder what the sales and marketing spending will be to drive user growth in 2020. What will be the strategy and areas of spending? My second question is about the negotiation of the lead generation product price model with the dealers. What is the latest update on that? Thank you.

Haifeng Shao, Co-President

Thank you for the question. Regarding our DAU, we expect it to continue to grow in 2021. We have three features summarizing our DAU growth: firstly, more video-based content, secondly, targeting a younger generation, and thirdly, focusing on granular levels in lower-tier cities and markets. Now on the lead generation product pricing, in our last quarter's report, we stated that 30% of OEMs and dealers already accepted the floating pricing model. This year, we have two strategies: firstly, for dealers who accepted the floating pricing model, we will offer them better service and incremental leads. Secondly, we are going to expand the coverage of this pricing model, offering more opportunities for those dealers who haven't signed agreements with us. We will provide them with more choices and deluxe services. For dealers who have already accepted the floating pricing model, we will offer them better and more incremental services.

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 and CEO

Thank you very much for joining us today. We appreciate your support and we look forward to updating you on our next quarter's conference call in a few months' time. In the meantime, please feel free to get in touch with us if you have any further questions or comments. Thank you.