Autohome - Q3 2024

Transcript

Operator (participant)

Ladies and gentlemen, thank you for standing by for Autohome's third quarter 2024 earnings conference call. At this time, all participants are in 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 this earnings conference call will also be available on Autohome's IR website. It is now my pleasure to introduce your host, Sterling Song, Autohome's IR Director. Mr. Song, please go ahead.

Sterling Song (Director of Investor Relations)

And on the company's website at ir.autohome.com.cn. Joining me today after this call are Chief Executive Officer Mr. Tao Wu and Chief Financial Officer Mr. Craig Yan Zeng. Management, please 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 know that the discussion today will contain forward-looking statements made under the Safe Harbor Provision 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 know that Autohome's earnings press release and this conference call include discussion of certain unaudited non-GAAP financial measures. A reconciliation of the non-GAAP measure to the most directly comparable GAAP measures can be found in our earnings release today. I will now turn the call over to Autohome CEO Mr. Wu for the opening remarks. Please go ahead, Mr. Wu.

Tao Wu (CEO)

[Foreign language].

Thank you, Sterling. Hello everyone. This is Tao Wu, CEO of Autohome, and thank you for joining our earnings conference call today.

[Foreign language].

In the third quarter, we continued to advance our integrated online to offline ecosystem strategy, focusing on deepening engagement across the entire value chain while further optimizing our business structure.

[Foreign language].

On the online front, we are leveraging our new professional content and product mix to strengthen our differentiated competitive advantages, which has led to a steady increase in our traffic scale. In September, our average mobile DAU increased 5.6% year over year to exceed 70 million for the first time, underscoring our expanding influence among users. In terms of our offline offering, we are focused on low-tier markets with the deployment of initiatives like the 100 Cities Trade-in for New.

In the first three months of this year, we successfully organized over 500 offline auto shows, providing consumers in these regions with a seamless one-stop service experience that spans from car selection, viewing, and test driving to purchase, making the process more convenient than ever. Additionally, by leveraging the products and services available through our franchise stores, we are able to offer comprehensive and integrated online to offline solutions that further optimize our customers' business operations.

Driven by robust growth in our new retail business, revenues from online marketplace and others increased 3.1% year over year during the third quarter.

[Foreign language].

Notably, we significantly accelerated the expansion of our new retail business into lower-tier cities this quarter. To date, we have a nationwide network of more than 50 stores with Autohome Space stores in mid- to high-tier cities and Satellite Stores in mid- to lower-tier cities.

The expansion and growing scale of our channels not only demonstrates the adaptability of our business model across a wider range of cities, but also lays the foundation for the integration of our platform capabilities, enables collaboration with partners along the industry value chain, and allows us to explore and develop additional initiative business models in the future. In terms of digitalization, we are leveraging our combined capabilities in data, technology, and platforms to continuously enhance the coverage of our digital products.

Additionally, we have expanded the application of artificial intelligence technology across various products to enhance the quality and efficiency of our customers' operations. Furthermore, our cooperation with Ping An Group has hit new heights with the introduction of a series of innovative products and services across our traditional businesses, as well as data products, used cars, and aftermarket sectors, further strengthening our unique competitive advantages in these areas.

[Foreign language].

Looking to the future, we will further strengthen our local presence in lower-tier markets to enhance our brand influence while adapting to evolving market dynamics. Our commitment to driving product innovation and broadening our business horizons remains firm as we contribute to the industry's development. At the same time, we will fully leverage Ping An Group's offline resources and aftermarket service capabilities to amplify synergy and solidify our differentiated competitive advantages.

We are confident that these initiatives will enable us to create greater value for the industry and support our long-term sustainable development.

[Foreign language].

With that, I will now turn the call over to our CFO, Craig Zeng, for a closer look at the third quarter 2024 operating and financial results.

Craig Yan Zeng (CFO)

[Foreign language].

Thank you, Mr. Wu. Hello everyone. I'm Craig Zeng, the CFO of Autohome.

[Foreign language].

In the third quarter, we continue to enhance our content and tools by successfully introducing the Autohome Plus content matrix and the Real Scenario Intelligent Evaluation System to create a rich array of high-quality content. Additionally, we launched an industry-leading scenario-based vehicle model library that integrates real-life car usage scenarios, providing users with a more relevant and practical guide for vehicle selection.

[Foreign language].

Specifically, our original content matrix now covers more than 13 programs, covering four key segments, including new cars, car evaluations, car culture, and the auto industry. We offer authentic and practical information to users through live streaming and videos, addressing a wide range of challenges they encounter throughout the entire lifecycle of a car ownership. Our intelligent evaluation system focuses on core product features such as advanced driver assistance and smart cockpits, combining professional evaluation capabilities with users' real-life scenarios.

Through professional field tests, multidimensional vehicle reviews and comparisons, and live streaming of technical insights, we deliver the most practical and relevant smart evaluation results to our users.

[Foreign language].

On tools, our scenario-based image library covers three core car viewing scenarios: nighttime, spatial, and intelligent car viewing. This innovative tool provides users with an intuitive understanding of a vehicle's authentic functionality and smart capabilities, significantly improving the efficiency and convenience of the car selection process. We also upgraded our benefit platform to aggregate various policies, subsidies, and other promotional information in real time, providing users with a one-stop information platform to automatically match and calculate discounts. Additionally, leveraging our upgraded algorithms and the user and vehicle data we have mined, we've deployed tools such as AIGC and chatbots across multiple scenarios, including search, live streaming, and instant messaging. QuestMobile data shows, Autohome September mobile DAU reached 72.87 million, up 5.6% from the same period in 2023, proving our leading position in the automotive vertical field.

This deepens interaction with users, increases the speed and accuracy of response, and improves the overall user experience. According to QuestMobile, the number of our average mobile DAUs grew by 5.6% year over year, reaching 72.87 million in September, demonstrating our leading position in the automotive media vertical.

[Foreign Language].

Turning to NEV, our satellite plan was widely implemented in the third quarter. To date, we've established over 50 franchise Autohome Space stores and Satellite stores across China, marking the initial scaling of our expansion into lower-tier cities. The seamless collaboration between Autohome Space and Satellite stores has facilitated the creation of an efficient network channel. This collaboration encourages resource sharing and offers complementary advantages, providing NEV manufacturers with channel support in cities where they don't have a presence.

The ongoing expansion of our offline service network enables us to provide business and customers with localized and integrated online and offline solutions, while also tapping into and collecting consumer needs in the mid-to-lower-tier cities. Going forward, we will further explore the potential of the regional Satellite Stores, leveraging our platform advantages to integrate resources throughout the industry value chain and pursue even more innovative business models.

[Foreign Language].

In addition, we also leverage Ping An's unique resources to pilot financial insurance services in these stores. This expands the financial product offerings available through Autohome Space stores. It broadens our service scope and diversifies revenue streams. For instance, we integrated Ping An's car owner service capabilities to launch a unique industry offering Price Guarantee Heartfelt Benefits Package which provides purchase protection and healthcare for consumers who purchase cars through our franchise stores.

We are pleased to see revenues from NEV brands continue to grow and consistently outpace the industry sales growth rates during the third quarter, increasing 54% compared to the same period last year.

[Foreign language].

On the digital front, we combine Ping An Group's strengths in after-sales scenarios and offline service capabilities during the third quarter to launch an outbound call platform and maintenance assistance for after-sales services, as well as digital services for vehicle trade-in. The former enables maintenance facilities to reduce customer acquisition costs and improve invitation and return visit efficiency, while the latter utilizes Ping An's offline team to provide one-on-one consulting services to customers for trade-in vehicles across multiple scenarios. This effectively improves transaction conversion rates and has generated positive feedback from the market. During the first nine months of this year, Autohome's overall data products revenue increased by 8% year over year.

[Foreign language].

For used car business, we've effectively integrated the resources of Autohome and Ping An Group to strengthen the synergy with TTP. For example, leveraging our franchise stores and Ping An's offline team, we've increased the supply of vehicles for auction from 4S dealerships for TTP. At the same time, through Ping An Group's and Autohome's used car teams, we've assisted TTP in expanding its merchant buyer base nationwide, driving demand for cross-regional car purchases. This initiative has effectively increased transaction volumes and prices, and enabled TTP to expand its business while carefully managing costs.

[Foreign language].

Overall, our businesses make steady progress in the third quarter. Our innovative businesses laid out earlier have proven effective as we continuously optimize and expand them through practical applications. These achievements drove the growth of our online marketplace and others' revenue this quarter.

As we deepen our cooperation with Ping An Group, we are gradually rolling out additional unique products across various business scenarios. At the same time, we are actively enhancing shareholder returns through dividends and stock repurchases. Looking ahead, we remain committed to optimizing operational efficiency to support our long-term high-quality development.

[Foreign language].

Next, let me briefly walk you through the key financials for the third quarter of 2024. Please note that, as with prior quarters, I will reference RMB only in my discussion today, unless otherwise noted.

[Foreign language].

Net revenues for the third quarter were RMB 1.77 billion. Breaking it down, media services revenues were RMB 326 million. Leads generation services revenues were RMB 831 million, and online marketplace and others' revenues were RMB 618 million, up 3.1% year over year.

[Foreign language].

Cost of revenues in the third quarter was RMB 408 million, compared to RMB 374 million in the third quarter of 2023. Gross margin in the third quarter was 77%, compared to 80.4% during the same period last year.

[Foreign language].

Turning to operating expenses, sales and marketing expenses in the third quarter were RMB 877 million, compared to RMB 935 million in the third quarter of 2023. Research and development expenses were RMB 339 million, compared to RMB 355 million in the third quarter of 2023. General and administrative expenses were RMB 137 million, compared to RMB 141 million during the same period last year.

[Foreign language].

Overall, we delivered an operating profit of RMB 83 million in the third quarter, compared to RMB 166 million for the same period of 2023.

Adjusted net income attributable to Autohome was RMB 497 million in the third quarter, compared to RMB 604 million in the corresponding period of last year.

[Foreign language].

Non-GAAP basic and diluted earnings per share in the third quarter were RMB 1.02, compared to RMB 1.23 in the corresponding period of 2023. Non-GAAP basic and diluted earnings per ADS in the third quarter were RMB 4.09 and RMB 4.08, respectively, compared to RMB 4.93 and RMB 4.92, respectively, in the corresponding period of 2023.

[Foreign language].

As of September 30, 2024, our balance sheet remains very strong with cash, cash equivalents, and short-term investments of RMB 23.06 billion. We generated net operating cash flow of RMB 209 million in the third quarter of 2024.

[Foreign language].

On September 4, 2024, our board of directors authorized a new share repurchase program, under which we were permitted to repurchase up to $200 million of Autohome's ADS for a period not to exceed 12 months thereafter. As of November 1, 2024, we've repurchased approximately 244,000 ADS for a total cost of approximately $6.7 million.

[Foreign language].

In addition, in accordance with our dividend policy, our board of directors has approved a cash dividend of $1.15 per ADS or $0.2875 for ordinary share payable in USD to holders of ADS and ordinary shareholders of record as of the close of business on December 31, 2024. This aggregate amount of the dividends will be approximately RMB 1 billion, and it is expected to be paid to holders of ordinary shares and ADS of the company on or around March 14, 2025, and March 19, 2025, respectively. This reflects our strong confidence in our business and future development, as well as our strong commitment to maximizing shareholder returns.

[Foreign language].

The above is our financial summary.

With that, we are now ready to open up the Q&A session. Operator, please.

Operator (participant)

Thank you. We will now begin the question and answer session. To ask a question, please press star 11 on your telephone keypad. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. We will now take our first question from the line of Thomas Chong from Jefferies. Please ask your question, Thomas.

Thomas Chong (Regional Head of Internet & Media)

[Foreign language]. Thanks, Management, for taking my question. I would like to ask about the ongoing price war and the trade-in programs. What are the impact to the industry and Autohome? Thank you.

Tao Wu (CEO)

[Foreign language].

Okay, thank you for raising the question. We see that with major car companies fighting price wars to grab the market share, which has lasted for more than 1.5 years now.

According to our observation, this trend has eased slightly recently, but there is no sign of ending in the short term. However, the ongoing price war did not bring the explosion of the car sales growth. According to the latest data from CPCA, retail sales increased by only 2.2% year on year from January to September. The price war has also greatly hurt the profitability of the car companies. From January to September, we see that the average profit margin of the auto industry was only 4.6%, much lower than the average level of the industrial enterprise profit margin of 6.1% in the same period. Meanwhile, dealers are facing tremendous operating pressure due to ongoing price war.

According to China Automobile Dealers Association's survey report on the survival of the dealers in the first half of 2024, less than 30% of the auto dealers accomplished their sales target in the first half of the year, and a large proportion of them reached their sales target by exchanging price for volume. In addition, the proportion of dealers operating at a loss reached 50.8%, expanding significantly compared with the same period of last year, and the average total gross profit of a single store also had a large drop, especially in the new car business, with the average single store loss of RMB 1.78 million.

[Foreign language].

Generally speaking, the price war in the auto market has caused the car enterprises and dealers to suffer more seriously negative impact.

Under such circumstances, China has introduced a policy of trade-in and also upgraded the vehicle's scrapping to help release the consumption potential in an orderly manner and to promote the common development of both supply and demand side. From the data disclosed by CPCA under the stimulus of the policy, the auto market has been picking up recently. The domestic retail penetration of NEV has exceeded 50% for three consecutive months. The retail sales of new energy vehicles in September increased by 10.6% from the previous month, and the wholesale of overall passenger vehicles hit a new record high for the same month, which helped to restore confidence in the auto industry.

The serious price war that lasted from last year to now has resulted in a serious decline of profit of the automakers and a contraction in the marketing budget of the OEM, and we have also been affected by the industry to a certain extent. However, in the long run, with the price war gradually slowing down, the continued development of the NEV industry, as well as the government's introduction of the new favorable policies to support consumption, we believe that the auto market will have good potential for future growth in the long run, and we are also optimistic about the longer-term development of China's auto industry, and we will also be developing in a sound manner together with China's auto industry. Thank you.

Operator (participant)

Thank you. Our next question comes from the line of Xiaodan Zhang from CICC. Please go ahead, Xiaodan.

Xiaodan Zhang (Equity Research)

[Foreign language]. So thanks, Management, for taking my questions. My first question is on the new retail model of NEVs. So could you please update us on the progress of the satellite plan, and how should we think of the expansion pace for next year? And secondly, could you please give us more color on how we are going to look for more business synergies between Autohome and Ping An Group? Thank you.

Tao Wu (CEO)

[Foreign language].

Okay, thank you for raising this question. I'll firstly take the first question. At present, the Autohome's Space stores and the satellite stores altogether have already exceeded 50. In terms of the city layout, the space stores mainly cover medium to high-tier cities, while satellite stores mainly cover medium to low-tier cities.

This kind of 1+N model with the space store and the 4S store surrounded by the satellite store can make us quickly penetrate into the lower-tier cities with the network service and reaching out quickly to our clients so as to facilitate the OEMs in their channels with uncovered cities.

[Foreign language].

In terms of the performance of the space stores as well as the satellite store, we see that it actually facilitated OEMs to realize the optimization of their cost efficiency, while at the same time it also helped the OEMs to lower their channel expansion cost while increasing the sales efficiency. At present, we see that the overall market feedback is very positive, while at the same time it also generates extra revenue for Autohome.

With ever-increasing penetration of the NEV market, we see that with that great synergy of the Space store as well as the Satellite store, we can quickly facilitate the upgrading from the new retail network single point coverage to comprehensive coverage, while at the same time the NEV brand revenue steadily grows, while at the same time it continues to outperform the overall NEV market, showing very sound market adaptability and competitive edge.

[Foreign language].

So looking to the future, we are also going to walk on both legs. On the one hand, we are going to grow the number of the stores. We are going to make our business model even more sound and robust so as to gain more recognition from the OEMs.

The existing franchise stores will keep upgrading, including the integration of the industrial chains as well as the in-store financial insurance, so that actually the franchise stores' business expansion can cover a more wide range of the area. Actually both areas, one is to grow the volume, the other thing is to have more explorations and upgrading in the business models.

[Foreign language].

As for your second question, which is about the synergy between Autohome and Ping An P&C, we see that in the traditional business, for example we have cohosted the 100 Cities Trade-in for New campaign, so that we can leverage on the strenght of the Ping An's off-line team to reach out to the uncovered cities of Autohome.

We also jointly launched more than 500 offline auto shows, covering more than 250 cities nationwide, so as to focus on the lower-tier market to create transaction scenarios and to build differentiated competitive edge.

[Foreign language].

In terms of the new retail, we also leveraged on Ping An's resources and also piloted with our Autohome in-store financial services, including the financial insurance, and further expanded the financial product offerings. While at the same time, we also respond to the trade-in policy of the national government so as to integrate our service capabilities to the auto buyers and to provide what I mentioned before, the Price Guarantee Heartfelt Benefits Package, so as to bring the one-stop service to the doorstep of the consumers and to provide the car purchase guarantee for the consumers.

[Foreign language].

As for the data product, we also leveraged on the strength of Ping An Group in the aftermarket scenario as well as offline service capabilities. We launched the outbound call platform, the maintenance assistance, as well as digital services for the trade-in vehicles. We also took good use of the offline team of Ping An so as to provide one-on-one consulting services for the trade-in car users as multiple scenarios so as to effectively promote conversion.

[Foreign language].

In terms of the used car business, Autohome has integrated the resources with Ping An Group to strengthen the synergy of TTP. For example, the Ping An auto loan agent facilitated TTP to increase the vehicle sources from 4S dealerships, and Ping An leasing team also helped the TTP to increase the cooperation with the merchants.

All of these measures effectively increased the transaction volume and also enabling TTP to enhance their service capabilities for further business expansion.

[Foreign language].

So generally speaking, we will actually leverage on both online as well as offline strength of Ping An Group. We will also explore more business models so as to expand the possibilities of our service delivery.

[Foreign language],

Next question.

Operator (participant)

Thank you. Our next question comes from Richie Sun from HSBC. Please ask your question, Richie.

Ritchie Sun (Director of Internet Research)

[Foreign language]. Thank you, Management, for taking my questions. First of all, what is Management's view on 2025 used car market, and how does Management view the goal for Tiantian Paiche next year? Second of all, what has Autohome made in terms of shareholder return progress, and what is the plan for the future? Thank you.

Tao Wu (CEO)

[Foreign language].

Okay, thank you for raising this question. Let me firstly take the first question.

Like I said before, you know, based on the more than one year price war of the new car market, it do actually imposes a huge pressure on the used car market. So with continuous downward pressure of the new car price, we see that the users are quite reluctant to make their purchase. As a result, the used car market in China for several consecutive quarters continued to be sluggish, and you can see that the auto dealers, they're not very enthusiastic in their car purchase. Even though there are policy updates such as scrappage, however, as well as what you have observed from January to September of 2024, the cumulative trading volume of the used car only increased by 5.37%, which has greatly declined comparing with the same period of last year.

Even though there are policy preferences, we do see that profitability of the automakers are not very good. We can see that the single car trading is due and losses, and we see that in September, the used car trading average price is only RMB 64,200, which is a drop of RMB 1,200 versus the same period of last year, and the strongest demand comes from the price range of 50,000-100,000. The profit margin of the auto dealers are greatly squeezed, and their profitability cannot improve, so talking about the future, we see that actually for TTP, you can see that a lot of the car vehicle sources are actually rushing into the 4S dealership stores because next year we expect that the new car price war will not end immediately. There will still be a big challenge for the used vehicle.

So for TTP, actually our previous strength is with the C2B aftermarket, but now we see that there will be more opportunities on the B2B market. So besides the previous strengths on C2B, we're going to make more breakthroughs and transformations in the B2B market so as to tap into the potential in the B2B sector.

[Foreign language].

As for your second question, which is about the shareholders' return, we see that Autohome has always been very dedicated to increasing the return to our shareholders. Like we said before, last year we actually announced a shareholders' return plan for about RMB 1.5 billion, and we just announced an actual RMB 1 billion dividend payout. As a result, altogether there will be RMB 1.5 billion dividend payout to our shareholders. And our board also actually in September adopted a $200 million shares buyback plan.

We also have adopted many measures to reduce the volatility of the share price. So we think that currently we have been using dividend payout as well as shares repurchase to enhance the return to our shareholders while quite taking the lead in this area. So looking into the future, we will continue to look into the other possibilities so as to enhance the chance to increase the shareholders' return. Thank you.

Ritchie Sun (Director of Internet Research)

[Foreign language]

Operator (participant)

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

Brian Gong (Internet and Media Research)

[Foreign language]. Let me translate myself. Thanks, Management, for taking my question, and the management just mentioned about the price war, which continues for the auto industry. So under this background, how does management think about the OEMs' ad budget for the fourth quarter and for next year?

And second question is about the contract renewal with dealers and what's the latest progress and how does management think about the overall contract renewal for this round? Thank you.

Tao Wu (CEO)

[Foreign language].

Okay, thank you for raising this question. The first one is about the OEM advertising budget as well as the outlook for the next year. We are already approaching Q4, which is actually the end of the year, and we see actually the sales performance of the OEMs are also coming to the end. For those who are expected to hit the sales target, they will actually promote their terminal sales or directly subsidize the consumers with their budget, so as to incentivize the transactions. But for those less well-behaving or performing OEMs, they will actually cut their advertising budget.

So generally speaking, the OEMs, they are very cautious about their advertising strategy, and we think that looking into next year, they will more reasonably balance their advertising budgets as well as the price war subsidies. Next year things might get better, but it still depends. We will still see how they will perform after next year. Thank you.

[Foreign language].

As for the contract of renewal for the lease subscription package, actually this will initiate at the end of the year and will last until the first quarter of next year. From historical data, you can see that the contract of renewal of Autohome for lease subscription package has always been very stable, and present Autohome has already widely covered the majority of the dealers on the market, which also shows the overall recognition of the dealers to our service as well as their reliance on our service.

As one of our core services, you can see that Autohome will continue to leverage on big data technology as well as better service quality so as to further empower the dealers and to further enhance the precision of the matchmaking as well as the efficiency of the conversion. Well, at the same time, this year we'll also continue to cooperate with Ping An Group to further provide more diversified instruments for our dealers so as to facilitate them to cope with the fierce market competition as well as the challenge of their profit margin. In terms of the progress of the contract renewal, we will keep you updated about the latest progress. Thank you.

Operator (participant)

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

Tao Wu (CEO)

[Foreign language].

Thank you very much for joining us today.

We appreciate your support and look forward to updating you on our next quarter conference call in a few months' time. In the meantime, please feel free to contact us if you have any further questions or comments. Thank you very much, everyone. Thank you. Bye-bye.

Operator (participant)

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.