Autohome Inc (ATHM) 2013 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by for Autohome's fourth-quarter and full-year 2013 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 is being recorded. If you have any objections, you may disconnect at this time. It is now my pleasure to introduce your host, Martin Reidy of FTI Consulting. Mr. Reidy, you may begin.

Thank you, operator. Hello, everyone and welcome to Autohome's fourth-quarter and full-year 2013 earnings conference call. Earlier today, Autohome distributed its earnings press release and you can find a copy on the Company's website at www.Autohome.com.cn.

On today's call, we have Mr. James Qin, Autohome's Chief Executive Officer and Mr. Nicholas Chong, Autohome's Chief Financial Officer. After their prepared remarks, James and Nicholas 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 US 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 discussions of certain unaudited non-GAAP financial measures. The press release contains a reconciliation of the non-GAAP measures to the most directly comparable GAAP measures and is available on our IR website. As a reminder, this conference call is being recorded. In addition, a webcast of this conference call will be available on Autohome's IR website. I will now turn the call over to Autohome's Chief Executive Officer, Mr. James Qin.

Thank you, Martin and hello, everyone. I am delighted to welcome you all to Autohome's first earnings conference call as a US publicly listed company. As you know, on December 11, 2013, we completed our IPO and started trading at NYSE. This was a very important milestone in Autohome's history and we believe this listing will help us enhance our already strong leadership position in the industry and also allow us to fully leverage the strong market opportunity ahead of us. Well, we are very pleased to welcome many of you as shareholders in our business and we look forward to speaking with you along this journey.

Today is also exciting for us as we will share our very strong results for the fourth quarter and full-year 2013. My colleague, Nicholas, will go into more details, but, in summary, we delivered a very strong overall performance for both the quarter and annual periods, which shows Autohome's leading position is helping us further capture significant marketshare and drive consistently solid results.

So here, we will name a few highlights. Annual total net revenue increased approximately 66% to RMB1.2165 billion. Annual net income increased approximately 114% to RMB456.2 million. Annual cash provided by operating activities increased approximately 113% to RMB593.9 million. For the full year, Autohome.com.cn ranked first among China's auto websites and auto channels of Internet portals in terms of daily average users, average time spent per user per day and average daily page views in 2013 based on data released by iResearch.

In the same period, Autohome.com.cn accounted for approximately 47% of the total time that China's Internet users spent viewing online auto information, more than four times that of our closest competitor, according to iResearch. And as we expanded our mobile Internet services, the number of DAU mobile browsers and DAU mobile applications amounted to 1.8 million and 1.4 million respectively in December 2013, representing a more than 30% increase from September 2013.

And while we do want to get to the full summary of our financial results as this is our first earnings call following the IPO, I think it is important to give you a high-level overview of Autohome and the market opportunity we see. So who is Autohome? To give you a brief overview, Autohome is the leading online destination for auto consumers in China and our mission is to engage, educate and inform auto consumers with everything they need to know about buying, owning and selling cars. In short, we deliver comprehensive, interactive and independent content to auto buyers and owners through our two websites, Autohome.com.cn and che168.com. Users can access our services through PC browsers, mobile browsers, as well as mobile applications.

Now let me explain how we are different from our peers and how this is driving business results. I will take a few moments to explain how our unique user experience and high quality, innovative content drives traffic and secure user loyalty. We focus on producing the very best auto-related content such as articles, photos and videos. This content allows us to grow traffic organically, rather than through traffic acquisition and as a result, we also have one of the largest and most engaged user communities of automobile consumers in China.

Because of the size of our user base and the profile of people coming to our site, we gave unrivaled access to active car buyers. Therefore, dealers and automakers alike are very attracted to Autohome. We provide them with a superior ROI at a time when they are shifting their spending and attention to online platforms.

Let me pause here to bring a real-time example of how our unique strength brings value to both dealers and our users. On November 11, 2013, Autohome successfully conducted a major and very successful online sales promotion activity to mark the "Double 11" day, a popular online shopping festival in China. It's a bit like Black Friday in the States. The Company recorded orders from online auto consumers for about 15,000 vehicles totaling approximately RMB2.2 billion. Such an event allows us to clearly showcase our transaction value and lead generation capabilities and produce tangible car sales results for dealers.

While some other Internet players also conduct a Double 11 day event, how we are different is that we filter the genuine buyers by requiring them to pay the deposit of RMB499 in advance and we also confirm the genuine sales results by requesting the buyers to submit their purchase receipt.

Let me also give you some insight into why we have confidence in the future and believe that there is a long runway of growth ahead of us. In short, we are right at the convergence of industry-changing trends in China, auto and online advertising industry and we believe this will fuel rapid growth. China now is not only the largest new car market in the world, but also has the largest Internet population.

Consumers in China are more reliant on the Internet for auto-related information than any other medium so the Internet has become the primary source of information for auto consumers. A recent Nielsen survey shows that roughly 92% of auto consumers utilize the Internet to consume auto information. At the same time, according to iResearch, less than 20% of the auto advertising is being allocated to online media. Compared to this -- compare this to the US where auto online ad spending roughly 40% of total auto ad spending and you see that China's online auto ad market still has great growth potential.

I hope this overview gives you a good sense of who Autohome is and why we believe we are a unique and differentiated player in the market. We believe the monetization of both media and transaction value are still in the early stages and we therefore expect there is a lot of runway for continued growth.

The next question then is what is our plan to maximize opportunity. Let me now take a few moments to outline our growth strategy. As we move in 2014, we will pursue our four-pronged growth strategy to strengthen our leading position. First, we will increase our share of wallet from automakers. We will do this by doing more for these partners to get them even closer to potential buyers. For instance, we will extend our advertising solutions to up-sell and cross-sell our services, execute tailored strategies for advertising customers at different tiers and so on.

Second, we will expand and monetize our dealer network. We are aiming to expand our dealer network by increasing our regional footprint and further monetizing these relationships and enhancing our service offering. We have been extending our dealer network by increasing penetration in existing geographic markets, as well as entering new ones, particularly second-tier and third-tier cities.

We have also increased our R&D spend to provide more value-added services. In 2013, Autohome provided dealer subscription services to 10,617 dealer subscribers, up from 5,052 in 2012 and we believe this is only the beginning of our growth.

Third, we will continue to attract and retain automobile consumers and enhance already strong user engagement by growing our product offering, mobile product offerings and leveraging user-generated content to improve the user experience. We will invest in innovations so that we are keeping pace with the changing habits of consumers and delivering them a unique and easy experience that they expect and rely on from Autohome. We will introduce new mobile technologies to enhance and expand our mobile internet services.

Fourth, we will build out our offering in aftermarket and used car sectors. Importantly, those segments are both still in early stage in China. However, we believe this area will be very important over the long run. We, therefore, have begun to invest and are putting resources against those so we can have the advantage of being an early mover in this category and leveraging emerging opportunities. That is obviously our current strategy to maximize the opportunity before us.

On that note, I will turn the call over to Nicholas who will provide financial details for the fourth quarter and the full year. Following Nicholas' remarks, I will say a bit about our expectations for the first quarter of 2014 and then we will take your questions. Nicholas?

Thank you, James. Hello, everyone and once again thank you for joining us today. As James touched on earlier, Autohome is now the clear market leader in our space in China across every key metric in terms of number of users, time spent on site, brand recognition and user engagement. This leadership is clearly reflected in our financial results for the fourth quarter and full year, which highlight our consistent track record of profitable growth and strong cash flow generation.

Before I walk through the specifics for both the quarter and the year, I would like to draw your attention to the key metrics we focus on and what we view as the three consistently strong measurements of our strong performance both historically and most recently in the fourth quarter and full-year 2013.

First, we have displayed rapid revenue growth via a diversified revenue mix. During the fourth quarter and the year, we drove robust top-line growth. Our net revenue increased 74.1% year over year in the fourth quarter and 66.1% in 2013 versus 2012. We are consistently able to expand our strong and growing customer base in each revenue segment and increase our average revenue per customer.

Second, we have delivered very strong profitability. Our net income growth outperformed our revenue growth, which highlights our ability to drive the top line and also extract significant operating leverage due to our controllable costs and efficient expense base. Net income increased 183.2% year over year in the fourth quarter and 114.3% in 2013 versus 2012.

Third, we continue to generate significant cash, allowing us to maintain a strong cash balance and also fund our future growth strategies. Cash provided by operating activities increased 107.6% year over year for the fourth quarter and 112.5% for the full year of 2013 versus 2012. Again, this is where we focus and how we measure our success.

Now I will move to a detailed discussion of the financial results for both the fourth quarter and fiscal year. Note that I'll reference RMB only in this discussion. First, the fourth-quarter financial results. Net revenue for the fourth quarter increased 74.1% to RMB386 million from RMB221.8 million in the corresponding period in 2012. The increase was due to increases in both the Company's advertising services revenue and dealer subscription services revenue. Cost of revenues for the fourth quarter increased 78.6% to RMB87.8 million from RMB49.2 million in the corresponding period in 2012, primarily due to increases in content-related costs, value-added taxes and surcharges, bandwidth and IDC costs and depreciation.

The cost of revenue included share-based compensation expense of RMB1.6 million compared to RMB1.6 million in the corresponding period in 2012. Operating expense for the fourth quarter increased 61.1% to RMB148.7 million from RMB92.3 million in the corresponding period in 2012, mainly due to increases in sales and marketing expenses and product development expenses. As a percentage of net revenue, operating expenses for the fourth quarter decreased to 38.5% from 41.6% in the corresponding period in 2012, reflecting leverage on the higher revenues. Operating profit for the fourth quarter increased 86.2% to RMB149.5 million from RMB80.3 million in the corresponding period in 2012.

Net income for the fourth quarter increased 183.2% to RMB122.7 million from RMB43.3 million in the corresponding period of 2012, primarily due to the increase in net income before income taxes in 2013 and a one-time income tax expense due to accrued withholding tax of RMB26.6 million on dividends in the corresponding period in 2012. Basic and diluted earnings per share and per ADS for the fourth quarter of 2013 were RMB1.23 and RMB1.16 respectively compared to basic and diluted EPS in the corresponding period in 2012 of RMB0.43 and RMB0.43 respectively.

Adjusted net income, which is defined as net income excluding share-based compensation expenses and amortization expenses of intangible assets related to acquisitions, increased 150.1% for the fourth quarter to RMB132.3 million from RMB52.9 million in the corresponding period in 2012. Non-GAAP basic and diluted EPS for the fourth quarter of 2013 were RMB1.33 and RMB1.25 respectively compared to non-GAAP basic and diluted EPS in the corresponding period in 2012 of RMB0.53 and RMB0.53 respectively.

Moving to full-year financial results, net revenue for the full year increased 66.1% to RMB1,216.5 million compared to RMB732.5 million in 2012. The increase was due to increases in both the Company's advertising services revenue and dealer subscription services revenue. Cost of revenues for the full year increased 41.5% to RMB252.2 million compared to RMB178.2 million in 2012. The increase was primarily due to the increases in value-added taxes and surcharges, content-related costs, bandwidth and IDC costs and depreciation. The cost of revenue included share-based compensation expense of RMB6.5 million compared to RMB6.6 million in 2012.

Operating expenses for the full year increased 60% to RMB409.4 million compared to RMB255.8 million in 2012 due to increases in sales and marketing expenses and product development expenses. As a percentage of net revenue, operating expenses for the full year decreased to 33.7% from 34.9% respectively in 2012, reflecting leverage on higher revenues.

Operating profits for the full year increased 85.9% to RMB554.9 million compared to RMB298.5 million in 2012. Net income for the full year increased 114.3% to RMB456.2 million from RMB212.9 million in 2012. Basic and diluted EPS in 2013 were RMB4.57 and RMB4.37 respectively compared to basic and diluted EPS in 2012 of RMB2.13 and RMB2.12 respectively.

Adjusted net income increased 93.5% in 2013 to RMB487.2 million from RMB251.8 million in 2012. Non-GAAP basic and diluted EPS in 2013 were RMB4.88 and RMB4.67 respectively compared to non-GAAP basic and diluted EPS in the corresponding period in 2012 of RMB2.52 and RMB2.50 respectively. Balance sheet and cash flow information as of December 31, 2013, the Company had cash and cash equivalents of RMB1,138.6 million, cash flow from operating activities for the full year of 2013 were RMB593.9 million compared to RMB279.5 million in 2012. This concludes my financial review. Now I would like to turn the call back to James to discuss our near-term outlook.

Thank you, Nicholas. As Nicholas has just highlighted, 2013 was a very strong year and forms a solid foundation on which to build. Looking ahead, we are optimistic about general trends in our own business and are confident that we are well-positioned to benefit from continued growth in the auto and Internet industries in China. With respect to our near-term outlook, in the first quarter of fiscal 2014, we currently expect to generate net revenue in the range of RMB318 million, that is $52.5 million, to RMB332 million -- in US dollar terms, $54.8 million, representing a 55.6% to 62.5% year-over-year increase.

We believe it is also very important to give some context for seasonality and how our fiscal year typically unfolds from an operational and revenue standpoint. In terms of contribution to full-year results, our first quarter is often smaller than subsequent periods. A gradual lift in that respect normally builds as the quarter progresses, with the business in the second half being stronger than the first half of the year. Of course, I must mention that these comments on our outlook reflect our current and preliminary review of the market and our operating conditions, which is subject to change.

Before we move to questions, I think it is worth taking a moment to summarize. So to summarize, a few takeaways from today as we have covered a great deal during our first earnings call. In short, 2013 was a fruitful year for Autohome. We ended this year in a clear industry leadership position as highlighted by the fact that we are number one across almost all key metrics, both on PC and mobile platforms in terms of number of users, time spent on site, brand recognition and user engagement and so on and so forth. We are excited about the future given that we are well-positioned to benefit from the convergence of strong market trends and the fact that we have a sound growth strategy in place. And lastly, we are delighted to start our journey as a public company and look forward to working hard to deliver significant shareholder value over time. This concludes our prepared remarks and now we would like to take any questions you may have.

(Operator Instructions). Vivian Hao, Deutsche Bank.

Hi, thank you for taking my question. I have got two questions here. First one, what is our strategy to better engage and improve traction from auto dealers? And for the second question, could you please provide us some color on the overall China auto sector advertising trends year to date? Thank you.

Okay, so the second question is the trend of China's auto online advertising market. I didn't get the very clear idea on the first question. The engagement of auto dealers?

Yes. What is our plan to improve the traction from auto dealers to better engage them on our platform?

Our traction from auto dealers and how to engage them. Okay, I will take a crack. I will answer the second question first. So from what we have seen so far, we believe our current -- China's auto online advertising market in 2014 probably will be as good as 2013 from our point of view and that is the total online advertising.

And the first part of your question is how, at Autohome, we are going to attract auto dealers, as well as how to engage them. I think here is, from my point of view, is to really communicate the value proposition of our dealer subscription business, as well as our dealer advertising business, make sure those dealers understand the value we create for them. And use the more data analytics to illustrate our result in terms of their investment. And so that is -- sorry, so that is to make them understand the value proposition.

I think in terms of engaging our go-to-market strategy, as we have done in the past, is we really leverage our relationship with the carmakers, the OEM providers, because from the OEM provider -- OEM's point of view, it is easier for them to understand the value proposition, which is provided by our dealer subscription business and we use a group buy-in mechanism we try to engage with those carmakers and sign more paying dealers to our subscriber network.

Okay, great. Thank you very much, James. Thank you.

Thank you.

Ella Ji, Oppenheimer.

Thank you for taking my questions. My first question is a follow-up, so I just want to discuss with you with regarding to the macro impacts. Recently, we are seeing some volatilities in China's economic data. I just wonder when you speak with your automaker or auto dealer customers, what are their comments regarding their recent sales and if you can share with us some of their thoughts or expectations for the remainder of the year, that will be very helpful.

I might have to disappoint you because we are closer to the auto online advertising business and because we just came back from Chinese New Year. So, so far, I personally haven't talked to any of the car dealers. So I really don't know from their point of view the outlook of 2014. So having said that, I think -- I think we, at Autohome, we are really insulated from some of the market [hagglings] because as we provide the, how should I say -- as we provide a clear value proposition of the services we offer to both dealers and the car makers and we believe some of the market up and downs probably will not affect our business.

And secondly is we believe China is still a very young and underpenetrated auto market and ownership rate of cars is still relatively small compared with those other developed nations, as well as developing markets. So we believe there is still room for the auto market to grow in China. So hopefully, those two points can answer some of your questions.

Okay. And then my second question is, in 4Q, in the auto advertising services, so we are seeing a higher growth in the automakers, that's 73%, but a lower growth in the dealer advertising is 26%. Can you explain why it is there is such a divergence between the two lines?

Okay. So the way we see that business is the auto dealer advertising, as well as the auto dealer subscription business, is part of a way to monetize our transaction value. And so from the operational point of view, it probably is much easier to communicate with the dealers the value proposition of our subscription business. It is very simple to understand.

And also our key -- one of the strategies in our four-pronged strategy going forward is still to increase the penetration, now also expand our paying dealer network. So probably, in a sense, you could say in the past what we have probably focused more on increased number of paying dealers rather than generate more revenue per dealer. So that could explain part of the difference between the dealer subscription revenue growth and dealer advertising revenue growth.

Okay, got it. And then my last question is with regarding to your margins, in 4Q, we are seeing a higher number in sales and marketing and also G&A. I just wonder if there is any seasonality relating to that and could you also comment on your margins trend in 2014 given that you have quite a number of growth initiatives planned for this year? Thank you.

Yes, on your first question, the 2014, yes, 2013 Q4, the sales and marketing expenses went up is really behind two things. One is the November 11 promotion and also, of course, we continue to add headcount on the sales and marketing team. So that is on the sales and marketing. I think the other operating expenses that went up is actually product development rather than G&A. Product development went up also because we invested behind more -- to recruit more product development personnel because, as we highlighted, what is really important to us is that we wanted to reinvest back into the business, particularly behind sales and marketing and product development. And G&A, it has come down versus the prior year partly because of some of the one-time adjustments.

Thank you, Nicholas. And could you also comment on your expect --?

2014?

Yes, yes.

Yes, on 2014, actually, directionally, it's still the same as what we have been doing for example in 2013 and 2013 Q4. We want to reinvest back into the business on sales and marketing and product development. In fact, probably more so in 2014. So that is the plan, yes.

But I have to say that because we are just a publicly listed company and most of our competitors will understand our financial results, so we foresee the competition in our sector will be fierce. So there could be some margin compression present, but I think as Nicholas said our intention is to maintain the margin in that level.

Yes, around that, but James is right that we will see -- I think we foresee there will be some more tougher competition.

Thank you very much for taking my questions.

Thanks.

Our pleasure.

Piyush Mubayi, Goldman Sachs.

Hi, James, hi Nicholas. Congratulations on a solid beat in fourth quarter. A few questions from me. First on the guidance you provided for 55.6% to 62.5% growth rate in first quarter, could you provide a split between the dealer business and the advertising business, please? And the second is that we are seeing a steady improvement in ASP in the dealer business, which appears to be double-digit now. What is driving this acceleration and how would you expect this to trend in the first quarter of 2014?

Third, I know you touched upon the used car market, could you give us an update on any progress you may have made on that front? And fourth, just thinking about all the noise and developments around the financial services for Internet companies in China, would you be willing to say anything about the outlook for you in car financing or the insurance arena, please? Thank you.

So that's four questions. Thank you, Piyush. Let's see if I understand correctly. The first one is the split between the dealer subscription business and the total advertising service revenue in first quarter of 2014. And the second question is the comment on the dealer subscription business in 2014 because from your point of view, it looks like we accelerate the growth, how we achieved that. The third question is the used car market, outlook of the used car market, whether or not we can generate revenue from there. And the fourth question is car financing, whether or not we should expect some car financing as part of our business. Those are the four questions. Thank you, Piyush. I will probably leave the first question to Nicholas. I will try to address your second question.

I think, yes, it looks like, at least from the 2013 point of view, we actually accelerate the paying dealer -- we had more paying dealers in 2013 than 2012. I think the reason was, as I mentioned in the past, we leveraged our relationship and leveraged the clear return on investment of dealer subscription -- of the dealer subscription business to the carmaker. So increasingly, we have seen it is the carmakers really drive adding more subscribers to our dealer network. As of 2013, September 30, if I remember correctly, we had roughly a 50/50 split between the paying dealers, which part of the group buy-in mechanism with the carmakers versus the individual dealers who subscribe to our business. So I think increasingly what we have seen is the carmakers really behind this growth because they understand the benefit proposition of our paid dealer subscription business.

The third question is the used car market. I think currently because China's used car market is still in its very early stage and also because with the regulation, for example, if an individual buys a used car from a dealer, together they have to pay 2.5% as sort of tax to the government. But if an individual buys a used car from another individual, nobody needs to pay the 2.5% of the transaction value to the government. So because the (inaudible) is not really level. So from our point of view, it is very difficult for Autohome to obtain meaningful revenue from the used car business in the near term.

However, having said, that we firmly believe that the used car business, as well as the aftermarket services, will be a growth engine for Autohome going forward, but probably not in the next two to three years. So we keep investing in this area and right now, we believe we have the largest -- our che168.com, which is a used car-focused portal, has the largest user base and also has the largest page views at this point.

The last question is about car financing. We have a very small team to do some trial and error things around here. So probably right now it's too early for us to really comment on the outlook of that car financing business going forward. Maybe after a couple quarters, I will be happy to answer your questions because at that time we probably already have some results of whether or not we could do it or we could not.

Okay, Piyush, let me touch on the first question. I think your question is that what is the color for the automaker services business advertising. This is in relation to the dealer business. I would say that we will be able to continue to grow faster than the market for the automaker advertising and also the trend remains that we are able -- we continue to grow the dealer business much faster than the advertising business.

Thank you.

Evan Zhou, Credit Suisse.

Hi, this is Denise Chan on behalf of Evan Zhou. First of all, congratulations on the very strong quarter. I have three questions. My first question is on the e-commerce business. So in 2013, we had pretty good success in the November 11 auto e-commerce event. So how do you plan to execute in the direction to further penetrate into the auto transaction in 2014 and the years going forward? So this is my first question.

My second question is on the marketing spending in 2014 and we have seen that our competitors such as Bitauto has a very large scale cooperation with Baidu, so how do we decide to compete with that? Will we be more aggressive on the traffic acquisition in 2014 and that is my second question? My third question is on the dealer subscription side. So do we have a target paying subs number or paying ratio for paying dealers in 2014? Thank you.

Okay, three questions. The first one is -- by the way thank you, Dennis. The first one is the comment on the e-commerce because with this 2011 -- sorry -- November 11 car sales event. I think over there, probably I will make two comments. First is the 2013 November 11 event is a task we have done in order to prove whether or not there is a market demand for that type of a business because, as a leader in the auto Internet actually, I think we need to innovate, we need to try different business models in order to keep our growth and also maintain or strengthen our market leadership. So I think that is -- that case was successful.

The second comment would be, in 2014, we are going to try a variation of different e-commerce offerings in order to figure out what is the best commercial product or what is the best commercial rival service we can provide to both the dealers, as well as to the auto users because there will be different scenarios. For example, if for some of the -- so if a dealer wants to get rid of the inventory, he or she will have a big incentive to really undercut the price. However, some of the users from some of the user point of view, they actually would like to find a readily available inventory. So those are different needs. I think our goal in 2014 is to try different ways to address different needs and hopefully by the end of this year, we can come up with a resolution for the whole market. So that is two comments for your e-commerce.

The second one is about our market spending and with regard to Bitauto's Aladdin project. Just FYI, Bitauto's Aladdin project is a year-long contract signed with Baidu. So it usually starts from June to next year in June. So this year, Baidu's -- the corporation's annual contract will be renewed in June. So this is really about the half-year -- the second half year marketing spending. I think what I have to say is that, in the past -- basically I'm not going to comment on Bitauto's action.

What we have to say is that, within Autohome, I think we have a very strict analysis on the return on the investment. Like we never had the Aladdin project -- probably it's not the same thing as we never participate in bidding of that project -- I'm not sure if you can tell the difference -- because that is the bidding process. So every year around May is the open bidding for any of the auto Internet player can bid for that year-long -- yearly contract with Baidu. So probably that is only the comment I can give to you.

So I think for this year, yes, we are going to figure out what is the best ROI for Autohome and where we should put our marketing dollar to which segment. We are going to evaluate it both on a PC platform, as well as our mobile platform and figure out strategically what is the best way to use our marketing dollars.

And the third one is the number of paying dealers in 2014. Unfortunately, we cannot comment on the numbers, but I think, in the past, what you have seen is that, in 2013, I think we add about 3,000 --.

2000 --.

2012, about 3,000 and 2013, it's about 5,000. So it looks like we are adding more and more subscribers every year. So that is my comment.

Okay, got it. That's very helpful. Thanks.

[Gregory Jao], Citigroup.

Congratulations on a strong quarter and thanks for taking my question. I have three questions and maybe I can go through my questions one by one. My first question about the e-commerce business. I think my first question is do we have any plan to launch a commission-based e-commerce business this year? And by now, I think our e-commerce business mainly serves the dealers. So in the future, do you think we can avoid dealers and directly make some transactions with OEM, with the automakers? Thanks. That is my first question.

Okay. So I will take the first question. I think the question is whether or not we can launch a commission-based business this year and also, in the future, can we avoid dealers and directly dealing with the OEM. Probably that is not -- the second part of the question I will share with you my thoughts. That is not a way we think about business. I think, at Autohome, what we have been doing in the past is we always try to create value, create value for all participants in that value chain. So be it the user, be it the dealer, be it the automaker. For example, if we want to really enforce or like innovate on this e-commerce business, we will have to think about from the dealer point of view whether or not they will view this as a benefit or as a cost because, at the end of the day, it is dealers who really deliver the car as well as do their aftermarket service of the car. We do not have the mechanics. We cannot -- we cannot do the aftermarket services.

I think our goal is to become the largest online auto transaction facilitator in China. That is our goal. So in short, we will not replace the dealers. This is not our goal. Having said that, if we can help the dealers to reduce their selling cost, to reduce their inventory cost, to reduce their rental cost, that probably is the value we can create for them and in return, I think we can take a cut. So that is the first one.

I think the second one is the commission-based business this year. As I mentioned in previous -- as I mentioned previously, we are going to do some small-scale trial on different variations of e-commerce business. So I don't think by the end of this year we are able or we are ready to launch a full commission-based business. It is just not there yet. This year is just a trial and see the result and test our hypothesis. So that is the first question.

Okay, thank you. My second question is about our display advertising. I think in 2013 our display advertising increased about over 50% year on year. And meanwhile, we see for the traditional portals advertising business seems more soft compared to our strong growth. So can you give me some color about what is driving the display advertising revenue growth? What percentage of contribution from the uplift of pricing and what percentage from the inventory increase and also the increase in the sales rate? Thanks. That is my second question.

All right. So with regard to the display ad, actually there are two segments. One is the automaker advertising. The other one is the auto dealer advertising. I think those two segments, the fundamental drivers of those [growth] are very different. The first one is automaker advertising. I think from the automaker advertising, from demand point of view, probably it's based on the new car market growth, the marketing dollars shift from offline to online and also how much market share -- how much share of wallet we can get from the carmakers. So that is sort of from the demand side.

From supply side basically is the price increase, the growth comes from price increase, the sell-through rate increase and also the banner or the inventory increase. And over there, we believe in general we should be able to deliver better than market average growth. So that is my comment on the OEM carmaker advertising.

On the other hand, on the dealer advertising, it's a totally different story because dealer advertising, the rationale for dealer choose Autohome as the advertising platform is not because we have the best content, we have the highest user engagement. No, it is because we can generate sales leads for those dealers and we can help them sell cars. So the rationale of auto dealers, sort of majority of the reason auto dealers pays us for auto advertising is different than automakers.

So the second one, the growth really comes from how many transactions we can really help those dealers to facilitate and how much is their marketing power. So from the demand side, it is basically how dealers work together with automakers' regional sales office because they control some of the dealer reimbursement program. How much is their budget and how are they going to allocate a multi-print media platform, vis-a-vis online versus offline. And from the supply side, it is really how many transactions, well, in terms of market share, how much is the percentage of total new car sales we can facilitate as a platform.

Okay, thank you. My third question is about our fast dealer coverage expansion and we knew that when we signed some free contract with automakers then to promote the contract with dealers nationwide. So if we look at those secondary agency dealers, so that means we have some relative weak coverage of the secondary agency, I mean the (inaudible). Thanks.

I think your question is about the -- from the customer point of view, how we treat -- how we deal the non-authorized dealer.

Yes, I mean rather than those (inaudible) some general secondary dealers.

So I think the way I see those are twofold. Number one, historically, the majority of our dealer business, be it dealer advertising and dealer subscription business, we made a deal with the authorized dealers because it is just more reliable and is better for us to serve and also better to maintain a user experience, as well as to make sure someone is going to pay us at the end of the day.

However, the second part of my comment will be, however, we understand there is this channel -- how should I say this -- I mean Tier 3, Tier 4 subsidiaries, there will be some non-authorized dealers, which can also sell cars. We believe those should be our customers in the future. So probably that is the two comments I can give you. In the past, we didn't really deal with that. Now we start to look at them and see whether or not there is opportunity we can monetize -- we can monitor the trend, yes.

Thank you. And I have a follow-up question. As you mentioned, the Baidu Aladdin bidding advertising [system]. As you mentioned, maybe potentially we will get involved in the bidding. So shall we -- for example, in your model, shall we be modeling in that part of selling marketing expense for this year or just our future plan? Thanks.

That's a very, very good question and to be honest, we internally do not have an answer because this is a dealer zero one day, but if I were you, I would probably look at some other deals because internally as our (inaudible) unit, we need to look at different channels. We probably will look at Baidu's PC platform. So we (inaudible) PC platform, Baidu's mobile platform, 360's mobile platform, some other like (inaudible), some other applications for us. So we view everything as we make sure we understand the ROI of each channel and we make sure we use our traffic acquisition marketing dollars wisely. That is probably the way we see things. So whether or not in the end we win Baidu's people, we don't really know.

Okay, thank you. Thanks very much.

Eddie Leung, Merrill Lynch.

Hi, good evening. Thank you for taking my questions and many congratulations on a very successful IPO. I have three questions, if I may. The first one is about your strategy. You mentioned that you guys tend to take market share. So do you plan to rely on organic growth? What is your attitude and thoughts on acquisition? And then number two, just a follow-up question on your calls in the fourth quarter. We have seen some increase in sales and marketing R&D. So could you give us the number of sales headcount and R&D headcount by end of last year? And then finally, for the new year, did you raise your list price for some of your branded inventory? Thank you.

Sorry, I didn't get the third part of the question, the third question.

Oh, the third question is about your list price for the new year. Did you increase your pricing of your advertising industry in 2014?

Okay. I will answer that question first. That is kind of simple. So every year, we increase our list price and we usually increase list price in April. So the first quarter, because of Chinese New Year, so we use the same price as 2013. We are going to increase our price in 2014, April 2014.

Let me touch on the question that you have raised on the sales and marketing and product development. Actually as I shared earlier, we have continued to invest behind sales and marketing and product development. So last year in Q4, the sales and marketing expenses went up (inaudible) because of our investment behind a November 11 promotion.

The second one is the headcount increase on sales and marketing. And related to your question, likewise on product development is because we invest behind more product development headcount. I think there is one question that you asked about how many of our headcount. Adding sales teams, there will be the three sales teams, the OEM sales, the dealer sales and regional sales office sales make up about 50% of our total headcount.

So this gentlemen's first question is about the merger and acquisition aspect. As I have outlined, we have a four-pronged strategy that we believe will allow us to sustain our leading position for the business and also increase the gap between us and our nearest competitor and those -- as you see those initiatives do not at this point include plans for acquisitions or some other sort of things like that. But that is a strategy that we will continue to evaluate on an ongoing basis with our advertisers, as well as the Board of Directors.

[Dong Xiao], Macquarie Securities.

Thank you very much for taking our questions and big congrats on the IPO and the first-earnings call. I have a couple questions, if I may. Firstly, I think you monetized primarily through brand advertising and dealer membership right now. Could you talk about some of the longer term -- what is your business model in terms of monetization and how you get it from here to there?

Okay. So currently, the way we see business is we have about four values we currently have. The first one is the media value, the media's -- first-hand recent media like the [core] portals. The second value is really the channel value or transaction value, we can really facilitate transactions and we can be part of the transaction-based business model. The third one is our user-generated content because we have the largest user community and also user community in China. Currently the monetization of that traffic is relatively small. And the last one is the data analysis because 47% of the auto user's time spent online is on Autohome. So we actually know a lot more about the auto consumers than any single other competitor in China. So I think those are the four values.

So from here to how are we going to monetize every single one of them, I think the way we see things is, from the media value where media value -- the value we can create is basically the number of users we can cover on both PC and mobile platforms whether or not we have the best of the quality in terms of both user-generated content, as well as our professional-generated content, whether or not we have the best content. And thirdly, whether or not we provide the best of the class user experience so that user will have the highest engagement level in our site. So if we have those three things, I think we do create a value for carmakers to use our website to allocate their product with auto consumers in China. So that is the first one.

And second one is transaction value; it is very simple. It's how many transactions, what is the total merchandise value that we can facilitate and also more importantly what is the percentage or how much total value of merchandise we can prove to customers we really facilitate. So for example, there will be people like (inaudible) who actually visit Autohome and figure out which car he wants to buy and directly goes into the dealers and buy that car. At this point, the dealer will not credit that transaction to me, to Autohome, because we cannot prove that. So hopefully going forward, especially when we can provide services through the mobile platform, it is much easier for us to prove.

So the third one will be -- the third one is the user-generated content and over there, we actually monitor closely some other players in this industry, how they can monetize the user-generated content and hopefully down the road, someone, some genius is going to invent that as a model and we are going to learn from that.

And lastly is the data analytics. Currently, we only provide those services to our major customers as a value-added service. So we don't know going forward when we are like -- in what way we can really make it a commercial product, every customer or every carmaker can buy from us and we are definitely in the process of figuring that out.

So those are the four values and in my personal point of view how we are going to monetize that or the roadmap.

And just a quick follow-up. I think you mentioned earlier this year we should not expect anything big from the transaction-based monetization. I just want to make sure is that correct. And secondly, you sold over 17,000 cars during November 11 period. Did you make any money off that and if yes, how did you make any money off of that? Or into the future, how can you make money from (multiple speakers)?

Yes, the second question is very simple. No, we didn't make money in the November 11 sales event. So the first question is are we going to have any commission-based business. I think it is very difficult because, remember this, if you want to really get a commission business, you have to, number one, close the loop. You have to close the transaction loop. And secondly is that you have to avoid the, how should I say this, the credibility issue. For example, if you say for one transaction I'll get RMB2,000 from the dealer and then I will pay the consumer RMB1,000. And what if the dealer understands this and channels that consumer directly? So why not I give you RMB1,100 and please do not tell Autohome you actually buy from us. So those kind of things are -- you need to figure that out.

Yes, we don't want them to circumvent the process.

Right. Cool. And could I have another quick follow-up on this topic. Just for your brand advertising, do you base that on a CPD or [PPN] basis and how is your pricing compared to the other channels at the broader (inaudible) like (inaudible)?

I would assume your CPD model is the CPD cost per day because that is the general practice in our industry. I would say our advertising, majority of our automaker advertising on a CPD or cost per day basis, only a very limited percentage of that comes from CPM basis and having said that, most of the carmakers actually use cost per click KPI to evaluate the performance of each and every market campaign.

(technical difficulty). Go ahead.

I want to answer your second part on the list price. So the list price of our banners, top banners, probably that is more comparable versus the portals. Our per day cost for top banners on our website is more expensive than the top banner of a portal's car channel, but will be less -- will be cheaper or be less expensive than the top banner of the portal's top page.

Got it. Okay, now if we review your brand advertising, sort of what is the mix between the time base say versus performance base on like click?

As I've mentioned to you, the majority of the revenue from cost per day basis. The cost per click is through only a KPI. It is just not a contract we sign based on number of clicks, the advertiser will pay me how much money. This is not the way it works.

Okay, sorry. Thank you for that. My second question, if I may, is could you talk about how you compete or you differentiate from some of the, I would say, sort of local services provided such as 58.com? I think they (inaudible) pretty strong in some of the -- they tried to be pretty strong in some of the verticals such as autos and the property. How do you think investors or analysts should compare and contrast what you offer versus what they offer?

I actually don't know 58.com's revenue split and their business model very much, but we primarily -- not majority -- every single dollar we generate as our net revenue from the new car business. I'm not sure if 58.com has a similar business because probably I am not aware of that. I think they have a used car business. On the other hand, we do not generate any revenue from our used car business.

Okay, great. This is very helpful. Thank you very much for the comments.

There are no further questions at this time. Mr. James Qin, please continue.

Thank you very much for joining us today. As you can tell, it is an exciting time for all of us at Autohome and we are optimistic about the prospects in our business. We look forward to updating you on our first-quarter 2014 conference calls in a few months' time, but in the meantime please feel free to get in touch with us if you have further questions, concerns or comments and thank you, everyone.

That does conclude our conference for today. Thank you for participating. You may all disconnect.