Autohome Inc (ATHM) 2014 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by for Autohome's first-quarter 2014 earnings conference call. (Operator Instructions) As a reminder, this conference call is being recorded; if you have any objections, you may disconnect at this time.

It is now my pleasure to introduce your host, Mr. Martin Reidy of FTI Consulting. Mr. Reidy, you may begin.

Thank you, operator. Hello, everyone, and welcome to Autohome's first-quarter 2014 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 discussions 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 and this call also include discussion 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 Autohome's IR website.

As a reminder, this 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 pleased that we have delivered another solid set of results in the first quarter of 2014 and that we remain firmly on track to achieve our overall targets for the year ahead. In the first quarter, we reported a robust growth across all of our key financial and operational metrics, reflecting our sustained prominence of our industry.

My colleague, Nicholas, will provide more details on our financials in a moment, but let me begin by highlighting some of our most important achievements for the quarter. Net revenues increased approximately 67.3% year-over-year to RMB342 million. Net income increased approximately 62% year-over-year to RMB121.9 million. Net cash provided by operating activities increased approximately 94.5% year-over-year to RMB250.7 million.

Our subscribed dealers increased significantly. We provided subscription services to 12,659 dealer subscribers in the first quarter of 2014, up from 6,176 dealer subscribers in the corresponding period of 2013.

We retained our clear leadership position among China's auto websites and other channels of Internet portals across all of the most important metrics: average daily unique visitors, average time spent per user per day, and average daily page views, based on data released by iResearch. During the first quarter, Autohome.com.cn accounted for approximately 48% of the total time that China's Internet users spent viewing online auto information, nearly 4 times that of our closest competitor, according to iResearch.

As we expanded our mobile Internet services, the number of average daily unique visitors who accessed to our website via mobile devices and the number of average daily unique visitors through our mobile applications amounted to approximately 2.3 million and 1.9 million, respectively, in the month of March 2014. This represents more than a 30% growth in total number of average daily unique visitors on mobile platforms compared to those in the month of December 2013.

At the same time, we are also encouraged that during the first quarter of 2014 the Company's PC daily unique visitors continued to grow steadily, with average daily unique visitors in the first quarter of 2014 amounting to 7.2 million, compared to average daily unique visitors of 5.9 million for the full year of 2013.

Our strong start to the year and performance in the first quarter clearly demonstrates how our growth strategy is driving consistently positive results. As you will know if you joined our last quarter's call, we have a very clear four-pronged growth strategy entrenched, and I would like to take a few minutes to update you on some of the progress we have made during the first quarter across all four prongs.

The first pillar of our growth strategy is to increase our share of wallet from automakers. As we continue to deliver strong ROI to our automaker customers, we recorded a very healthy increase in ARPU of 33% year-over-year during the first quarter. I am also pleased to note that revenue from our automaker customers continued to grow at a faster than overall spending by automakers on auto advertizing, demonstrating our ability to continuously capture market share.

Our second growth strategy is to increase and further monetize our dealer network. During the first quarter, we expanded the number of dealer subscribers in our network to 12,659, which is a very impressive 105% increase from the corresponding period in 2013. It is worth noting that the majority of this growth came from cities other than Beijing, Shanghai, and Guangzhou, where we have invested in our expansion programs. The subscribed dealers in the cities outside of Beijing, Shanghai, and Guangzhou account for 92% of our total subscribed dealers.

I am also pleased that we are achieving this growth in an efficient way, by targeting partnership with automakers on a regional or provincial level. This is a very strong and fast-growing revenue base for Autohome, and in the quarters ahead we will continue to invest in building out our network beyond Tier 1 cities and in solidifying our relationship with dealers and automakers on a regional and provincial level.

The third pillar of our growth strategy is to attract and retain automobile consumers and enhance user engagement by growing our mobile product offering and leveraging user-generated content to improve the user experience. We are also making strong progress here.

For example, on the mobile front, we are investing heavily in mobile technologies and have expanded the R&D team a great deal in order to maximize this opportunity. We have now launched a total of seven mobile apps over a range of different functions and which focus on convenience, real-time interaction, and location-based services.

In some places we have also provided push messaging and customization functionality. For example, we have a car-pricing application that enables users to get an immediate price check on car models that they are interested in.

Another example are the new PC product, which increased the number of user forums to approximately 1,400 in the fourth quarter compared to 1,200 end of 2013, in order to attract user interest in products such as light pickup trucks and the mini economy commercial vehicles. This enables us to reach new and different user groups.

It is also encouraging to see through recent survey result that more and more users are using our user reviews product that we start two years ago before they made a car purchasing decision. Our users now rate these user reviews as the joint-fourth most critical component on our platform, as important as our test-drive articles and behind car specifications, pricing information and the model comparison information.

Lastly, both the forum page views numbers and also the forum posting volume through mobile devices has recently surpassed those through PC devices.

The final pillar of our growth strategy is to build out our offering in aftermarket in the used car sectors. Those continue to be an early-stage market in China, but we are confident that this is a very important, a very promising market for the medium and long term. We continue to invest strategically here to ensure that we are positioned to fully maximize this long-term opportunity.

As you can see, in the first quarter of the year, we were right on track with our core growth strategy. And I am also encouraged that, as we enter the second quarter, we continue to make important progress with our new car e-commerce initiative, and I want to take a moment to highlight some of what we are doing.

This is an exciting area for Autohome, because it gives us a good opportunity to demonstrate how our unrivaled access to potential car buyers can translate into meaningful sales leads and ultimately into transactions for our dealer and automaker customers. As I mentioned on our last call, we are conducting trials of various e-commerce offerings; and in April we concluded our second major online sales promotion event.

This most recent promotion was similar to our November 11, 2013, event, although a smaller scale as we targeted only Shandong, Guangdong, and Jiangsu provinces, which was well received by dealers and automakers. Over the four days of the campaign, we successfully tested a promotion featuring coupons.

More than 1,700 potential car buyers purchased vouchers online that will be used to obtain discount of several thousand RMB on a new car purchase with participating dealerships. As of April 30, approximately 550 of those vouchers were used for car purchase, totaling more than RMB80 million in value.

We reported approximately double sales transaction for the same automakers in the same province compared to those during the November 11 promotion last year. We are very pleased with this outcome, which underlines Autohome's ability to generate highly relevant sales leads and deliver tangible sales results for its dealer and automaker customers. It also demonstrated how Autohome's flexible O2O platform could be leveraged for focused promotional programs targeting specific automaker customers, car brands, or geographies based on customers' needs.

Before I turn the call to Nicholas, let me summarize a few things. We continue to see an immense opportunity for Autohome in China. We are at the convergence of important industry trends in China's auto and online advertising industries. We have a very clear and multifaceted growth strategy in place to capture the opportunity that exists, and our results for the first quarter demonstrate how we are continuing to achieve our goals.

We are therefore very optimistic about the remainder of the year and our ability to drive positive results. On that note, I will turn the call over to my colleague, Nicholas, who will provide financial details for the first quarter.

Thank you, James. Hello everyone. Before I walk through the specifics for the first quarter, I would like to quickly recap further details on the seasonality of our business. In terms of contribution to full-year results, our first quarter is often smaller than subsequent periods, but gradually lift in that respect normally build as the quarter progress, with business in the second half being stronger than the first half of the year.

As James noted, despite the seasonal effect, we have posted some very strong results for the first quarter. It is worth mentioning and emphasizing again today the three key metrics we view as the most important measurements of our performance.

First, we continue to drive robust top-line growth for the first quarter by growing customer base in each revenue segment and increasing our average revenue per customer. Our net revenue increased 67.3% year-over-year in the first quarter in 2014 versus 2013.

Secondly, we have delivered very strong profitabilities. Net income increased 62.5% year-over-year for the first quarter in 2014 versus 2013.

Thirdly, we continue to generate significant cash. Net cash provided by operating activities increased by 94.5% year-over-year for the first quarter of 2014 versus 2013.

Let me spend a few minutes to drill down into those numbers and talk you through some specific detail for the first quarter. Note that our investments are RMB only in this discussion; but you can find equivalent dollar numbers in our press release issued earlier today.

Net revenues increased 67.3% to RMB342 million from RMB 204.4 million in the corresponding period in 2013. This increase was due to increases in both the Company's advertising services revenue and dealer subscription services revenue.

To give a bit more underlying details on revenues, advertising services revenues increased 51.8% to RMB225.9 million from RMB148.8 million in the corresponding period in 2013. This increase was due to an increase in revenues from both automaker advertisers and dealer advertisers.

The increase in revenues from automaker advertisers was attributable to an increase in average revenue per automaker advertiser, as automakers continue to allocate more advertising budget to Autohome's online advertising channels. The increase in dealer advertising services revenue was mainly due to an increase in the volume of advertising purchased by dealer advertisers as a result of our expansion into new geographical markets and deeper penetration into existing markets, together with an increase in the rates for the Company's dealer advertising services.

Dealer subscription services revenues increased 108.9% to RMB116.1 million from RMB55.6 million in the corresponding period in 2013. The increase in dealer subscription services revenue was mainly due to an increase in the number of paying subscribers, which in turn was a result of Autohome's expansion into new geographic markets and deeper penetration into existing markets. The Company sold dealer subscription services to 12,659 dealers in the first quarter of 2014, compared with 6,176 dealers in the corresponding period in 2013.

Cost of revenues for the first quarter increased 64.6% to RMB68.4 million from RMB41.6 million in the corresponding period in 2013, primarily due to increase in value-added taxes and surcharges, content-related costs, bandwidth and IDC costs, and depreciation. The cost of revenues included share-based compensation expense of RMB1.7 million and RMB1.6 million for the first quarter of 2014 and 2013, respectively.

Operating expenses for the first quarter increased 76.9% to RMB125.3 million from RMB70.8 million in the corresponding period in 2013, mainly due to increases in sales and marketing expenses, product development expenses, and general and administrative expenses. As a percentage of net revenues, operating expense for the first quarter increased to 36.6% from 34.7% in the corresponding period in 2013, as we continued to invest in the business in key strategic areas such as sales and marketing and product development.

To go into a bit more detail, we increased headcount across this important area as we hired more experienced salespeople to provide better service and support our most important customers, and added product development and other administrative staff to support our growing business.

We also increased marketing expenses and compensation -- we also increased marketing expenses in connection with the promotion of our brands through navigation sites. Lastly there was an increase in compensation, in line with the increased hiring as well as increased professional fees as a result of becoming a public company. These are all important investments in the future of Autohome.

Operating profit for the first quarter increased 61.2% to RMB148.3 million from RMB92 million in the corresponding period in 2013. Net income for the first quarter increased 62.5% to RMB121.9 million from RMB75 million in the corresponding period in 2013.

Basic and diluted earnings per share and per ADS for the first quarter were RMB1.16 and RMB1.08, respectively, compared to basic and diluted EPS in the corresponding period in 2013 of RMB0.75 and RMB0.74, 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 65% for the first quarter to RMB136.9 million from RMB83 million in the corresponding period in 2013. Non-GAAP basic and diluted EPS for the first quarter of 2014 were RMB1.30 and RMB1.22, respectively, compared to non-GAAP basic and diluted EPS in the corresponding period in 2013 of RMB0.83 and RMB0.82, respectively.

Turning to balance sheet and cash flow information, as of March 31, 2014, Autohome had cash and cash equivalents and short-term investments of RMB1,403.3 million. Net cash provided by operating activities in the first quarter of 2014 was RMB250.7 million compared to RMB128.9 million in the corresponding period in 2013.

Let me now address our outlook for the quarter ahead, which is Q2. For the second quarter of 2014, we currently expect to generate net revenues in the range of RMB472 million to RMB493 million, representing a 60% to 67.1% year-over-year increase. Again, I must mention that these comments on our outlook reflect our current and preliminary view on the market and operating condition, which is subject to change.

This concludes our prepared remarks, and now we would like to take any questions that you may have. Operator, please open the lines for the Q&A.

(Operator Instructions) Vivian Hao, Deutsche Bank.

Hi, James and Nicholas. Thank you for taking my questions, and congratulations on a great quarter. We have seen the competition from other auto verticals are up -- other online auto verticals. But also we have seen a few attempts of other e-commerce verticals -- for example, like the flash-sale site Vipshop -- trying to sell cars online.

Just would be great if you could provide us some perspective regarding the competitive landscape in terms of the auto e-commerce site. Thank you.

I think your question is about if we can shed more light on the e-commerce front, the competition from any end players. I think there are three group of companies working to promote e-commerce business model in China's market.

The first one will be Autohome like, which used to be virtual players, tend to have a very strong capability in terms of a [competent] business, and also the subscription business we can call Yellow Page business. Those companies, such as Autohome, try to get more into the transactions and direct selling costs through the Internet. However, they usually will work with the car dealers because the car dealers need to provide a car delivery and also the aftermarket services.

The second group would be some of the carmakers as well as some of the large chain dealers. For example, the Shanghai -- the Shanghai Motor actually launched a website called (spoken in Chinese). I think that represent another group of companies who are also working in promotion of the new car e-commerce business in China.

And the third group will be some of the e-commerce players. It could be a platform player such as Alibaba or some of the more vertical leaders, maybe Vipshop and some others. So I think those are the three main groups of players.

I think this is very early stage. At the end of the day, as long as we [be] leaders in the marketing [economy] I think whoever can provide the best user experience, the best customer service to the dealers and carmakers -- because we are all trying to be a channel -- will actually win in the market.

So right now for me, probably it is premature to speculate on the outcome of those kind of competition.

Okay, great. Thank you very much.

Piyush Mubayi, Goldman Sachs. I'm going to move on to the next question. It is from Ella Ji from Oppenheimer.

Thank you. Good evening, James and Nicholas, and congratulations on a strong quarter. I wanted to follow up with your discussion earlier regarding the three groups of companies involved. Do you think there are opportunities for you to cooperate, work together, with any of them, such as those larger channel dealers, in future?

Yes, and we are actually very open to any kind of collaboration between or among the three players. Actually, we are in the process of talking to some of the e-commerce platforms, if you may say that, in some of our future e-commerce projects.

I think this will be the [hope], the [interest], the [principal], will spur opportunities to share in collaboration. So we are (technical difficulty).

Do you mind sharing more color? When you are looking for potential partners, what are the things that you are looking for that you think will greatly complement with your assets and your user base in order to achieve a bigger business?

I think we are considering several factors. Just to name a few, for example, a payment method. Because currently we do have a challenge in order to collect a large payment amount over the Internet. And that is probably not in Autohome's expertise.

And I think Autohome, the capability or the invention of Autohome is our [cost], and our user experience and our relationship with the carmakers and the car dealers. But sometimes we need other people's help, so that would be one.

And probably the second one would be, even though we can target a majority of China's online auto consumers, however it probably is difficult for us to target a majority of China's online consumers. If we work with some of the e-commerce platforms, providing that the collaboration will work, and we work on it [and] we get enough exposure from that platform, then there is probability that we can get a traction for a majority of Chinese online consumers rather than only auto online consumers. To name two.

There could be other factors, like customer service, payment, the financing implementing mechanism. There will be a variety of things I think. Each and every player probably has its own strengths; and by working together, hopefully we can make the new car e-commerce a reality sooner than later.

Thank you, James. That's very helpful. Then my second question is relating to your sales campaign in April. How much revenue do you think you can receive from this type of sales campaign? And do you plan to have more such sales campaigns in the rest of the year?

Also, I just wonder if you can also talk about the margins that you achieve on such O2O services, comparing to your existing business?

I think that's a good question. However, as an Internet company I think our foremost priority is to create value, for the value creation. I think the monetization from our point of view will always come later.

So in this [instance] we're keen to understand the consumer's needs and also the dealer's and the carmaker's needs, and find a product can satisfy all three targets. And Autohome will -- in other [words], we [kept] putting that [in].

So we haven't really thought about the margins, how much money we can get. But just by doing more of these small-scale trials we think we should be able to finalize a product.

For example, I'll tell you one example what we are doing. The April 14 and the April 15 event is just one version of the commercial trial we are doing.

So that is, basically you purchase a cash coupon, RMB499; you [pay] Autohome and you get in [exchange] for a coupon that at certain dealers can exchange to cover RMB1,000. So that is some way (inaudible).

This is a [wide] service. But you still have to go to that specific dealer to negotiate a final price with that specific dealer. So this is one portion of the e-commerce commercial product, because we are a part of the [transaction].

There is a second one, what we call [Equal]. If you go to (inaudible) [Autohome.com.gear.my], the Autohome.com (inaudible) you actually can see there is an inventory, a listing of a [payer] with a fixed price, and that is another version of our e-commerce product. I think we are in the process of [crunching] more commercial product which try to solve [people's] problems.

By doing that, we also find the best solution to address majority of their problems. And it will be at least a difficult for [us] to (inaudible) in the field. So this has been the whole 2014, our whole project will be doing that.

And lastly I just want to emphasize, everything Autohome on the e-commerce side tries to do is to create value for consumers, for dealers, and for carmakers. And so by doing that I think going forward there will be chance for us to monetize.

Thank you very much and congratulations again.

Gene Munster, Piper Jaffray,

Hey, good evening, and I will add my congratulations. Just wanted to expand a little bit more on mobile. You have been testing a lot of different options.

Can you give us any indication about when you think that the monetization will be more impactful on the model regarding mobile? Thank you.

Okay. I think the way I see mobile are two fronts. Autohome, what we have in terms of our commercial [value], we have basically two type of services. One is advertising service, and the other one is subscription service.

So our mobile [translated] do not provide advertising services over the mobile (inaudible). Probably "do not provide" is not the right word; it's like a -- just (inaudible).

So only if the carmakers insist they need to advertising services to all (inaudible) on a mobile platform, we sometimes comply. But we do not aggressively sell that service.

However, on the other revenue [involving] issues, on subscription service, (inaudible) that same subscription service cover both sales that come from the PC platform and also come from the mobile platform. And if you do a math calculation on our DAUs on CP and the mobile platform, and you can easily realize that the mobile platform right now contribute a very significant portion of the sales leads to our dealer subscribers.

Do you disclose what "very significant" is? Is it more than 25%?

Currently, it is more than one-third.

Okay. And obviously (multiple speakers)

(multiple speakers) sales lead comes from the mobile platform.

Got it. Great. Thank you.

Piyush Mubayi, Goldman Sachs.

Thanks, James and Nicolas. It's Piyush. Congratulations on a solid set of numbers and your guidance. Can I just look at a few things and ask you a few details?

First, when I look at dealer subscriber growth rate, that seems to have accelerated. Could you shed some color on what has led to that growth?

And if you could also talk a little bit through what the ARPU has been; i.e., have the existing [cost] dealers been paying the same number, or have you been able to push prices up during the first quarter? That is my first question. If you don't mind, I will take it question by question.

Okay, so the question I heard was that, number one, is that adding -- the speedup, adding more dealer subscribers; and secondly, the price, that the added ARPU to the subscribers.

As I have mentioned in our previous call, we leverage a lot our relationship as well as the comparing ROI to the automakers. So our intention is to work with every single China's automakers, make sure they all have group buying contract for their underlying dealers.

So currently, the top 20 carmakers -- all the sellers in China, 19 of them we are assigned an official contract. The last one is -- we are in the process of signing that one.

So that [price] really help us to penetrate more cities, especially in Tier 3 and Tier 4 cities, because those are cities we just have launched ourselves over there. If we target to sell the service directly to individual dealers, it will take a much longer time for us to increase our penetration. But with the help of the automakers, it just make our life much easier.

Secondly is that we do increase our list price for the subscription business. However, because we have a lot more dealers in Tier 3 and Tier 4 cities, so currently the Tier 3 -- the Tier 4 cities, of which there are about like 200, almost 200 of that -- the total amount of paying dealers account for 20% of our more than 12,000 paying dealers. So the long tail of those lower ARPU dealers actually drag down the ARPU for all our paying dealers.

That is why in our first quarter, we didn't see any ARPU growth. I think we [obviously] didn't see any ARPU growth, and we expect this situation will be for the whole year.

Okay. My second question relates to the online sales promotion where you talked about RMB18 million being realized by the end of the month. Could you give us a sense of what the value proposition for the customer is?

How much does he save when he finally buys a car, after he pays also for -- I think you said RMB1,500, or something? I may have missed that number.

Yes, the value proposition for the consumer is very simple. It is you purchase a cash coupon which can be redeemed into cash at different dealers with a different amount of money. So for example, I'll just give you some examples. So the RMB499, you purchase a coupon; and one dealer can amount for -- can exchange of RMB2,000. Maybe in a different dealer a different car can exchange into RMB3,000.

So that is the value proposition. It is a little bit different than the one where you have -- where we have (inaudible) there.

Okay, and my third question relates to your very strong outlook for second quarter, where your guidance is your 60% to 67% growth rate. Could you break that down between advertising revenue and dealer subscription revenue, please, if possible? Thank you.

Yes, we have for Q2, I think the trend is (inaudible) in the sense that we have growth in both the advertising business and also on the dealer business. And as well we have mentioned previously on advertising business we will be able to continue to grow faster than the market. But of course the subscription growth rate will be even higher. So the trend remains.

Okay. Thank you very much and congratulations again.

Evan Zhou, Credit Suisse.

Hi, good evening, James and Nicholas. Congrats on a very strong quarter, especially on the growth of the dealer sub numbers. I have three questions.

The first one is on the sales promotion campaign that you mentioned three weeks ago. So you guys just mentioned that you recorded about double sales transactions for the paying automakers in the same province as compared to last year, November 11.

I am wondering like if you guys can share some color on the reasons behind that. Is it potentially because we have better targeting this time, or maybe we offer more attractive discounts? What are the changes that we make this time compared to last time to make it better net income performance?

I think I may have to disappoint you. Currently at this point, we only know the result; we actually haven't had an in-depth analysis on the [root] cost of that, those results. We just do an apples-to-apples comparison with the result from November 11, and we find out in those three provinces and for those automakers who worked with us and in the similar models they actually work, collaborate with us in November 11, the result actually was doubled.

But whether or not because of the price is more competitive, or maybe because we offer some other value-added service, what is the root cost? At this point, we don't know yet. We are still in the process of figuring things out.

Got it, great. Maybe another follow-up question on that topic as well. What is the [feel] for product [plan] on this kind of sales and marketing campaign? Will we do it more frequently, kind of normalize these events as ongoing events?

What is the potential reason for -- to do more and more? What is the factor that's preventing us from doing more and more of that? Maybe more color on that.

Oh, okay. I definitely can answer that question. I think the driver for us to introduce even more and more events is not to meet the customer needs; it is rather that using this trial-and-error mechanism to figure out what is the available commercial product we could execute in a sustainable way in the future. So in every single -- those kind of sales events, we have a list of -- internally we generate some hypotheses; and based on those hypotheses, we create some of the features and products.

You know, (inaudible) throw the mud on the wall and see which one will stick. And November 11 we learned something; April 15 we learned something. And hopefully through time when we add up enough and we will have a critical mass we can create a sustainable commercial product.

But on the other hand, you can feel free to try our Equal, that's the fixed-price commercial product. That is not an event; it's an ongoing basis that we tune that product here and there every day.

But because we are a company that -- we are also getting started first and then we communicate with the investor community. We [prefer] to wait a little bit and then we can share our findings and share our insight with you guys.

Great, thanks. Final question is on the margin trend. I am wondering like if (inaudible) some color on the margin [spend] for the following quarters and probably for next one or two years actually going forward. Thanks.

(inaudible) it is same as what I have shared in the last quarter, Evan. Overall, (inaudible) company. We had very strong margin performance, as you can see in the Q1 results.

But we will be looking to the [internals]. It's like we continue to get economy of scale and we continue to improve on the cost of revenue. Likewise we want to reinvest back into the business in terms of sales and marketing and product and development.

So you could see that (inaudible) the margin continued to be good. But overall, we think that there might still be some margin compression versus last year. But Q1 itself, the margin is still very strong, around [20%] on a non-GAAP net margin percentage.

Got it. Thanks. (inaudible), James. Very helpful.

Gregory Zhao, Barclays (sic).

Hello, James and Nicholas. Congratulations on the strong quarter, and thanks for taking my question. I also have several questions.

The first question is about the strong increase of the number of dealers. I think the number of dealers almost doubled compared to last year.

So in your mind, what do you think was the [geographical] market and what's the cap for the dealer increase? This is my first question.

Sorry. Could you say it again? What is the -- I'm not sure (inaudible). I understand it's with the dealer growth, but (inaudible) understand the question.

Yes, so I think your [money] was a cap and what's the addressable market of the number of dealers you think with the inventory reach?

Oh, so the cap of dealers, our dealer business growth?

Yes, will you eventually can get to a million-dollar subscriber?

And secondly, what is the driver, okay?

No need for driver, just the cap of the total number of subscribers.

Oh, the cap of total number of subscribers. So, based on our own analysis, in China there are about 30,000 authorized dealers. [They] may [not] be [fully] authorized dealers, but it may not be a [four-i] store; it could be a [three-i] store. But there are about 30,000 authorized dealers in China.

So that is the total number of dealer customers we have if we have 100% of market penetration.

(multiple speakers) Sorry, go ahead.

Secondly, because we know in some of the cities, when we introduced our business a couple years ago and basically when we calculate the market for multiple years, we can have a penetration rate as high as more than [70%] and it's still growing.

So we believe it will provide a compelling ROI of our products. We should be able to [cash] with that percentage across China.

Okay, thank you. My second question is about our April 15 promotion event. I think it is like a commission based e-commerce event. In the earning call last quarter you mentioned that some credibility issues might happen between the customers and the dealers.

So do you think that our current e-commerce product has fundamentally eliminated the probability of such credibility issues between the customer and the dealers?

I am not fully understand. You mentioned a credibility between, I believe, the consumers and the dealers. What would you mean?

Yes. For example, we provide a coupon at the amount of RMB499 and allow the customer to carry the coupon to get a discount, for example RMB2,000 from the dealers. So as the coupon is redeemed already, if the transaction is not done, they can get the money back.

So what if the customer -- they made a deal with a dealer, say: how about you give me a higher discount? And for example they just avoid Autohome to make off-line transaction with the dealers; do you think it is plausible?

Okay, I think in China's word it usually is called (spoken in Chinese), but it has nothing to do with the credibility. Basically it's the sales. You finish your sales and you close the [deal]. If you cannot close the loop, someone else get the credit and you couldn't -- well, too bad. Then you have to pay the price.

We have a mechanism to limit the probability of (spoken in Chinese). But feel free to send us an email, because this is probably too operational.

Tian Hou, T.H. Capital.

Hi, James and Nicholas. Congratulations on a good quarter. I have a follow-on question regarding the e-commerce or your promotional program. I realize it is just the beginning of the new initiative.

So if I could look out, if this kind of model become an ongoing base of business practice, applying to much bigger scale, what do you think about this e-commerce type of transaction-based model versus the subscription model? From a dealer's point of view, how are they going to perceive these two different models? Are they going to have preferences, like prefer one versus another? So that is the number one question.

Number two is that this quarter in your press release, you mentioned that you started to advertisement on the navigation site. So I wonder; the navigation site, are you going to continue to increase your spending on those traffic acquisition costs? Or what is the strategy, or what is the plan there? That is the two questions. Thank you.

Okay. So your first question is whether or not there will be conflict where there is a relationship between the e-commerce business in the future and also the subscription business.

I think this is probably not an either/or question because for November 11 event, also for this April 15 event, I would assume the majority of participating dealers are paying subscribers, are dealer subscribers. Because you need to understand the ROI we provide by our subscriptions and also the ROI we provide by our e-commerce product is different.

The subscription basically give dealers an access to get in touch with the online auto consumers in China. That is the first one. Secondly, give dealers the capability to process their sales leads through the Internet.

However, on the second one, on the e-commerce, it is just really based on that dealer's that [month's] or that day's own incentives to unload some of their inventories. So this is a case-by-case scenario.

I don't think we can have e-commerce available for all China's dealers at the same time. It's just not going to happen, because every carmaker has different issues, every dealer has different issues. And the issue will be different from time to time.

For example, now we are in May. The issue most dealers facing in June will be different than in May, because in June that is almost end of second quarter, and they probably need the sales volume. But in May, it will be a little bit different.

So having said that, basically my answer would be this is not an either/or answer. They can do both.

I see.

But I think the majority of the dealers are going to be our dealer subscribers. And some of them, depending on their own situation, are going to be the partners with us to deliver the e-commerce services to China's auto consumers. So that is the first question.

The second question is about the marketing campaign on the navigation side. But I have to say a little bit -- give you a little bit of background on the navigation side.

The navigation side for each link is a fixed price for a certain (inaudible). So basically cost per day or cost per time pricing model. And with that fixed price, no matter how much traffic in that same period of time we generate from the navigation side, the cost will be the same. So it is not a cost per click pricing model, rather than a cost per time pricing model.

In China, there is only a number of (inaudible) navigation sites. Currently, we are on every single one of them. Those on the [freeware] side, Ninja, and on also the (inaudible) side, (spoken in Chinese). And we definitely do not have the intention to withdraw from those navigation sites.

Thank you. That's very (multiple speakers)

You asked about the --

What is it?

I'm sorry. Go ahead.

So I asked -- also asking, going forward, are you planning to increase the budget for the navigation sites?

On those navigation sites, (inaudible) one, two, [three-and-a-half], six here, basically we cannot increase our position. There is only -- on their front page they can only sell one (inaudible) [two] links. On the cool side, and famous side; that's it.

It's an (inaudible). I never see any other company can buy the third link. So it's a little limited. We're maximized our occupancy already.

Okay. That's all my questions. Thanks so much.

Chao Wang, Nomura.

Thank you. I just wonder what is your view on the overall outlook for the auto market this year, and the implication for OEM and dealers' marketing spending? Thank you.

The question is overall outlook of auto market in China in 2014?

Yes, yes.

And your second question is the dealer advertising spending and the OEM spending?

Yes, thank you.

We do not have the exact outlook at this point. But I think we have the first two months' China's auto sales volume.

I think the year-over-year growth is 10%, and that is the (spoken in Chinese), meaning that it covers the light pickup truck or what we call mini economical commercial vehicle. (spoken in Chinese) So if you include that, the first two months of 2014 versus 2013 is about 10%.

So for the whole year, I really don't have a crystal ball, but I believe China's GDP this year probably is going to at the lower end of 7%, maybe even lower. And if you believe auto sector, the new car growth is usually in line with the GDP growth; I would assume in this year probably we're looking at 9% or 10%, give or take. So that is one.

Secondly, on the dealer marketing spending and automaker marketing spending, usually dealer marketing spending and automaker marketing spending is also -- is always a percentage of their total revenue. However, that is the marketing spending across all media platforms.

And to us, the relevant one is their marketing spending on Internet, and sometimes on Internet and mobile Internet. And that is the addressable market we can take.

And over there, we have seen a trend that -- it is happening for the last couple years, the dealers and carmakers starting to shift more and more out of advertising dollars from the traditional media to online media.

Understood. Thank you very much.

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

All right. So thank you very much for joining us today. We appreciate your support and we look to updating you on our second-quarter 2014 conference call in a few months' time.

In the meantime, please feel free to get in touch with us if there are further questions, concerns, or comments, or suggestions. Thank you, everyone.

That does conclude today's conference. Thank you all for your participation. You may all now disconnect.