Autohome Inc (ATHM) 2016 Q1 法說會逐字稿

Thank you for standing by and welcome to the Autohome earnings conference call for the first quarter 2016. (Operator Instructions). I must advise you that this conference is being recorded today, Wednesday June 1, 2016.

I would now like to hand the conference over to your first speaker today, Vivian Xu, Autohome Investor Relations Manager. Please go ahead.

Thank you, operator. Hello, everyone, and welcome to Autohome's first-quarter 2016 earnings conference call. Earlier today, Autohome distributed its earnings press release and you may find a copy on the Company's website at www.autohome.com.cn.

On today's call, we have Mr. Nicholas Chong, Autohome Chief Financial Officer. After the prepared remarks, 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 Autohome's IR website.

As a reminder, this conference is being recorded. In addition, a webcast of this conference call will also be available on Autohome's IR website.

Before we review our results, I want to directly address the non-binding going-private proposal we recently received. As we disclosed in our press release on April 18, 2016, our Board of Directors received a proposal on April 16, 2016 from a consortium to acquire all outstanding ordinary shares and ADS not already owned by the consortium and the Board of Directors has formed an independent special committee consisting of Mr. Ted Tak-Tai Lee, Mr. Guangfu Cui and Mr. Junling Liu, all of whom are our independent directors, to evaluate this proposal.

In addition, we notice that one of our shareholders, Telstra, announced at April 15, 2016, the sale of its 47.7% interest in the Company to Ping An Insurance Group. Completion of this transaction is subject to the required Chinese regulatory approvals and Autohome Board approval.

We do not intend to comment further and we ask for your understanding so that we can focus this conference call on our first-quarter operational performance and business opportunities.

I will now turn the call over to Autohome's Chief Financial Officer, Nicholas.

Thank you. Hello, everyone. Thank you for joining our first-quarter 2016 conference call. Before I start discussing our first quarter results, our view is that for each company to succeed, it must compete well in three dimensions, namely, the right market with the right product portfolio and precise execution. None of these three fundamentals have changed for Autohome as of today.

For the first factor of total addressable market, we estimate that our total addressable market has increased to over RMB400b since we entered the online market transaction space. Given Autohome's current revenue base, we still have a lot of opportunities for growth in this market.

Second, our product portfolios provide the basis for long-term competitive differentiation. That is obvious based on our user traffic and engagement as well as the value propositions we have provided to many of our OEMs and dealer partners over the past few years. We will continue to pursue our performance-based product development in fulfilling each stage of our users' ownership lifecycle with the corresponding stage of our auto partner sales cycle.

Finally, precise execution. We still have the same team and employees who have dedicated and focused their professionalism in growing Autohome's revenue by 2.8 times from RMB1.2b in 2013, the year of our IPO, to RMB3.5b in 2015.

We will continue to execute the three strategic priorities we mentioned earlier this year which are to grow our current consumer audience, to drive the expansion of our core advertising and lead-generation business, and finally, to significantly grow our emerging transaction marketplace.

So let me start the discussion of our first-quarter operations. Our first-quarter performance is the direct result of our structured alignment of the leading online advertising media platform, the fast-growing lead-generation platform, and the ramping up of our transaction platform, in driving Autohome's double-digit revenue growth, exceeding the top end of our original expectation.

Effectively, this means that we're on track in executing these three strategic priorities. First, we have continued to grow our consumer audience. The combined number of average daily unique visitors to our mobile website and mobile applications reached approximately 16m as of March, representing about 65% year-over-year growth and about 16% quarter-over-quarter increase.

Our mobile advertising revenue grew 178% compared to the same period last year, accounting for 26.6% of the OEM advertising revenue. The primary reasons for the traffic growth are the increasing brand value and the differentiated offering of our platform in retaining and attracting automobile consumers in China as well as the strong collaborations we have got with branded partners.

In addition, we continue to create innovative content, products and services that drive the consumer audience and empower them in making the optimal decisions for their car purchases.

Our multimedia contents, whether originated from us or our users, continue to reinforce and accelerate the overall network effects. For example, the content of our blogger program has significant enhanced and expanded since its launch in mid-2013. These bloggers are attracted to publish on Autohome's platform because of the unique and large user base focused on automobiles. And the same users' keen interests are able to retain the bloggers on Autohome platform for increased publications.

As of the end of the first quarter 2016, there were close to 1,500 bloggers on our platform with monthly publication of close to 3,200 posts and monthly unique visitors of over 25m.

Second, in driving the growth of our core advertising and lead-generation business, we continue to differentiate our value propositions to auto makers and dealers with higher ROI results. Consequently, our core media and lead-generation business continue to show a solid growth of over 32% in Q1 2016, which was within our expectation.

Within our media services business, branded OEM advertising continued to be solid, although regional advertising by our clients slowed down a bit as some of this advertising is being moved into a client central advertising budget. We expect such trends to continue so that our media services business growth will lag behind our lead-generation business.

Now on our lead-generation business, we offer am powerful value proposition to our dealers because of our ability to reach a large and engaged base of automobile consumers, thus extending the reach of the dealers' physical showroom to millions of online users in China and generating sales leads for the dealers.

This year, we are even more focused on solutions and technology development in order to fine tune our user experience in generating improved conversion rate and higher ROI for the dealers. One of such solutions is our shopping assistant services that leverages the C2B model in providing personalized attention, customized knowledge of products and pricing in order to not only precisely match the consumers and suppliers but also to significantly enhance the efficiency of the purchasing process.

For example, within shopping assistant we first aggregate extensive vehicle inventory and pricing information for the potential shopper, with enhanced transparency. Then we have a professional team of members who meticulously guide the individual shoppers through the purchasing process in order to precisely match the shopper with the vehicles of his or her dream. The shopping assistant service is currently deployed into several tier one cities. We plan further expansion by the end of 2016.

Now I'd like to spend some time on a transaction marketplace, our third strategic priority. In 2015, we decided after careful analysis of the market, consumer trend, Autohome's intrinsic capabilities and competitive advantages and test trial end 2013 and in 2014, to enter early into this nascent market and build an early-mover advantage.

Our number one position in user traffic and user engagement in our sector has allowed us to build massive and comprehensive data about consumer demand and behavior. Our data and behavior analytics will increasingly help us match consumer and supplying partners such as dealers and OEMs with whom we have long-standing relationship.

Beyond an expanded total addressable market, our transaction Mall platform will bring us increased revenue and commission fees from OEMs and dealers. As we generally enhance customer experience, improve transparency and improve the efficiency of the sales process for all parties, we will solidify our brand equity, market leadership and financial performance.

We are encouraged by the 4,957 new vehicle transactions we completed on our platform during the first quarter. About half were from direct B2C vehicle sales and the other half from commission-based facilitations. This is a strong proof that consumer demand exists. We expect consumer adoption to grow, although at this very early stage, it's still unclear how fast.

Now let me give you a brief overview of how the business works currently. We sell select special models from our OEM partners for which we are granted online exclusivity. Unlike traditional dealers who are typically limited to selling one brand and have to take whatever inventory the OEM sends them, there is potentially no limit to the number of brands we can sell and we have enhanced flexibility of inventory size.

Meanwhile, we will work to further expand our OEM partnerships and support our OEM partners with their online marketplace initiatives. Internally, we will continue to focus on optimizing our transaction infrastructure in order to further reduce our costs such as logistics and inventory control, etc.

Looking ahead, we are very focused on achieving our 2016 target. We currently estimate that our direct B2C sales volume will surpass the commission-based sales volume. In addition, I do want to caution investors that given the early development of our online market business, transaction volume may be somewhat volatile from quarter to quarter. This is pioneering work with no preceding historical competitive data and visibility is somewhat limited.

This being said, we remain strongly confident in our vision and the opportunities for an early mover who has the largest user base and an extensive area of information content, services, big data and behavioral analytical capabilities and well-developed ecosystem of OEMs and dealerships.

Now let me summarize our financial performance for the first quarter. Note that I will reference RMB only in this discussion. But you can find equivalent US dollar numbers in our press release issued earlier today.

Net revenue for the first quarter increased 75.5% to RMB1,093.5m from RMB622.9m in the corresponding period in 2015. This surpassed the high end of our initial guidance, primarily due to robust growth from our core advertising and lead-generation business as well as the new transaction-related revenue as we are capturing more of the automakers' budget with higher ROI and more diversified services.

As you may recall, starting in the first quarter of 2016, we are changing our revenue reporting for better transparency as our business continues to grow. So in terms of revenue breakdown, media service revenue which primarily includes automaker advertising services and regional marketing campaigns conducted by certain automobile brands' regional offices, increased 22.6% to RMB442.1m from RMB360.8m in the corresponding period of 2015, representing 40.4% of total revenue.

This robust growth is primarily driven by an increase in the average revenue per automaker advertiser as automakers continue to allocate more of their advertising budgets to Autohome's online advertising channel.

During this quarter, lead-generation services revenue which was previously reported as dealer yellow page business, and mainly included dealer subscription services, advertising services sold to individual dealer advertisers and other value-added services, increased 46.8% to RMB384.1m from RMB261.5m in the corresponding period of 2015, representing 35.1% of total revenues.

The increase was primarily attributable to a year-over-year increase of 31.6% in average revenue per paying dealers, as dealers continue to allocate a greater portion of their budget to the Company's services.

Lastly, for the first quarter 2016, online marketplace revenue, which is primarily composed of direct vehicle sales and commission-based services to facilitate transactions on our Autohome Mall platform, contributed RMB267.3m, representing 24.4% of total Q1 revenue. This new business is mainly driven by direct vehicle sales which accounted for 93.5% of the online marketplace revenue.

Moving onto cost of revenue, the 271.7% increase year over year to RMB383.4m was primarily driven by the cost of goods sold of direct vehicle sales. Excluding the transaction cost of the vehicles, the cost of revenue for our core media and lead-generation business has increased 34.2% year over year, resulting in a gross profit margin of 83.2% for the first quarter in 2016. However, given the nature of an early development stage of our transaction business, the overall gross profit margin for first quarter 2016 was at 64.9%.

Now, let's take a closer look at our operating expenses by line item. Note that I've mentioned in the past that while we are investing into new growth opportunities in accordance with our plans, we are very cost efficient and prudent with our overall spending.

Sales and marketing expense in the first quarter was RMB329.1m, or 30.1% of our revenue, down 5 percentage points as a percentage of revenue year over year. The increase in the absolute amount is primarily due to increased headcount and related compensation costs as well as marketing expenses.

Product and development expense was RMB115.5m or 10.6% of revenue, relatively stable compared to the corresponding period in 2015. The increase in the absolute amount is primarily due to increased headcount and related compensation costs in support of our rapid growth.

Finally, general and administrative cost was RMB72m or 6.6% of revenue, relatively stable compared to the corresponding period in 2015. The increase in the absolute amount is primarily due to increased salaries and benefits.

As a result, total operating expenses for the first quarter increased 62.4% to RMB516.6m from RMB318.2m in the corresponding period in 2015. However, it is important to note that as a percentage of revenue, operating expenses were down to 47.2% from 51.1% year over year.

Even with the increased expenses during the quarter, we still delivered strong profitability. Operating profit decreased slightly 4.1% year over year to RMB193.4m primarily due to the gross margin profile changes I already mentioned because of the online marketplace.

Adjusted net income increased 49.1% to RMB294.4m from RMB197.5m in the corresponding period in 2015. Basic and diluted earnings per share and per ADS for the first quarter were RMB2.16 and RMB2.11 respectively, compared to RMB1.49 and RMB1.44 respectively in the corresponding period of 2015.

I'd like to point out that one of the reasons for our net income increases is the fact that one of our wholly owned subsidiaries was qualified for a preferential tax rate of 15% for three years from 2015 to 2017. This change in the enacted tax rate resulted in a one-off tax benefit of RMB69.4m, which was recorded in the first quarter of 2016.

As of March 31, 2016, our balance sheet remains very strong with cash and cash equivalents, restricted cash and term deposits of RMB4.4b. Net cash provided by operating activities in the first quarter was RMB162.2m, compared with RMB283.9m in the corresponding period of 2015.

As we have discussed in the past, we believe the strength of our balance sheet and cash position is an important competitive differentiator that provides us with great financial flexibilities. Also the inventory level for our direct B2C sales in the first quarter was relatively healthy.

However, I want to point out that given the business model of our transaction marketplace, as I explained earlier, there will be some volatility in inventory turnover which is why we will continue to focus on optimizing our transaction infrastructure in order to further reduce our logistic and inventory cost, as I already mentioned.

Before I move onto guidance, I'd like to emphasize that in order to execute our strategy in 2016, we will invest in several areas, such as mobile traffic enhancement, marketing and branding of Autohome, with certain event-driven campaigns as we have deployed historically, and headcount increase in support of our business expansion.

Let me now address our second quarter 2016 outlook which reflects our current and preliminary view on the market and operating conditions that may be subjected to changes. I'd like to caution investors that given the early development of our online market business, the transaction volume and the related revenue may be somewhat volatile from quarter to quarter, although we will try our best in providing the guidance based on the current visibility.

So currently, we expect to generate net revenue in the range of RMB1,323m, or $205.2m to RMB1,376m or $213.4m, representing a 53.7% to 59.8% year-over-year increase.

In summary, we are pleased with how the business performed in the first quarter of 2016. We continue to execute well, deliver double-digit revenue and net profit growth, manage cost effectively and make sound investments that we believe are the necessary foundation for sustained long-term growth.

With that, I'm ready to take your questions. Operator, please open the line for Q&A.

(Operator Instructions). Amanda Chen, Morgan Stanley.

Hi, good evening, Nicholas and Vivian, thank you for taking my questions. I have two here. The first one is regarding your second quarter guidance. I think the first quarter result is quite good but the second quarter guidance seems relatively slower than the consensus numbers. So could you please elaborate the reasons behind this soft guidance? Thank you.

Okay, I think -- Amanda, I think the first quarter -- sorry, the Q2, I think the core business continue to grow around 30%. So for the transaction business, I think for the whole year, we are still looking at 30,000-plus, 30,000 to 40,000 units. It's just that seasonality, I think, is more skewed towards the second half of the year.

Got it. Thank you. So for your full-year transaction volume target, it still will be around 30,000 to 40,000?

Yes. Currently, we are still holding on to the 30,000 to 40,000 units. Of course, it will base on the actual execution, just like in Q2, I think we have signed up a couple of -- two more additional OEMs, I think the volume will more coming in in the Q3. Yes.

Got it. Thank you. And a second one is a small question regarding your net profit. I think it's higher than people's expectations because of a tax benefit this quarter. So can you tell us what's the benefit from? Also, what's the future trend in the next few quarters? Thank you.

Okay, this is actually because we've successfully gotten the high tech status for one of our subsidiaries, from 2015 to 2017, because the former certification came in in early -- in 2016. That's why we are recording the one-time-off tax benefit in Q1. Actually, we have also reflected that in our 20-F.

Okay, got it. Thank you. That's my questions.

Thank you.

Ming Xu, UBS.

Good evening, Nicholas and Vivian. Thank you for taking my questions. So I have three questions. The first one is on your -- the revenue breakdown of the media and lead-generation business. I think the classification of that two segment is slightly different from your previous segment of advertising and dealer business, so could you maybe give us a breakdown for the -- obviously, in your Q1 result, you give the breakdown for Q1 2015 number of that two business lines. So for the Q2 to Q4 of 2015, what the respective revenue will be for the -- sorry, not will be, was -- for the media and lead-generation business? That's my first question.

So you're asking for the -- I think what I can share with you is that overall, I think for the whole year, I think we'll still grow the media and lead gen around 30%, as we communicated before. Going forward, because we started to change the revenue presentation effective Q1, so right now we've only been -- it's why when we announced the results, we will also show the corresponding period of prior quarters.

Okay, but could you maybe give us now the media and lead-generation business revenue for Q2 through Q4 of 2015? So that maybe gives us a better comparison base when we look at the revenue numbers for Q2 to Q4 of this year.

So I think, Xu Ming, we will get back to you on that.

Okay, no problem. So my second question is on -- could you -- it's on the margin of the media and lead-generation business, so I understand that because you only started the transaction business, so understandably, the margin is lower, so could you give us some color on the margin of the media and lead-generation business in Q1 and how that compared to the past few quarters?

I think if you look at the -- just on the gross margin of the core business, it's about 83.2%, as I mentioned just now in the script. So I think last year this time was about 83%, so as far as the core business, the gross margin is -- remains at 83%-plus.

So that's the thing. And then the overall margin came down precisely because of the transaction marketplace margin being lower.

So is it possible to have operating margin for the traditional -- for the traditional business?

I think the traditional business is still running at -- regarding the margin profile, it's more or less the same as previously. We have some improvement in efficiency, but at the same time, we will continue to reinvest back into the business, because there is some -- for example, on the media side, we're continuing to invest in acquiring more users, coming up with more, better content.

And then on the dealer business, we also have some new businesses, like for example the group buy and the CPS, so we will -- as I said, the margin on the existing business, on the media and lead gen, will be more or less the same as before. Yes.

Okay, got it. A final two small questions on the financials, so firstly, so we noticed that share-based compensation in Q1 actually rose significantly compared to Q1 of last year, particularly in the general and administrative expenses line. So could you maybe elaborate on that?

Sorry. Your question is our share-based compensation has --?

Rose significantly in Q1, particularly in the general and administrative part. So could you maybe elaborate on what is the reason for that?

Because there are some new grant in 2016 Q1.

Okay, okay, okay. Nicholas, one final question, so I noticed from the 20-F that in last year, in full-year 2015, so in the cost COGS line, the content-related cost rose significantly from around 6% of revenue to around 8.6% of revenue. I think that is related with the spending on video-related content last year, so how do you see that part, content-related cost, the trend going forward?

And also, for the other parts, like depreciation and bandwidth and tax, all of those actually declined as a percentage of revenue, so how do you see those parts, the trend going forward? Thanks.

I think if you look at -- I think as I -- if you look at the gross margin for the existing business, I think it will be around the 82%, 83% range. So obviously there are some items that may go up, adding and some will come down. This is in line with what we have been trying to manage.

Again, there are important things. Like for example you mentioned about video, obviously that is important with more and more -- more broad usage, I think it's important that we enhance the video content, because content is one of our differentiators, and we want to continue to do well there. So we spend more, but at the same time, we try to get -- and we get cost efficiency -- cost efficiency from some other items. So overall, the gross margin is intact, yes.

Got it. Thanks.

Thank you.

Terry Chen, HSBC.

Hi. Good morning and good evening, everyone. Thank you, Nicholas and Vivian, for taking my questions. I would like to ask about your traditional advertising business. The combined media lead-gen revenue is growing very healthily in Q1 at 33% year over year. May I know how sustainable do you think the growth will be into the next few years? I'm particularly interested in your view from the ARPU expansion angle. Thank you.

Thanks. I think the -- I think one thing we are able to continue to see is that we continue to gain market share. I think that is why we're encouraged, because you can see that our first quarter numbers, also, we grow significantly higher than our peers.

I think that's -- I think as we said previously, I think for this year, we will be able to grow about 30%, around 30%. I think you have to continue to work on it and improve on it. I can't say for now for things that is a few years down the road, but I think we will continue to spend our -- invest correctly and build a team and grow the business.

So that's on the media side. On the ARPU, I think if you could look at Q1, actually, for the lead-generation business, our ARPU went up by 31.6%. It's partly due to the increase in price in the subscription, but more importantly, it's because we have expanded and provided more services to our dealers. Like for example, beside the subscription, we sell dealer advertising. We have CPL and CPS, so we give them more, broader services and product portfolios. That's why we can see that ARPU continued to increase.

Very helpful. Thank you. Just a quick question. On the operating margin level, the product development expenses increased 42% sequentially. Could you give us more color on that, and any guidance on the operating margin in the second half, when your transaction business starts to accelerate, would be very helpful. Thank you.

I think there are two parts of your questions, right? I think the first one is on the product development. I think one of the costs of the business -- I think that a good Internet company must have this strong and technical product development. That's exactly why we spend money on that, bringing in the good people and building the system and processes, trying to build -- and on those -- expand capabilities, big data analytics in order to make sure that -- especially to take advantage of our big consumer base.

That's why we will continue to spend on the product and development. I think on the overall -- I think margin, I think as we shared previously, I think the increase in profit from the existing business, we believe we will be able to offset the investment in the new businesses. Yes.

Okay, great. Thank you.

Thank you.

Nora Zhang, Merrill Lynch.

Good evening, Nicholas and Vivian. Thank you for taking my questions. I have two questions. The first one is about the transaction business. Just now, you mentioned we installed 4,900 cars in the first quarter, so just give us the breakdown of direct sales and commission-based volume. And my next --

Yes, I think of the 4,957 units, I think you can basically think it as half half -- from a unit standpoint, half half between the buy out and commission. But from a revenue contribution, buy out is about 93.5% of the revenue.

Got you. And my second question is about the headcount expansion. I noticed that our headcount increased by 400 this quarter. How many additional headcount are we expecting this year, and how many headcounts for transaction business are currently? Thank you.

So I think we will -- by end of the year, we will be around 5,000. First, we will manage it tightly, so I think as for now if you ask me, I will say around 5,000. Currently, in the transaction business, we have about 355 headcount, so we will end the year around 500, so we will expand it in a disciplined fashion.

And then there's one thing, discipline -- let me also elaborate. Discipline also means that we will be in line of course with the volume that we are driving, so we will manage that closely.

So I just have a quick follow up. If we are looking at 5,000 headcount to year end, so it means that we are adding a lot of the headcounts in our traditional business, because our transaction business is looking at 500. So why do we have to add so many people in the traditional business?

I think that is we haven't talked about the used car business, as well. I think used car business at the end of the year will be around 800.

Okay, got you. So I also have a third question about the transaction revenue in first quarter 2015. So I notice that we have RMB0.6m back one year ago. So what's that revenue from?

So you are saying that it was -- so, Nora, I think there's a RMB0.6m in Q1 2015 for transactions.

Yes.

Yes, that is because of the flash sales. As you know, we actually have a small --

So we're actually recording coupon business into our transaction revenues.

Because -- yes, because from Q1 this year, we reclassified our revenue into media, services and online marketplace, so we went back and do an apples-to-apples comparison. That's why there was a RMB0.6m. But of course, it's very negligible. But to your question, it's linked to the flash sales, because we have been doing flash sales from 2014, from autohome.com with the coupon, right? Yes.

Yes, got you. Got you. That's very helpful. Thank you.

Yes.

Alvin Jiang, Deutsche Bank.

Hi, Nicholas and Vivian. Thank you for taking my question. I have two quick questions. The first one is --

Alvin, could you speak louder? I think we barely hear you.

Sorry. Is this better?

Much better. Yes.

Okay, great. The first question is on the margin side, actually. I guess when you just began the e-commerce transition, you had a target like keep the non-GAAP operating profit, the absolute number stable or flat year on year in 2016. I'm not sure if this is still the target for your target on the operating profit side.

Yes. I think on the non-GAAP, I think yes. I said just now that the incremental profit that we get from the existing business is able to offset the investment in the new business, so yes. So the question is yes.

Got you. Okay.

I would say yes to your question.

Got you. The second question is on the disclosure. Actually, can you give us more color on the new business breakdowns or how many advertisers and what's the ARPU in the first quarter of 2016?

Sorry, Alvin, you're saying -- could you repeat the question?

Like in the media services, could you give us a breakdown, like what's the number of automaker advertisers and what's the ARPU? And also, for the lead-generation services, so what's the number of paying dealers per quarter and what's the ARPU?

I think right now what I would say, because we have changed the way we present the revenue, but what I could share with you, like on the dealer side, first quarter, we have about -- more than 20,000 dealers that pay for our lead-gen services, more than 20,000.

Got it. Got it. Thank you. This is very --

ARPU, as I said just now, we saw a 31.6% ARPU year-on-year increase.

Nice.

For the overall dealer lead-gen services.

Got it. Got it. I have a very quick follow up on the cash flow. I noticed in the first quarter of this year, the cash flow has a year-on-year decline of 42% or 43%. So what's our long-term outlook or view on the free cash flow or the operating cash flow?

I think what you could see is that Q1, the operating cash is still increasing. It's just that it's versus Q1 last year that it's increasing at a slower rate. Last year, I think we increased by RMB203m. This year, we increased by RMB162m. So it's still increasing. So that's why you could see that right now, our cash and cash equivalent has increased to RMB4.4b.

Versus Q1 last year, the operating cash has dropped a bit. The rate of increase has dropped. It's because we started to engage in the new car e-commerce, where we have to spend -- set aside some money on the inventory to buy the inventory.

Hello, Alvin?

Thomas Chong, Citigroup.

Hi. This is [Sung] on behalf of Thomas. Thanks for taking my question. I have two questions. The first one is about the used car business. So could you please comment on your used car business, like how many used cars did you sell in the first quarter, just to help us to better understand how big this business is? And could you share with us any color on the market trend of used car e-commerce business in China? This is my question. Thank you.

I think the -- first of all, the used car business, I think it's still at the early stage, so it is really not that meaningful to talk about the operating margin and so on. Yes, so I think it's still at an early stage, but we think that this is an important initiative that we need to work on, and that's why we will work on it in a disciplined fashion.

I think we think that it's opportunities that will come with the next few years, so that's why we need to gear up for that.

My second question, is there any color on your Internet financing initiatives? How many of your transactions are financed and total financing amount and your strategy going forward? Any color would be helpful. Thank you.

Well, I think we have -- we are working on the -- we recognize the opportunities in the Internet financing. That's why we have a team working on the financing, and also we have a JV that was formed end of the year to look into this opportunity.

So I think right now the business is still at a very early stage. I think we'll get back to you probably in the next several quarters.

Robert Cowell, 86Research.

Hey, Nicholas. Thank you for taking my question. I wanted to ask about the mobile advertising revenue. It seems quite strong in the first quarter and actually is bucking the normal seasonal trend, if I'm not mistaken, where normally you would expect ad revenue to be down quarter on quarter in the first quarter. So my question is what's driving the strong growth in the mobile ad revenue, and do you have a target for the contribution from mobile by the end of this year? Thank you.

I think first of all, we're very encouraged by the trend. I think if you look at the first two quarters of last year, it was about 12%, 13%. Second half was about 20%. So I think right now, first quarter, we came in at 26.6%.

I think the growth is because of the -- it's really because of the adoptions of mobile usage by the consumer. You can see that our mobile DAU has superseded the PC DAU quite a bit. Mobile DAU has increased to 16m right now as of Q1, so that's why we expect the mobile as a percentage of the whole-year advertising revenue continues to grow. So I think we should be able to exceed 30%, conservatively.

Okay, thank you.

There are no further questions at this time. I will now hand the call back to Nicholas Chong for any closing remarks.

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

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