Autohome Inc (ATHM) 2016 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by for the Autohome's fourth quarter and full year 2016 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 any time.

It is now my pleasure to introduce your host, Vivian Xu, Autohome's IR Manager. Ms. Xu, you may begin.

Thank you, operator. Hello, everyone, and welcome to Autohome's fourth quarter and full year 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. Yan Kang, Autohome's President and Mr. Julian Jiun Lang Wang, Autohome's Chief Financial Officer. After the prepared remarks, Mr. Kang and Mr. Wang 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.

I will now turn the call over to Autohome's President. Mr. Kang, please.

Thank you, Vivian. First, on behalf of everybody here at Autohome, I'd like to wish you all a very happy and prosperous New Year of the Rooster.

Now the fourth quarter of 2016 was the first full quarter in which we were able to implement our 4+1 strategy. And here I'm very pleased to report that our revenue increased over 86% year-on-year to over RMB2 billion. Adjusted net income in the fourth quarter grew by 38% year-on-year, to RMB446 million, which translated into an adjusted net income margin of 22%.

Our core media and leads generation business both generated very solid year-on-year revenue growth, increasing 33% and 40% respectively. Online media -- supported by our precision marketing -- sales capabilities has become even more critical in driving our clients' business in China's highly competitive auto market.

By leveraging our solid business fundamentals, and reputation as China's leading online auto media, we were able to deliver greater value to our client by working very closely with both OEMs and dealers to capture an extensive array of online media resources, much more than can be found in traditional media. For example, our open content platform, continues to expand in both breadth and depth, attracting a larger number of young people, who spend more time to share content with their social peers.

As of the last month of 2016, the number of our average daily unique visitors to our mobile services have exceeded 17.5 million, which is a solid 27% increase year-on-year. Our mobile advertising revenue grew by 113% as compared to the same period last year, accounting for roughly 33% of our media service revenue.

Again, all of these clearly demonstrate our market dominance, increasing brand equity, broad portfolio of products and service and our ability to sustain our growth momentum as we give consumers a unique experience for customized auto information and services. With our strategic vision laid out and our teams aligned behind that vision, our OEM and dealer clients have also showed very strong confidence in our operations and have strengthened the partnership with us.

For example, we have integrated new technology into our dealer digital platform during the last quarter, adding innovative new service offerings, which enables our dealer friends to effectively engage with millions of online consumers, who use our network every day, generating higher conversion rate and returns. These also led to more dealer loyalty and stronger monetization on our end.

Despite some doubts and uncertainties some people may have from the management transition in the middle of last year, it is now evident that we have put Autohome back on an even stronger growth path. I'm very pleased that our total 2016 revenue has increased by 72% from the year 2015 and adjusted net income margin by 24%.

Now looking forward to 2017, we're extremely confident that our 4+1 strategy, which we believe will strengthen our foundation for sustained growth in the future. Our core media and lead generation business will continue to be the pillar in driving revenue growth throughout the coming year. We will expand further our open content platform to focus on an even wider array of original content, create new communities and build a unique and personal experience for individual users based on better understanding of their profiles.

We're also upgrading our dealer platform with integrated intelligent features such as our AR showrooms. This will greatly enhance our dealer clients' ability to interact and engage with their consumers through better customer relations, channel and payment management systems.

In addition, we will leverage our strong performance and experience in managing an integrated campaign, as evident from the Singles' Day auto festival that we have successfully held in the last few years, through a series of monthly campaigns throughout 2017. This will allow us to unlock the high value assets that our media advertising, lead generation, offline network and diverse value-added products are able to create within our ecosystem.

Now, turning to auto e-commerce. As I mentioned last time in our Q3 conference call, we have made adjustment to our new car e-commerce business by stopping the asset-heavy direct selling model. Consequently, we have cleared most of the direct sales inventory during the fourth quarter of 2016, as well as the first two months in 2017, with approximately only 3,100 units remaining, which we anticipate to clear in Q1 of 2017.

Looking forward, we will continue to focus on developing our asset-light new car e-commerce platform and leveraging our deep consumer data analytics to optimize the matching and clearing process between consumers and local suppliers. Also, our new car e-commerce revenue will be driven primarily by commissions and fees charged from facilitating transactions.

Our goal, however, for 2017 is to validate our new model and increase our transaction volume through consumer and auto supplier user thickness, making them more dependent on our platform for transactions. With this, we will have completed the entire e-commerce loop, capturing all consumer data, beginning with marketing and ending with the final purchase. While we currently do not expect this business to generate significant revenue in 2017, we do believe this model shift, paradigm shift is a potential core value for our long-term sustainable growth.

Finally, our focus in 2017 for other emerging businesses, which include our used car e-commerce platform, auto-finance and auto-lifestyle, will be on building solid platforms, expanding traffic volumes and enhancing the underlying infrastructure to make sure that we have the flexible and adaptable model to adapt to a rapid changing market environment.

These businesses may take some time to bear fruit and will require persistence and commitment to skilled execution, which is by the way the very strengths that have made Autohome who we are today. We're very confident that our tremendous assets, hard work and investment will deliver significant long-term shareholder value.

To conclude, I'm very pleased to see that the uncertainty caused by the management changes in 2016 is well behind us. We are now having a clear defined strategic plan in place, a strong and stable management team, laser-like focus on developing solutions to better service customers and suppliers and a resourceful and loyal partner as Ping An group.

Leveraging all these assets, we'll be able to build a comprehensive, consumer-centric auto ecosystem. We're very excited at the possibilities that we are seeing in the market today and we are fully charged in expanding our market leadership, enhancing our brand equity and delivering sustainable future growth and profitability.

I'd like to thank all of you, Autohome employees, users, clients and shareholders for all your trust and contribution to our continued success. With that, I will now turn the call over to our CFO, Julian, for a closer look at our Q4 financial results and business outlook. Julian.

Thank you, Yan. Hi, everyone.

As Yan has already highlighted, we are very pleased to report another strong quarter. Please note that I will reference only RMB in my discussion today.

Net revenue for the fourth quarter is up 86% year-on-year to RMB2,015 million. This was only slightly below our original guidance and that slight shortfall was simply due to part of the new car inventory cleanup; it's pushed back to first quarter 2017 from accounting standpoint.

Other than that, our core business delivered a very strong performance. Among all, our media revenue is up 33% year-on-year to RMB732 million, representing 36% of total revenue.

This robust growth is driven by our increasing share of automakers' marketing budget and is again a proof that we are automakers' partner of choice when it comes to online media platforms. In fourth quarter, lead gen revenue is up 40% year-on-year to RMB556 million, representing 28% of total revenue. This increase was primarily attributable to ARPU increase and is strong evidence that we continue to build up dealers' trust in Autohome.

Lastly, online marketplace contributed RMB727 million in revenues, 97% of which is from direct vehicle sales. However, as we mentioned earlier, we are deemphasizing this direct sales model and you should expect much less revenue contribution from this business line going into 2017.

Now moving on to cost, cost of revenue was up to 257% year-on-year to RMB961 million, the bulk of which is the cost of vehicles we sold directly. Our blended gross margin is down to 52% in the fourth quarter, including the impact from inventory write-down of RMB16 million.

In total, the inventory write-down was RMB50 million for full year 2016. Excluding new car direct sales model, the gross margin of our existing business was 83% for the fourth quarter 2016, versus 84% in third quarter 2016.

Now, let's take a closer look at our operating expenses. Sales and marketing expense in the fourth quarter was RMB517 million, up 57% year-on-year, much lower than our revenue growth rate of 86% growth.

Product and development expense was RMB168 million, up 106% year-on-year. This represents our commitment to investing in technology and talent. Finally, G&A expense was RMB95 million, up 41% year-on-year, and representing only 5% of our total revenues.

As a result, we delivered operating profit of RMB274 million. On top of that, we also recorded a tax benefit of RMB104 million in the fourth quarter, which was derived from change in the effective tax rate of one of our subsidiaries. As a result, adjusted net income attributable to Autohome Inc. is up 38% year-on-year to RMB446 million.

Non-GAAP basic and diluted earnings per share and per ADS for the fourth quarter were RMB3.87 and RMB3.82 respectively, compared to RMB2.86 and RMB2.79 respectively in the corresponding period of 2015.

As of December 31, 2016, our balance sheet remained very strong with cash and cash equivalents, restricted cash and short-term investment of about RMB5.7 billion, and we generated cash flow of RMB792 million in fourth quarter versus RMB687 million fourth quarter a year ago.

Let me now turn to a short summary of our 2016 full year results. We continue to drive significant revenue growth of 72% to RMB6 billion.

In addition, we also delivered an adjusted net income over RMB1.4 billion representing 29% year-on-year growth. This would not have been possible without strong execution and prudent cost controls.

Before I move on to guidance, I would like to reemphasize a few important points. First, as we change to a more asset-light new car e-commerce model, you should be expecting a lot lower revenues from this business line going into this year.

Secondly, we have also completed the headcount reduction as a result of strategic shift in select business lines with a total headcount of 3,752 as of end of 2016, down from 3,965 at the end of third quarter. These two factors combined, we shall be seeing a P&L structure that is more tailored to our new strategy.

Let me now address first quarter 2017 outlook, which reflects our current and preliminary view on the market and operating conditions that may be subject to changes. At this point, we expect to generate net revenue in the range of RMB1,268 million to RMB1,319 million. This represents roughly a 25% year-on-year growth in our core operations on top of revenues around RMB260 million by our inventory cleanup.

In summary, we are very proud of what the team has collectively achieved so far and we are all very excited about what we could achieve in the quarters to come. We will continue to invest in technology and content, and we are committed to serving users and customers in ways no one else could.

With that, we are ready to take your questions. Operator, please open up the floor.

Thank you. We'll now begin the question-and-answer session. (Operator Instructions).

Our first question comes from Amanda Chen from Morgan Stanley. Please go ahead, your line is open.

Hi, management. Thank you for taking my question. I have three here.

The first one is regarding your 2017 core business revenue guidance. Just wondering, are you still confident about the 25% to 30% year-on-year growth?

I think many investors are concerned that given the slowdown of new car sales growth and the increasing competition from the newcomers, such as Jinri-Toutiao -- how will you approach this growth target? And also, are you -- this target, how much of the advertising revenue will come from the non-auto advertisers? Thank you.

Thank you Amanda. This is Yan. Very happy to address your question.

It is clear that after the very robust market growth in 2016, particularly in Q4, we have been seeing some slowdown in the overall market in Q1 of 2017. We're hearing stories from various market participants seeing -- coming back with similar message.

Now, our forecast of our revenue projection of 2017 however, is not entirely dependent on what you call the macro market factor. The reason for that is because this confidence that we are holding in the outlook is very much driven by a number of factors, market being one.

But more importantly, an evolution of our media platform from just an advertising servicing model to a more solution-driven provider to our OEM and dealer friends. So, that includes advertisement, plus data services, plus content campaigns, plus integrated online-offline operations that is aimed to translate our client's media advertising investment into a more comprehensive value-added system. So, we are still rather confident in our overall outlook in 2017.

Having said that, we do also recognize that new media types such as Jinri-Toutiao and more players, sometimes fragmented players like the KOL some of the -- from WeChat and Weibo, for example -- are putting a pressure into the traditional players and we are actively addressing that. And the view that we see in Autohome's trends to defend the erosion of those lead players is exactly as I described earlier, is to go in deeper into the customer experience journey.

Not only the awareness, education, media exposure but rather a continuation of conversion of those attention to media exposure into transaction, into a lifestyle -- into a lifecycle engaging experience throughout a consumer's lifecycle. And this is where we intend to take our business in the next few years to go.

Got it. Thank you.

Just a quick follow-up. So, to win the 2017 target, how much revenue will be from the non-auto advertisers?

Yes, for non-auto advertisers -- first, we are being extremely cautious in the experiment that what we call -- what you call, non-auto advertising. Now, we do have a vision to expand Autohome beyond just an auto portal.

We do have the auto-lifestyle and when you talk about auto-lifestyle, you're talking about automotive and an adjacent array of various topics, like travelling, like leisure, like social networking and so on and so forth. So, one of the derivate of that is as much leisure topic that we can engage with our consumers, and that includes some in the non-auto space, but again, those are adjacent, auto-adjacent spaces.

So, we are controlling our non-auto advertisement into mostly just adjacent categories. But as we're experimenting, and we're learning, we are in the process of fine-tuning our features, we're also closely monitoring consumer conversions of various types of advertisement.

I think it's too early to say -- it's hard yet, that, in terms of percentage or revenue. But we are at same time experimenting, being bold and at the same time conservative, making sure that first and foremost we safeguard the interests of our consumer, but at the same time offer them a much wider variety of various options, including some lifestyle adjacent to automotive service.

Got it. Thank you. And then I--

Ladies and gentlemen, please limit yourself to one question. Our next question comes from Terry Chen from HSBC. Please go ahead, your line is open.

Hi, thank you. Kang Zong, Julian, Vivian for taking my questions. I have a more big picture questions.

So, with the 4+1 strategy in mind, let's say it's three to five years down the road, how do you envisage Autohome's business and revenue mix to evolve? What kind of new value proposition you want to bring to OEM, dealers and your online users in the medium- and long-term? Thank you.

Okay, this is a very good question. Actually, it's a question that's really very hard to address, because I do believe a business would only be able to be vigorous if we aim for the long-term rather than just purely for the short-term.

Now, our belief is that Autohome needs to evolve from an auto-media online platform into an ecosystem of platforms to allow various players in the market to benefit from the traffic in user thickness we generated, that's in a broader sense.

From a consumers' perspective, we wanted to make sure that we capture not only the auto-buying experience of consumer, which includes doing online research, compare different models, look at reviews, classifieds, placing online orders, maybe engage with offline dealers so on and so forth. But more importantly, to get into their ownership lifecycle, which is how do you maintain a car, how do you service the car, how do you have fun with your car?

And it goes on to when you dispose with your second-hand car and trying to resell a new car. Throughout the process, you have financing need, you have need to form network groups of people with the same interest, you have a need to use your car to travel to make friends, to engage in ventures and so on so forth. So, that's what we want to do.

We wanted to be an all-in-one place where consumer find it easy, to be the one destination to find everything they want. And we want to make sure that our data analytics will be allowing each consumer to have customized offering services, even in anticipation, even before they realize their needs (inaudible).

So, with that, we need to organize our ecosystem service providers, business partners to make sure that supreme consumer experience is being delivered. And that is where Autohome will be different from Jinri-Toutiao which still focus very much on the media side.

That will allow Autohome to be also different from other e-commerce platform like Alibaba or JD, which focus primarily on the transaction side, which also make us different from the self-media, like Weibo and WeChat, in that we are putting -- we are threading all the pearls together into a beautiful necklace. As a consumer, we'd have everything they need, surrounding the auto-lifestyle.

So, ultimately, it also goes back to the 4+1 we described, which is media, which is e-commerce, which is finance, which is lifestyle. Lifestyle eventually is what encompassed and sort of stick it together. At the very center of it is really data, so how do we understand our consumers through their behavior, how do we anticipate their needs through their behavior, how do we amalgamate all the service providers, making sure they have the tailored and adjusted services where, right, when they want it.

Thank you for the answer, very helpful.

Right.

We'll take our next question from Nora Zhang from Bank of America. Please go ahead, your line is open.

Good evening, management. Thank you for taking my question.

I have two questions. So first you mentioned that automakers continue to allocate more budget to us.

Could you share with us approximately what percentage we share in the overall automaker online budget? And how much do I estimate the auto ad online penetration in 2016?

My second question is regarding the operating margin. In the fourth quarter, we noticed that there is -- we have become more aggressive on mobile traffic acquisition and the operating margin has declined a little bit comparing to the third quarter.

Could you give us some color, 2017 outlook on the margin front? And also what is the effective tax rate we expect in 2016?

I can answer the first part of your question regarding the market allocation, the fund from budget, and maybe I'll refer to Julian for the more number-related questions that you have.

Roughly, rule of thumb, online media spending represents roughly 50% of all automotive marketing budget. Also rule of thumb, vertical portals represent roughly 50% of all the online spending of OEMs, okay, so it's 50% of 50%.

Now within that percentage, Autohome continued to increase our share, as compared with our competitors. If you look at the average growth of who else you'll be following, their number was more likely to be single digits. We have year-after-year delivered very high double digits.

Now in this case, in the last year, over 30% of growth and we continue that number -- well, we anticipate to continue that number in the 2017. So, that means we are increasingly very aggressively grabbing share. Now our current share is roughly spending around 50% of that portal, so 50% of 50% of 50% is what you're talking about and that number is kept on rising.

Thank you. That's very helpful.

Nora, this is Julian. Let me address your second question, which is on the operating margin side.

Now if you look at the fourth quarter 2016 numbers, I will suggest that we look at the cost items in more details. They are all recurring events.

For example, in particular, the product development headcount increased from 787 in fourth quarter the year 2015 to close to 1,400 by end of last quarter. So, there is a substantial headcount increase in product development departments.

Therefore, we do have a larger cost base, which again is a proof that we are investing into technology and talents and we will be carrying this cost base going into year 2017. But also, there are non-recurring events in fourth quarter 2016.

For example, we booked a cost of over RMB50 million as a result of accelerated vesting of stock options of the previous management team who have left the Company already. This is a one-off event and also, we booked an inventory write-down of RMB16 million in fourth quarter as well.

So, overall speaking, we may be seeing a higher cost base going forward, but that higher cost base in turn is also helping us fuel further revenue growth going into the next few years. You also mentioned about the rising marketing expenses.

Now in fourth quarter we did spend a bit more on mobile traffic acquisition, but as Yan mentioned in his earlier remarks, we are upgrading our user experience and as a result, we do expect to see more organic traffic going into this year. So, in summary, on the marketing side, we do not expect the marketing expenses to grow as much as our revenue growth. I hope that answers the question on the (multiple speakers).

Thank you, (multiple speakers) what about the tax benefit question, effective tax rate?

Right, now your third question on tax benefit, in fourth quarter last year, we did record a tax return of about RMB100 million in fourth quarter. Now going into year 2017, there is a likelihood that we may also receive a tax benefit.

At this point we are not sure because the tax authority actually changed the rule and they will review year-by-year. So, at this point, we just don't know for sure yet. If you look at the effective tax rate excluding the tax benefit, you can actually assume that in year 2017, we shall have an effective tax rate similar to the level you see in the year 2016.

Thank you.

Our next question comes from Ming Xu from UBS. Please go ahead, your line is open.

Good evening, Kang Zong, Julian and Vivian. So, I have two questions.

So, first one is on the non-auto ad and also the platform business for the self-media. So, could you maybe give us some quantitative measurement or color on how much those two lines will account in the total OEM advertising revenue for the full year 2017? And also, how do we compare the margin of this business with traditional OEM advertising?

The second question is a house keeping one. So, we noticed that your app was delisted from App Store for roughly a week, several weeks ago.

So, maybe could you maybe elaborate, share with us the potential revenue impact in Q1? Thanks.

Okay. Thank you, Xu Ming.

I'm not sure if you got our first question asked by Amanda, which we have talked about the non-auto ad. Basically we're experimenting with non-auto ad in tandem with our expansion of our topics to auto consumers into some of the adjacent lifestyle categories.

But at this stage of time, it's just too very, very early to put a revenue estimate on that, because we're still testing water and making sure that we have the right balance between customer experience and also making sure that the ads were being perceived positively and adding color to our intended ultimate lifestyle platform.

Now on the platform advertisement, which I think you're probably talking about the (inaudible) type of volume exchange, right?

Yes, so basically the one where we enlist all the self-media content providers and have a revenue sharing mechanism with them.

Yes, again, we're in the early stage of experimenting with that. For us, having the right model, making sure it's the right recipe in our future endeavor is more important than the number itself.

So again, we're not putting any number behind it. It's more important for us to make sure that we have the right recipe and mixed elements.

Sure, but how do we compare the profit margin number of these different various business format?

Yes, by definition, their profit margin will be lower than our advertising revenues. Particularly, when you look at our advertising revenues, there will be no longer just advertising revenue, because as I mention again and again, our advertising will be more integrated with content marketing, data, services, online and offline integrated services.

So, media advertising will be only an integrated element, where our OEM friends put their budget behind. So, it will be harder and harder for you in the future to see advertising revenue as a standalone as a traditional sense, because it simply will be moving into much more richer context in the years to come.

Sure, sure. And on the second question?

Well, it's basically a hiccup in our updating process of our app, technically. It's just a technical hiccup, some communication with Apple, but we're very happy to sort it out.

Well, frankly I think if it was in China, it will be much faster, but Apple is an American company. They don't work on weekends and sometimes they rely on emails to communicate. So, it takes a little longer, but we actually realized the hiccup in the first hour it happened and got it solved within three hours and the rest waiting time is from the Apple side.

So, what do we think about the -- is there any -- will there be any revenue or traffic impact because of this hiccup?

None whatsoever. None whatsoever, if you look at -- well if you had access to our mobile traffic, we actually -- our mobile traffic hit historical highs three times in the few weeks after Chinese New Year, historical high. So, the hiccup probably had really negligible impact, but in the grand scheme of things, we're really growing our traffic very nicely.

Got it. Thank you.

(Operator Instructions). Our next question comes from Alvin Jiang from Deutsche Bank. Please go ahead, your line is open.

Hi, management. This is Maria on behalf of Alvin Jiang. So, thank you for taking our question.

We have two questions here. So, first one is on the new business initiative about the car finance and the used car business. So can management share some detailed business plan or the recent update for these two businesses, and also maybe the revenue outlook?

The second question is on the cooperation with Ping An group. Is there any update on the project working with Ping An? Thank you.

Okay, good questions. Auto finance is an integral part of our 4+1 strategy, and used car e-commerce is also a very important element in our bigger e-commerce platform.

When we outline a 4+1 strategy, I do remember we have roughly right now the direction of each and every one of those businesses. That is, for the transaction business, is going to be asset-light, we're going to focus on online, particularly our data analytic advantages, and our online traffic to make sure that we do the transaction facilitation, very much like what you see in Taobao in early years.

Now with regard to auto finance, again, those are not auto finance, off-shelf as you see in the banks and other financial institutions. Those are tailored, customized financial products that are entangled or embedded in our transaction businesses.

The only thing I can say is that in 2017, our biggest priority is to make sure we grab the right model we spared all the details, all the devils and angels and the very details of execution of the transaction realization and that is our first and foremost task in 2017. We're not actually putting any number behind it.

Quite frankly we're very happy, we're very okay with not seeing much revenue growth in those business as long as we believe the model we're detailing is creating the right consumer thickness, dealer business partner thickness, is making sure that our stretch for advantages of Autohome is being fully embedded into those business model. That's really the priorities for 2017.

I'll just say we don't have a number behind it. We do think in 2018, which is about 12 months from now, those businesses will become pillars of our future growth.

Now again, how do we monetize is another question. Remember, Amazon took a decade to monetize, JD will also take quite a while to monetize and how fast we monetize is another question.

We want to make sure that in 2017 the focus is making sure that we have the right model and from 2017, we'll gradually monetize. The pace of monetization will very much depend on the situation at that point in time.

It depends on the market dynamics, depends on our ambition, it depends on our competitors' actions and so on and so forth. So still too early to comment on that, but the devils and angels will be spelled out in details in 2017.

Now, your question on Ping An synergies. We are very early in our when Ping An came into Autohome in the middle of the year, starting a series of projects. Now, all of these are business as usual.

So will not be any big projects like -- sort of initiative between Autohome and Ping An. It's more like you know we're already one in the sense that our BUs are interconnected. There are a lot of activities happening daily with regard to how we leverage Ping An's financial product design capabilities to tailor everything financially to our transaction.

At the same time, as we mentioned in our last call, in our Singles' Day campaign, there are a lot of online and offline synergies integration between the online expertise of Autohome and also the offline networks of Ping An. That will continue to happen.

So, you will not see anything popping up (inaudible). It's business as usual. We do have the strong backing of Ping An and now Ping An is our majority shareholder, it is even a stronger message that Ping An is fully behind supporting Autohome initiatives that we're undertaking.

Our final question comes from Liping Zhao from CICC. Please go ahead, your line is open.

Thank you Mr. Kang and Julian. Thanks for taking my question. I have two questions for you.

The first one is about the strategy to grow our asset-light mode transaction. Can you elaborate on that?

My second question is about how many remaining asset-heavy mode vehicles do you need to be cleared in first quarter 2017? And correct me if I'm wrong, there will be no further asset-heavy mode transactions from Q2 2017 onwards, right?

Yes. Okay, I will try to answer your first question and I'll refer to Julian for the inventory clearing cadence if you will in the next few months.

Now, our asset-light model, I'll just take new car e-commerce for example, okay. So, instead of in the past we hold inventory and we buy the vehicle and we sell it ourselves, we no longer hold inventory.

On the other hand, we will allow dealers and OEMs to open online flagship stores on our platform. Now, we will use our traffic to guide transactions to our e-commerce platforms. Throughout every step of the consumer journey, we'll be able to track, analyze, anticipate and serve their needs, both in information and in financial needs, generating comparing options on an online and offline experience, and so on.

So, it will be a consumer-centric journey, woven through the services of our platform, financial service providers, OEMs, dealers and other partners. The consumer-centric model but with online element, online, offline elements, woven -- intertwined.

Now the value proposition of course is efficiency gain. We wanted to make sure that thread of pearls will offer a much enhanced transaction and consumer experience in that. That's the big picture story.

The details are very, very complex. That is why we're not elaborating too much and we'll be hoping you give the management the confidence and time in 2017 to execute against those detailed priorities. But the big picture I described is the picture that we hope will be delivering toward the end of 2017.

Now let me take the question around the inventory. At the end of third quarter we had about 13,000 units of cars in our inventory.

In fourth quarter, we actually secured contracts, over 11,000 units to dealers. You could only book revenues after the dealers have committed their payment. It's the call to them.

In short, from operating standpoint -- point of view, we have secured the deals, but we have not booked all of the revenues in fourth quarter. Of the 11,000 units we have sales contracts in hand, we only booked revenue for about 8,800 units in fourth quarter.

Now you also asked about how many units we have left. At the end of February, only two days ago, we had 3,100 units left in our inventory and like I said earlier, we have already secured sales contract for most of them, so in the next two months we are very confident that we will be selling and booked revenue for most of them in the next two months.

Okay. That's very helpful. Thank you.

As there are no further questions, I'll now turn the call back to your host for any additional or closing remarks.

Okay. Thank you very much to you all for joining us today. We really appreciate your support and we look forward to you updating you on our next quarter conference call in a few months' time.

Meanwhile, please feel free to get in touch with us if you have questions or comments. Thank you very much. Have a great evening, have a good day.

That will conclude today's call. Thank you for your participation, ladies and gentlemen. You may now disconnect.