Autohome Inc (ATHM) 2023 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by for Autohome's First Quarter 2023 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 call is being recorded. If you have any objections, you may disconnect at this time. It is now my pleasure to introduce your host, Sterling Song, Autohome's IR Director. Mr. Song, please go ahead.

Thank you, operator. Good evening, everyone. I'm Sterling Song. Welcome to Autohome's First Quarter 2023 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 Chairman and Chief Executive Officer, Mr. Quan Long and the Chief Financial Officer, Mr. Craig Yan Zeng. After the prepared remarks, our management team will be available to answer your questions.

Before we continue, please note that the discussion today will contain forward-looking statements made under the Safe Harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from our current expectations. Potential risks and uncertainties include, but are not limited to those outlined in our public filings with the U.S. Securities and Exchange Commission and the Stock Exchange of Hong Kong Limited. Autohome doesn't undertake any obligation to update any forward-looking statements except as required under applicable law.

Please also note that Autohome's earnings press release and this conference call include discussions of certain unaudited non-GAAP financial measures. Please refer to our press release, which 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 call is being recorded. In addition, a live and archived webcast of this earnings conference call will also be available on Autohome's IR website.

I will now turn the call over to Autohome's Chairman and CEO, Mr. Long, for opening remarks. Please go ahead, Mr. Long.

[Interpreted] Thank you, Sterling. Hello, everyone. This is Quan Long, Chairman and CEO of Autohome. Thank you for joining our earnings conference call today.

We got off to a solid start in the first quarter with total revenue increasing by 4% year-over-year despite a challenging auto market. Media services saw robust revenue growth of 35.5% year-over-year. Notably, revenues from TPP and data products returned to their growth tracks and the revenue contribution from new energy brands continued to rise, with the growth rate once again outperforming the market. We not only made solid progress in our businesses we also improved our profitability. Adjusted net income attributable to Autohome for the first quarter was up by 10.5% year-over-year, and our adjusted net margin remained at a comparatively high level of 31.5%.

We began the year by rolling out a series of initiatives to broaden the reach of our dual ecosystem, comprised of user service and customer service. On the user side, we launched our C-end "user-centric, creator-oriented, and making car life better" strategy to enrich our platform services, expanding from our previous focus on car consumption to capture all aspects of cars' life span. This shift is transforming our platform's overall content, to address a wider range of automobile consumers' needs. On the customer side, we have fully implemented our new Autohome Energy Space retail model and initiated franchise stores, to quickly replicate the service model according to plan. We have also made strides in product and technology creation, augmenting the application scenarios for our digital products and the new AI-powered data products for dealers. These advancements have broadened our business horizons with more comprehensive services offerings that help us maintain our competitive edge. Moreover, we also connected to Baidu's Ernie Bot, becoming its first ecosystem partner in the automotive information industry. Moving forward, Autohome and Baidu will jointly explore and propel the application of large language models.

Looking into 2023, we are seeing positive trends in the automobile market and expect it to maintain a steady upward trajectory. The penetration rate of new energy vehicles will continue to rise, and greater consumer demand will be released. We also look forward to additional supportive government policies, which will help further stabilize the auto market and encourage auto consumption. Meanwhile, we will strive to create a healthier and more vibrant ecosystem, serving our continuously expanding user groups and increasing our influence among car buyers and users. We remain committed to our open and inclusive development concept, leveraging our core business and technological innovation to reduce decision-making and transaction costs for our partners and achieving long-term high-quality development in this ever-changing environment.

Now with that, I will now turn the call over to our Chief Financial Officer, Craig Zeng for a closer look at our first quarter operating and financial results.

[Interpreted] Thank you, Mr. Long. Hello, everyone. I'm Craig Zeng, the CFO of Autohome.

During the first quarter, we continued to implement our C-end ecosystem strategy. On one hand, we strive to advance content innovation and enhance product experience to provide users with exceptional services. On the other hand, we focus on our content creator ecosystem, empowering creators across the areas of content, incentives, tools, and services to holistically encourage high-quality content creation. We've also formed a diversified content matrix that drive multi-channel user growth through new media and small program alliances.

For example, at the beginning of the year, we introduced a series of incentives at Autohome Creators Conference, resulting in a significant increase in the number of new authors and the daily amount of new high-quality content posted on our platform. On the content front, we launched 'Made in China' in the first quarter, an original IP combining auto evaluations with cross-border elements. It attracted a massive audience, generating more than 130 million views and over 840,000 interactions across the entire network. In addition, for the Shanghai Auto Show we utilized AR and holographic car-viewing technology to provide users with an immersive experience. The auto show generated over 24,000 pieces of content, resulting in a total exposure of over 4.8 billion. According to QuestMobile, Autohome's traffic scale has expanded rapidly since the beginning of the year. In March, our mobile DAUs increased by 42% year-over-year to reach a record high of 64.15 million, demonstrating our continued leadership in the automotive media vertical.

For our traditional business, our leads subscription package provides customers with a comprehensive range of products ranging from direct connection with users to intelligent empowerment of daily operations and the competitive landscape insights. By leveraging our advantages in traffic and data technology, we are able to support our dealer customers' optimizations and transformations with respect to user operations, expansion of profit points, operating decisions and more.

As we enhance our core business, we use our deep understanding of the industry to identify trends that support our ability to explore new opportunities, create innovative models, and expand our business to address potential growth avenues.

For our new energy business, we have been continuously optimizing and adjusting the operations process at our first offline experience store in Shanghai since its launch last September, by enriching user test-driving scenarios and shortening user decision-making cycles among other refinements. Our increasing number of cooperative customers clearly demonstrates the efficiency of our multi-brand services model. We've already reached cooperation with more than 30 brands and have started the construction of franchise stores, aiming to further expand the scale of our new retail services this year. In the first quarter, the revenue contribution from new energy vehicle brands continued to rise with a year-over-year increase of 67%, significantly outperforming the growth rate of broader industry sales.

Moving on to digital products. In addition to continuously upgrading our existing data products in the first quarter, we launched our EV Smart Cloud, a new product designed to address blind spots in new energy vehicle data and provide manufacturers with integrated data solutions. This product will greatly enhance our digital offerings' value. As for data products for dealer customers, we embraced and integrated new technologies to launch Smart Selection, an AI-driven tool which helps dealers quickly identify high-net worth users, effectively enabling dealers to release more production capacity and improve service quality. During the first quarter, we experienced a rapid upward trend in all of our key indicators for our data products for dealers. The number of dealer customers for data products, the average revenue of the data product per dealer store, and the average number of data products adopted by each dealer store all grew by double-digits compared to the prior year period. We are now entering the era of active intelligence operation, where model decision-making and human collaboration come together to create a powerful and efficient system.

Regarding the used car business, fluctuating new car prices in the first quarter put some pressure on the used car industry. However, Autohome's used car business unit, together with TTP, still achieved Y-o-Y growth, demonstrating the synergy between our businesses. Our used car business as a whole also maintained profitability. In the first quarter, through Autohome's matching and auction services, our platform accounted for about 21.8% of all used car transactions in China, representing Y-o-Y growth of nearly 2 percentage points. In terms of products, we've taken our comprehensive vehicle condition inquiry tool for used cars to the next level. The tool supports queries, including general car repairs and maintenance, collision repairs and new energy battery conditions, providing sellers and buyers with a transparent and reliable consumption environment. Going forward, we'll remain at the forefront of the used car industry, creating a one-stop full-service platform for used car users and dealers supported by our SAAS products.

Overall, Autohome is staying ahead of the curve by tracking the ever-evolving market and the user needs. We consistently push the limits of quality services, providing users with more comprehensive and diversified content, tools and services in addition to auto information. As an industry pioneer, we are committed to the concept of development through scientific and technological innovation. As such, we are rapidly advancing our core technologies and introducing new models to lead industry developments. Looking ahead, we will continue to devote ourselves to empowering the industry with cutting-edge technology, amplifying our competitive advantages, opening up new business areas, and achieving long-term high-quality development.

Next, let me walk you through the key financials for the first quarter of 2023. Please note that as with prior calls. I will reference RMB only in my discussion today, unless otherwise stated.

Net revenues for the first quarter were CNY 1.53 billion, up 4.2% year-over-year. For a detailed breakdown, media services revenue came in at CNY 361 million, an increase of 35.5% year-over-year. Leads generation services revenues were CNY 681 million, and the online marketplace and other revenues were CNY 492 million.

Moving on to costs. Cost of revenue in the first quarter was CNY 340 million compared to CNY 255 million in Q1 2022. The increase was primarily attributable to the growth of operational costs. Gross margin in the first quarter was 77.8% compared to 82.7% in Q1 2022.

Turning to operating expenses, sales and marketing expenses in the first quarter were CNY 523 million compared to CNY 592 million in Q1 2022. The decrease was primarily attributable to a decline in marketing and promotional spending. Product and development expenses were CNY 324 million compared to CNY 355 million in Q1 2022. Finally, general and administrative expenses were CNY 149 million compared to CNY 137 million in Q1 2022.

Overall we delivered operating profit of CNY 263 million in the first quarter compared to CNY 241 million in the corresponding period of 2022, representing an increase of 9.1% year-over-year. Adjusted net income attributable to Autohome Inc. was CNY 484 million in the first quarter compared to CNY 438 million in the corresponding period of 2022, representing an increase of 10.5% year-over-year.

Non-GAAP basic and diluted earnings per share in the first quarter were both CNY 0.98 compared to both CNY 0.87 in the corresponding period of 2022. Non-GAAP basic and diluted earnings per ADS in the first quarter were CNY 3.92 and CNY 3.91 compared to CNY 3.47 for both in the corresponding period of 2022.

As of March 31, 2023, our balance sheet remained very strong with cash, cash equivalents, and short-term investments of CNY 22.71 billion. We generated net operating cash flow of CNY 1.03 billion in the first quarter of 2023.

On November 18, 2021, our Board of Directors authorized a share repurchase program under which we were permitted to repurchase up to USD 200 million of Autohome's ADS for a period not to exceed 12 months thereafter. On November 3, 2022, our Board of Directors authorized an extension of the share repurchase program for another 12 months expiring on November 17, 2023. As of May 5, 2023, we have repurchased approximately 3.94 million ADS for a total cost of approximately USD 119 million.

With that, we are ready to take your questions. Operator, please open the line for the Q&A session. Thank you.

Certainly. We will now begin the question-and-answer session. (Operator Instructions) Our first question comes from the line of Xiaodan Zhang from CICC. Please go ahead.

[Interpreted] Congratulations on the strong quarter. So first of all, could you please share your views on the structural opportunities for the auto market in upcoming quarters? And also, could you update us on the progress of the new retail model for NEVs and your expansion plans for the offline experience in stores for the rest of the year? Thank you.

[Interpreted] As we all see, in the first quarter, we see that the auto market is a little bit sluggish. And according to the statistics of CPCA from January to March, the cumulative retail sales of passenger vehicle dropped by 13.4%. My reason is because of the early spring festival. And the second reason is because some of the car purchase preferential policies already expired by the end of 2022. And the cost purchase amount has been released in advance last year. And another important reason is because since March, we see that there is a very strong impact of domestic 6B policy. And there's also the price cut as well as the promotion and the price war, which further worsens wait-and-see attitudes to consumers. So in March, we see the passenger vehicle sales remained flat. However, if you look at the CPCA statistics released in April, there is a Y-o-Y growth of 55.5% and month-by-month growth of 2.5%. We see that price war has been fading away as the consumers are getting back to the reasonable consumption. And wait-and-see attitude is also mitigating. The entire auto market started to be stabilized and to recover.

You asked about the comparison between ICE cars and NEV cars, so generally speaking, you can see that ICE car market continues to be weakening. And you can see that the reduction of the sales continues to expand. In the year 2022, the ICE cars sales dropped by 13.3% Y-o-Y. And in Q1 of this year, there's a Y-o-Y decrease of 23.4%. Since March, Hubei province take the lead in the price cut as well as promotion and after that many other OEMs nationwide started to follow up and consumers started to hold their money and to wait and see a better attitude. So you can see that these are all imposing negative impact on the ICE car sales, well, at the same time with the further improvement of the NEV penetration, we believe that the sales of the ICE cars will be further squeezed.

In terms of the NEV, the NEV sales growth started to slow down. However, this momentum is still quite strong and its penetration keeps increasing. So since Q4 of 2022, the new car sales of the NEV started to slow down. And in Q1 of 2023, the Y-o-Y sales increased by 22.4%. However, the penetration already hit 30.8%. CPCA also forecasted that in 2023, domestic NEV penetration is expected to hit 36%. And just to conclude Shanghai Auto Show, we see the launching of about 150 new car models, among which almost 100 are NEV new car models and among the 1,500 cars in exhibition, more than half of them are actually NEV cars and becoming the mainstream of the auto show. So you can see that the competition of the NEV market is also quite fierce. We think that in the future, the NEV market still got a huge potential for the growth, and we are quite promising about the future development.

Besides from the policy side, in April of this year, NDRC also expressed that they will quickly improve the policy system. And also identified that after 2023, they're going to launch the tax incentives for the new car purchase. And since the end of April, a series of important working conference of the central government also pointed out that we should continue to consolidate and further expand the development strength of the NEV and also accelerated the facility divestment, including the charging pouch, energy storage, as well as the supportive power grid. Well, at the same time, you can see that many local governments are also launching their consumption incentive policies for Q1 just to promote the auto consumption.

With the stimulation of all of these favorable conditions and the policies, we believe that the car purchase demand will be gradually released for domestic consumers. We are quite bullish about the future trend of domestic or the markets, and we believe that since Q2, the national as well as the local government will continue to launch relative policies to promote the development of the entire auto industry. And auto market will gradually come to the stable development, and we're also trying to get even more promising future.

[Interpreted] Thank you Mr. Long for taking the first question and Mr. Zeng will take the second question. So this question is about the new retail model. And in Shanghai last year, we first launched our new energy offline experience store and which is a brand-new model and gain great recognition from our consumers and users can enjoy an immersive holographic experience in the Autohome Energy Space. And through the one-stop manner, we can actually have a 360-degree immersive experience of multiple new car models and the holistic dynamic breakdown of the NEV. And we can also have a lot of horizontal comparison of different types of the car models. This kind of new retail model really shortens the decision-making cycle of the consumers and greatly enhance the car purchase efficiency and also being recognized by the consumers.

This also gained great recognition from our OEM clients. So you can see that now the retail experience store has already entered into cooperation in terms of the holographic modeling with more than 30 brands, according to the plan in Q2, we're going to launch the franchising model and there will be two franchisee stores gradually being launched online. Well, at the same time, we're also going to start the franchise store development in the other cities in China, everything has been well underway. And in the second half of the year, all of the franchise stores will be gradually opened. And then we will share with you more information about our franchise stores.

So we think that this is actually a new trial for Autohome in terms of the online plus offline convergence model in terms of the new retail. And we believe that it will become one of our core competitive edges. So in the future, we will continue to focus on this online plus offline convergence model.

Thank you. Operator, the next question, please.

Our next question comes from the line of Ritchie Sun from HSBC.

(foreign language) I will translate it myself. First of all, can I ask about the used car business revenue growth, how is the recovery trend? And also, what is the profitability level right now? And how should we think about the 2023 revenue growth and the profit growth drivers for this part of business? Second part of the question is regarding AIGC and also large models, how should we think about the challenges and also opportunities brought to online vertical platforms like Autohome? And what is our plan to tap into this opportunity? Thank you.

[Interpreted] The first question is about the used car. So I think that in Q1, even though the new car price cut imposes some pressure for the used car business as a whole. However, you can see that for Autohome, we have a very good combination of our used business with TTP business, and we have entered into highly efficient synergy. So you can see that used car business as well as TTP business all experienced a growth in terms of the revenue, among which TTP revenue grew by Y-o-Y of 25%.

And in terms of the margin, you can see that for our traditional used car business, we have times of very good growth in terms of the marketing. While at the same time, TTP also keep generating profit and also realized the first ever profitable quarter. So you can see that for TTP, this is adopted the auction plus the testing model. So comparing with the used car business, the margin used to be lower. However, we think that in the future, we will continue to grow margin of TTP in a better way.

So talking about the drivers for the revenue as well as margins. So firstly, I talked about the used car business. Used business growth is heavily dependent on the car parc. You can see that overall car parc in China has been constantly on the rise. As a result of the used car business will also be on a rise. Over the past few years, with the limitation of COVID-19, there are fewer communications of off-line because you can see that out car business needs a lot of off-line communication because they are all the nonstandard products. So we believe that in the next 2 years, the used car business will develop in a very promising manner.

Another important driver comes from Autohome itself. We can see that in terms of the second-hand car business, we have been taking the lead. Besides, you can see that we're also going to place the synergy within our traditional used car business, TTP business, as well as Ping An Group as a whole. So we will continue to actually build the car buying and car selling one-stop plus SaaS product whole chain one-stop services platform so as to expand our competitive edge and to gain a leading position in the entire industry.

Second question is about AIGC. First of all, you see that AIGC is a tool. So the earlier you get familiar with this instrument and tool, the earlier you adopt it and use it, you will gain the early competitive edge. That is why we have been entered into cooperation with Baidu in the first time.

However, only AIGC itself is far from enough. We also need the other components in the entire ecosystem, including OGC, UGC, and PGC that to create a better content. So together with the content creator, we're going to create C-end ecosystem strategy. So besides, we also have the other AI smart instruments, for example, the Smart Outbound, the Smart Selection as well as the AI-assisted Dialogue Assistance, et cetera. So all of these AI instruments will help the dealers to cut their cost and improve efficiency.

Thank you. Operator, next.

Our next question comes from the line of Thomas Chong from Jefferies.

I have two questions. So first, can management share on our target for the data products and the plan for new product launch? My second question is on the use of cash, can management share on future plans. I will translate myself. (foreign language)

[Interpreted] So let me first take the question about the data products. In terms of our existing products, we will continue to optimize and iterate our existing data products and to further improve the effectiveness as well as the usability of the product because data product is different from the other ones. The users need to get familiar with the products and combine it with their own business so that to let it play the biggest role. So we will continue to further expand the coverage of the client base and to further enhance the penetration of our data products.

In terms of the new products, we also keep launching the new products. For example, in Q1, we have launched the EV Smart Cloud targeting the OEM clients. And we also have the Smart Selection as well as the other data products targeting the dealer clients. So in the future, we are going to combine our decision-making models as well as the manual synergy, so as to launch much more proactive smart operation products.

And in Q1 of this year, the paying users for the dealers data product already exceed 20,000. And you can see that the per store average corporation product as well as the per store revenue, all got double-digit growth. So we are quite bullish about the future data product developments for the dealers. And we also have already developed a SaaS plus the CRM product matrix. We're going to strengthen our investment and input in data technology as well as product R&D, so as to maintain our competitive edge in this area and also to facilitate and enable our clients in their digital upgrading and transformation.

Your second question is about how we spend our cash as well as the future plan. I think that Autohome is always financially sound. So as always, we have been increasing the proportion of dividend payout, and we have been increasing the payout ratio. In the future, we will continue to consider about increasing our return to the shareholders.

In terms of the shares buyback and repurchase, I have already elaborated on that, and I won't go into any details. So in terms of the business investment, we have been keeping a close eye on the potential business opportunities. If there are good chance we're going to increase the investment in particular in terms of the new retail.

Operator, maybe we take the last question, since time is limited.

Certainly. Our last question comes from the line of Brian Gong from Citi.

(foreign language) I will translate myself. Thanks management for taking my question. Despite the first quarter, the auto sales was kind of weak, our OEMs revenue grow decently. So can management share your view on the second quarter OEMs growth given, on one hand, auto sales still kind of weak, but on another hand, there have been a lot of new models rolled out in Shanghai Auto Show. Thank you.

[Interpreted] So to address this topic, first of all, I want to say that auto industry is a relatively long-term industry. So the short-term sales volatility and fluctuation will not significantly impact the OEMs as well as their marketing budget.

If you look at Autohome, the ad-related revenue, you can see that over the past several quarters, even though there are fluctuations on the market, however, our revenue from the ad business continues to be stable.

So I think that in terms of the market opportunities, you just also mentioned that on Shanghai Auto Show there launched a lot of new car models. And I believe that in the future, there will be a continuous launching of the new car models. And I believe that with new car launching, we also make more ads as well as the marketing expenses. So here, we would like to see more opportunities for us.

And for the traditional ICE vehicles, it will be a little bit more complicated. You can see that in Q1, the sales dropped by 23% Y-o-Y. So we think that in Q2, things will be even more complicated because there will be the impact of National 6B policy. So the OEM will have many different choices, for example, price cuts or they may adopt other measures to mitigate the circumstances.

So generally speaking, we think that in Q2, in terms of the ad business, there are both opportunities as well as challenges. Just like what I mentioned for our used car business, there are two drivers. The first thing is from the overall market performance. We would like to pursue general growth together with the market trends. And the other driver comes from our own services, we would like to expand and tap into the new areas and offer new services to our clients. So generally speaking, we're going to better serve our clients and to further improve our performance in the ad business.

Okay. Thank you, operator. That is the end of the Q&A session.

Thank you. We have reached the end of the question-and-answer session. Thank you all very much for your questions. I'll turn the conference back to management for closing remarks.

Thank you, everyone. Thank you very much for joining us today. I appreciate your support and looking forward to updating you on our next quarter's earnings conference call in a few months' time. So in the meantime, if you have any questions or comments, please feel free to contact us. Thank you very much. Goodbye.

That concludes today's conference call. Thank you for participating. You may now disconnect.