Autohome Inc (ATHM) 2021 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by for Autohome's Second Quarter and Interim 2021 Earnings Conference Call. (Operator Instructions) As a reminder, the conference call is being recorded. (Operator Instructions)

It is now my pleasure to introduce your host, (inaudible) Autohome's IR Director. Mr. (inaudible) you may begin.

Thank you. Thank you, operator. Hello, everyone, and welcome to Autohome's Second Quarter and Interim 2021 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; Co-President, Mr. Haifeng Shao; Chief Technology Officer, Mr. Xiao Wang; Vice President, (inaudible) and the Finance Director, Ms. Hong Jiang.

After the prepared remarks, Mr. Long, Mr. Shao, Mr. Wang, (inaudible) and Ms. Jiang 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 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 Securities and Exchange Commission.

Autohome doesn't 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. Our 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 live and archived webcast of this earnings conference call will also be available on Autohome's IR website.

Now I will turn the call over to Autohome's Chairman and CEO, Mr. Long. Mr. Long, please?

[Interpreted] Thank you, everyone, and thank you for joining us today. We are pleased with the improving metrics across our new initiatives in the second quarter, along with margin expansion. Total revenues for the second quarter were RMB 1.94 billion. Revenue from our online marketplace and others business increased 10% year-over-year and contributed 30.7% to total revenue compared with 23.4% in the same period last year. Data products maintained a strong growth momentum, generating a revenue increase of 47.1% year-over-year, thanks to the higher contribution from OEM data products.

We are excited to report that with steady operating efficiency improvements, TTP broke even at the operating level for the first time in June, representing a significant milestone for us. We also made further progress in our cooperation with new energy vehicle automakers. During the second quarter, revenues from NEV brands jumped 238% year-over-year. Adjusted net margin in second quarter continued to expand, rising 2.7 percentage points year-over-year to 40.8%.

As the impact of global chip shortage on the new passenger vehicle sales market gradually deepened in the second quarter, the production and sales of new EVs in May decreased by 2.7% and 1.7% year-over-year, respectively. This trend continued in June with production and sales declining by 13.7% and 11.1% year-over-year, respectively. In addition, automakers were further impacted by the sharp rising cost of raw materials. As automakers contend with multiple unfavorable conditions, they're adopting an even more cautious approach to plan marketing budget, and our traditional business is facing great challenges.

On the other hand, China's auto market has continued evolving with mixed performance across different segments. The market has witnessed expanding trading volume for used cars and new energy vehicles are moving into the fast lane, highlighted by a secular growth trend in [mainly] sales. As a result, the automobile industry split widened.

In the wake of challenges and opportunities stemming from these industry changes, we continue to improve our C and B user experience while implementing theoretical management for B end customers to provide high-value services. All these moves underpin our efforts to maintain a solid fundamental across traditional business with industry-leading position. Meanwhile, by rigorously developing new initiatives across data products, new energy and the used car business, we are taking our second curve of growth to promote the long-term sustainable development of our company.

Specifically, our constant efforts in content enrichment are propelling our progress, and we are pleased to see our traffic continues to lead the auto media vertical, surpassing total traffic volumes of second and third players while maintaining our rapid year-over-year growth. According to statistics from QuestMobile in June, the number of average DAU who accessed our mobile website, primary app and the mini apps grew to 44.1 million, representing a 16% year-over-year increase. In addition, with the upgrade of our app, we further optimized user experience featuring more video form, live streaming and interest-based content offering. The latest version is poised to attract a younger demographic.

With regards to our traditional business, we believe we remain as a leader in terms of market share in the auto media vertical and continue to focus on key customers, prioritizing customer-type solutions to meet their needs while enhancing our service quality. We are also proactively expanding our service to the non-advertising business. For example, we help automakers with user operations, offering OEM direct access to their users and aggregate their own user assets. On the leads generation front, we continue to strengthen our position by providing dealers a set of operating tools such as live streaming and instant messaging to help improve their operations and the conversion efficiency.

Amid a fast-developing NEV market, we established a dedicated new energy business department to explore market opportunities. Through business model innovation, we are finding solutions to address industry pain points in branding, distribution channel and user operations, helping NEV automakers with emerging and growing opportunities. In the first half of this year, we cooperated with 20 NEV brands, resulting in a 238% year-over-year jump in revenues from NEV brands across our platform during the second quarter, far exceeding the growth rate of the NEV industry.

Now turning to the used car front, we believe 2021 is going to be a crucial year for Autohome and TTP as we are committed to deepening our cooperation for further success. With the acquisition of TTP, Autohome used car business has formed a C2B2C end-to-end business covering the full used car life cycle from selling to purchasing a used car, which enhances our ability to serve users and customers. And TTP supported by Autohome has improved its operations and the transaction efficiency. In June, TTP broke even at the operating level for the first time, a significant milestone for us that demonstrates great synergies between Autohome and TTP. We are also looking for other opportunities that could lead to a synergistic development and the extension of our auto ecosystem.

Moving on to our data products. Our consistent efforts in product optimization and effectiveness improvement has been gaining momentum among customers. In the second quarter, a total of 19 automakers utilized our data products and the total number of programs for intelligent new car launch and the intelligent marketing solutions was more than 30. As for data products, for dealers, we remain focused on product upgrade and the enhanced product value, offering a full spectrum of services from user acquisition, transaction, to maintenance.

In conclusion, we are fully committed to maintaining our leading position in terms of traffic and the market share in the auto media vertical, while exploring fresh pathways in new business areas. We have achieved meaningful progress in data, used cars and NEV businesses, and our strong balance sheet and profitability allow us to make investments in these key areas. We plan to announce our strategic upgrade plan in detail at the upcoming Investor Day on September 15 to seize more market share opportunities and ensure our long-term growth.

China is the world's largest new car market and the largest NEV market. China's used car market is also one of the fastest growing major markets in the world. However, in contrast to developed countries, China's car ownership per 1,000 people and the used to new car sales ratio still have huge growth potential. Going forward, we believe the auto industry will gradually recover from the temporary difficulties we are facing at the moment, and the long-term growth trend remains unchanged.

Looking ahead, with our strategy upgrade and our cooperation with Ping An in terms of internal resources, traffic and technology will unleash room for further growth, go beyond ourselves and bring more value to users and customers.

With that, I will now turn the call over to our Finance Director, Ms. Hong Jiang, for a closer look at our second quarter financial results.

Thank you, [Quan Long.] Now let me walk you through the key financials for the second quarter. Please note that as with prior calls, I will reference RMB only in my discussion today, unless otherwise stated. Net revenues for the second quarter were CNY 1.94 billion. For a detailed breakdown, media service revenues came in at CNY 600 million. Leads generation service revenue were CNY 744 million. And the online marketplace and others revenue increased by 10% year-over-year to CNY 594 million, primarily driven by the consolidation of TTP and the increased contribution from data products.

Moving on to cost. Cost of revenues was CNY 262 million compared to CNY 265 million in the second quarter of 2020. Gross margin was 86.5% in the second quarter compared to 88.5% in the same period last year.

Turning to operating expenses. Sales and the marketing expenses in the second quarter were CNY 562 million compared to CNY 872 million a year ago. The decrease was primarily due to adequacy in promotional spending. Product and development expenses were CNY 335 million compared to CNY 326 million in the second quarter of 2020.

Finally, G&A expenses were CNY 177 million compared to CNY 82 million in the Q2 2020. The increase was primarily attributable to the consolidation of TTP and a better provision related to certain advertising customers. Overall, we delivered operating profit of CNY 673 million for the second quarter compared with CNY 871 million in the corresponding period of 2020. Adjusted net income attributable to Autohome Inc. was CNY 790 million for the second quarter compared to CNY 881 million in the corresponding period of 2020. Non-GAAP basic and diluted earnings per share for the second quarter was RMB 1.57 and RMB 1.56, respectively, compared to RMB 1.85 and RMB 1.84 in the corresponding period of 2020. Non-GAAP basic and diluted earnings per ADS for the second quarter was RMB 6.27 and RMB 6.26, respectively, compared to RMB 7.39 and RMB 7.36 in the corresponding period of 2020.

As of June 30, 2021, our balance sheet remains very strong with cash, cash equivalents and short-term investments of CNY 18.43 billion. We generated operating cash flow of CNY 581 million in the second quarter of 2021.

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

(Operator Instructions) First, we have Thomas Chong from Jefferies.

Thomas, please go ahead. Hello, Thomas? Operator, there is no one to ask.

I'm sorry about that, the connection was -- had some problem. The question is about auto industry outlook. Can management share about the trend going forward?

(foreign language) We will ask our Chairman and CEO, Mr. Long, to answer your question.

[Interpreted] Well, thank you for the question. Actually, if you look at the first half of the year and then we make some judgment over the future outlook. So first of all Q1, the data was really good in the auto market. Q2, we do see the data drop sharply. And after we communicated with the industry experts, we found out that the lack of enough supply of chips as well as the raw material increasing of the cost does impact the auto market. I don't think this situation will be eradicated in a short period of time. Maybe in Q4 the condition may be more eased. So we believe that for the whole year, in terms of the auto sales, we would experience positive growth. However, the positive growth would be quite not so robust. It may be single-digit growth. So definitely, it will be less than 10%.

Next we have Ritchie from HSBC.

(foreign language) Let me translate this myself. So I have 2 questions. So first one is, can management comment how will this regulatory environment affect the competitive landscape going forward? And what are the costs and opportunities that we foresee from this new environment? And second question is what is the outlook for used car industry? And how is the competitive landscape? And what are the areas that we can still improve on? And do we see any M&A opportunities in this space?

Thank you for your question. Here, we have our President, Mr. Shao, to answer your question. Mr. Shao, please?

[Interpreted] Well, thank you. I would like to take your second question, which is about the used car business. Just as Mr. Long have said, we believe that the room for the used car market is very promising. Actually, there are 3 features of the used car business in China as a status quo. The first characteristic is it is more or less a chaos market and a segmented market. Secondly, the market lack of enough trust and the transparency. And thirdly, lack of enough financial support. So we believe that the business model, which is C2B and B2B, they both have potential to be profitable. However, for the B2C business, it may suffer a lot sometimes. So it may be on the edge of the profitability. So for Autohome, we did have a few strategies for used car business. The first one is light asset model. We would stick to light assets.

And secondly, we do have the long-term strategy on this market. As you know, the whole used car market in China is developing very fast, and there are a lot of changes in this market. We have to be persistent, and we have to carry on until the tipping point occur in this market. And in that time, we should be prepared in terms of we have enough capital, we have enough capacity and we have good experience and good branding. So in this way, we would get prepared for this market to further grow.

And lastly, I want to comment on TTP. We already have commented with TTP. As you know, we have a lot of resource and also we embedded the Internet technologies and the knowhow with TTP. And together with Ping An, we empowered TTP. So actually, in June there is something historical happened, which is we achieved breakeven in this June. So this is a very successful experience, which we believe we can copy that to some other areas, for example, new business investment opportunities are there.

Next, we have Eddy from Morgan Stanley.

(foreign language)

Yes, we can. Please go ahead.

(foreign language) I have 2 questions. First is about the competition. So the first level of the question is that can you comment on the competitive landscape within the auto vertical between us versus the other, the vertical players in the first half of this year? And the second level of this question is that can you comment or give us some color about how's the dynamic between the auto vertical versus other new channels in terms of their getting budget from these OEMs and dealers. The second question is about the tax. So as we noted that some of the platform -- Internet platform company, they are not get approved in terms of the lower tax rates to 10% of the key software, the company tax rate. Just wonder if we have any -- this kind of the problem as well?

[Interpreted] Thank you very much. I would like to take your first question, which is about competition. As you know, for any industry, it always has competition. We welcome our competitors because we believe competition would boost the whole industry to further develop. And this would be a good opportunity for us to learn from each other. And if we actually boost the collaboration and competition, we believe that we would push forward our technical know-how, and we can build a more higher level for this whole market.

Well, as you know, I have just issued my report, which has said, our constant efforts in content enrichment are propelling our progress and we are pleased to see our traffic continues to lead the whole auto media vertical, surpassing the total traffic volume of the second and the third players while maintaining the rapid year-over-year growth. So in this way, our DAU numbers also reached to a historical high, which is 44.1 million. So in this way, we actually achieved great success in getting a lot of traffic and we are definitely in a leading position.

Now talking about the regulation. As you know, Autohome is a listed company, and we are fully compliant with the regulations and the laws and policies. As you know, for the first half of the year, we did see the regulation and compliance get tightened. However, in terms of data security as well as the personal privacy protection, we have never received any notice or any warning from the regulators in China, which means we are fully compatible with the laws and regulation in terms of data protection, security protection and the privacy protection. We've not only been fully compliant with laws and regulations, we also take one step ahead, which is the regulation plus 1, which means we are even in a tighter position in terms of the fully compliance with the laws and regulations.

[Interpreted] Now I want to answer your second question, which is about the tax policies. As you know, the regulation has been tightened for the key software corporations to receive the favorable tax policies. Actually, for Autohome, we have been compatible with laws and regulations, and we are eligible for applying for such favorable tax policies. We would continuously keep a close eye on this policy, and we would understand the policy in the full right, and we would continue to apply for the tax -- favorable tax policies.

Next, we have Brian from Citigroup.

(foreign language)

[Interpreted] Now thank you for the question. In terms of the automakers' budget on advertising, we believe that in Q3, the shortage of supply of chips too affected the capacity of the automakers. And also, it affected the sales. And in Q4, we believe this would -- the situation would be more eased. However, for the next half of the year, we can see the automakers advertising budgets always go with its sales volume, and it also goes with their annual budget target. So if the sales volume is under pressure and the profit targeted is under pressure, we believe their advertising budget would be under double pressure.

Now the second question is about the dealers' numbers. Actually, we have some statistics until the end of June. We call them the auto dealers, which is already on the Internet, actually, on our network. Actually, last year, this number was 23,800, and that was last year. This year, this end of June, the number is 25,600, so slightly up.

My last comment on this question is the coverage rate. The penetration rate or coverage rate for Autohome for the auto dealers was very good. So in this way, especially the paying members, we have a flat paying members for the -- as over last year.

Next, we have Leo from DB.

(foreign language) So I will translate myself. So the first question is, we see like the sales and marketing expense in second quarter decline quite a bit, so while our competitors still acquire users aggressively. So I want to ask like what is our user strategy in the future? My second question is regarding data products. So we see our data product still grow robustly. And what is the outlook for second half? And what is the new product in the pipeline?

Okay. Thank you for your question. We have our Vice President, (inaudible) answer your question first, and then our President, Mr. Shao will answer your question. Mr. (inaudible) please?

[Interpreted] Thank you. Let me decompose your question. The first one is about the sales expenditure declining in Q2 versus our competitors, they are spending more in acquiring new customers. So actually, if you look at our customer -- on the traffic strategy, on the 2C and the 2B side, we are #1 in terms of the market share and also the traffic. According to QuestMobile, according -- on the mobile side, our traffic is more than the total sum of #2 and the #3 players. If we add up the PC side traffic, we definitely can see even more -- actually good growth of traffic advantages. So we are in a leading position in terms of the traffic and the market share in the vertical media industry.

In the future, how can we expand our user base. We do have a few strategies. Firstly, it's go more granular level. We (inaudible) into lower-tier cities. If you look at the incremental new members, actually, we used to have 50% from the tier-3 cities. Now this number has climbed to 70%.

Second is, we are attracting more younger users. For example, the age at or below 35 years old, they are accounting for a high portion of our total users.

In the future, we actually want to say our sales expenditure are always dynamically changing. We would be readjusting dynamically based on the status quo of the customers, competitors and of the market. We launched the 11.0 new version, which would be more video-based, more younger generation-targeted and more diversified. We would try a lot of new efforts, for example, live streaming videos as well as a lot of new scenarios.

[Interpreted] We are very glad that you have noticed that we do achieve good growth on our new data products business. In Q2, the growth is about 47%.

Our long-term strategy for the data product is, we would further enhance the total weight of the data products in our total revenue and leveraging on high growth of the data products, we are going to achieve a higher growth on our revenue.

So to better understand our scenario, we would warmly invite you to attend our September 15 new strategy conference. On this new strategy releasing conference, we are going to elaborate on the data product strategy and targets.

Actually, we also had a lot of new moves. For example, from the beginning of the year till today, we always have been upgrading our data product and optimized our data product. For example, this year, for the dealer's data product, we launched 11 modules. And in June -- in September, we are going to release the new version, which is the 2.0 version of the intelligent new car launch module.

We will now be taking one last question from Ashley from Crédit Suisse.

(foreign language) I just want to check about our initiative starting this April that we require users to verify through message when they leave their contacts. So I just want to check the background and impact from this initiative. And if we look forward, how would this impact the pricing in our next negotiation round with the dealers?

Thank you, Ashley. Our president, Shao, will answer your question.

[Interpreted] Thank you very much for your question. Actually, ever since April, we launched the Blue Sky Plan, which we want to be a role model in the industry to implementing the [information] protection law and the data protection law of China.

And then secondly, in terms of the quality of the leads we generated, we claim to be the best in the industry, and we are proud that we are the best.

Actually, after implementing this April's Blue Sky Plan, if you look at the number of the leads, it dropped by 10%.

Actually, if you look at lead quality, the lead quality have improved and followed by our initiative in June, some of our peers, they have gradually introduced similar plans, carrying different names.

And then we shift our focus into optimizing of the product and try to enhance the user experience. And until August, we do see that our lead generation numbers have already recovered to the period of time before we carry out the Blue Sky Plan.

So what I want to say is, the Blue Sky Plan would never be a barrier for our dealers and automakers to continue to renew their contract with us. On contrary, it would lay a solid foundation for them to recognize we are the market leaders and that the quality of our leads have been greatly improved. So in this way, this plan is quite positive.

That's all for the answers, operator. Time is runs out. So let's move on to the last part. Thank you.

Due to the time constraint, this will be the last question we take on this call. I will now turn the conference back to the management for closing comments.

[Interpreted] Thank you. Thank you, everyone, for joining us today. We appreciate your support, and we look forward to updating you on our next quarter conference call in a few months' time. In the meantime, please feel free to get in touch with us if you have any further questions. Thank you, everyone. Bye-bye.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.

[Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]