Autohome Inc (ATHM) 2020 Q3 法說會逐字稿

Ladies and gentlemen, thank you for standing by for the Autohome's Third Quarter 2020 Earnings Conference Call. (Operator Instructions) As a reminder, this conference call is being recorded. (Operator Instructions)

It is now my pleasure to introduce your host, Anita Chen, Autohome's IR Director. Ms. Chen, you may begin.

Thank you, operator. Hello, everyone, and welcome to Autohome's Third Quarter 2020 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 CEO, Mr. Min Lu; Co-President, Mr. Haifeng Shao; Co-President, Mr. Jingyu Zhang; and CFO, Mr. Jun Zou. After the prepared remarks, Mr. Lu, Mr. Shao, Mr. Zhang and Mr. Zou 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 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 current 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.

I will now turn the call over to Autohome's Chairman and CEO, Mr. Lu.

Thank you, Anita. Hello, everyone, and thank you for joining us today. I'm pleased to report a great quarter with revenues exceeding the high end of our original guidance by RMB 35.6 million. Revenues from our new initiatives increased by 31% year-over-year and contributed to 24% of the total revenues.

Data products delivered robust growth with 51% year-over-year increase. Notably, adjusted net margin increased by 6.6 percentage points year-over-year to 38.9%. In the third quarter, to meet the increasing digital demand from customers and as we continue building upon our shares, we are offering more differentiated high-value online services to support and complement customers' off-line operations with a high efficiency.

In September this year, the number of average DAUs who accessed our mobile website, primary app and mini apps further increased to 39 million, an improvement compared with the prior year period ended June 2020.

Regarding content, in the third quarter, we made a series of moves to optimize our product and content in order to enhance user experience. For example, we launched a light version of Autohome application to attract younger audience. We also rolled out [micro post] channel, allowing users to post photos and to make their brief comments and encouraging them to synchronize their posts to a specific car model forum, which provides OEMs in these channels to stimulate more content resources and followers.

Aside from these rollouts, our 818 Global Super Auto Show continued to be very popular with online video views from the Night Gala exceeding 260 million, further demonstrating its influence in the industry. Our road trip channel allows automakers to expand their audience outreach to an even broader level. Through participating in various themed activities, users could improve their knowledge of auto brands and then be motivated to generate their own auto-related content. This content in turn becomes the resource of automakers, which helps them further increase their brand recognition.

In our efforts to explore new marketing approaches, we are encouraged to see that our flagship [IP loyalty] continue to scale up. In the past 4 months, we have worked with 9 automakers to promote their brand through road trip. In the first 9 months, the cumulative GMV for our road trip business totaled RMB 340 million, more than double compared with the number for the full year 2019.

During the quarter, we further enriched our end-to-end SaaS platform, reflecting our unique capability in providing comprehensive digital services to our customers. For example, we're pleased to see that our data products continued to benefit from the digital transformation across the OEMs as we offered our customers full scope solutions for each different space, providing them with better recommendations, helping them making better decisions and supporting them in more efficient project implementation. In the first 9 months, a total of 38 automakers were engaged in our data products, and notably, our Intelligent New Car Launch and intelligent marketing solutions collectively delivered over 100 programs, far more than the total number of programs for the full year 2019.

In terms of data products to dealers, we aim to provide a comprehensive SaaS platform to dealer customers from leads to in-store visits -- sales and ultimately, to the up-sells, covering the full spectrum cycle of auto ownership and increasing the conversion rate each step of the way. In addition, the number of paying dealers for Smart Store 2.0, a product generating incremental leads for dealer customers, has reached approximately 2,700 dealers.

In the third quarter, revenues from our used car business unit achieved double-digit year-over-year growth as we deepen our B2B cooperation with TTP Car Inc. In October, we made a follow-on investment in of TTP of USD 168 million to help accelerate our growth in the used car sector. Integrating Autohome's online capabilities with TTP's off-line presence, we believe that we are well positioned to unleash more value to the industry.

For auto financing business, in the third quarter, total GMV for consumer loans increased by 80% year-over-year.

Moving to the overseas business. In the third quarter, we continue to focus on expanding our content offerings while actively exploring ways to build our brand awareness. Our library now covers almost all the major models in the market with VR technology to enhance the user experience.

In November, the total monthly unique visitors for YesAuto exceeded 2 million and set a solid foundation for our cooperation with customers. As of last conference, we've connected with over 3,700 dealers and the total SKUs on our overseas platform have exceeded 700,000. Our first dedicated overseas online auto show also received positive feedback. Many customers showed their interest in the format and are willing to participate in further trials with us.

To conclude, as we move ahead, Autohome remains committed to developing innovative solutions and investing in strategic areas in order to strengthen our leadership position in the industry.

With that, I will now turn the call over to our CFO, Jun Zou, for a closer look at our third quarter financial results as well as the business outlook for the fourth quarter of 2020.

Thank you, Min. Hi, everyone. As Min has already highlighted, we are pleased to report a great third quarter. Please note that as with prior calls, I will reference RMB only in my discussion today.

Net revenues for the third quarter were CNY 2.32 billion, a little under 7% higher than the same period last year and exceeding the higher end of our original guidance of approximately CNY 36 million. For our detailed breakdown, media services revenue were CNY 927 million. Lead generation services revenue was CNY 814 million. And online marketplace and others revenue increased by 31% year-over-year to CNY 548 million, primarily driven by growth of data products.

Moving on to costs. Cost of revenue was CNY 215 million compared to CNY 247 million in Q3 last year. Gross margin remained stable at 89%.

Turning to the operating expenses. Sales and marketing expenses in the third quarter were CNY 979 million compared to CNY 956 million in Q3 last year. Product development expenses were CNY 349 million compared to CNY 361 million in the third quarter of last year. Now finally, G&A expenses were CNY 140 million compared to CNY 109 million in Q3 2019.

Overall, we delivered an operating profit of CNY 744 million for the third quarter compared to CNY 641 million in the corresponding period of 2019. Adjusted net income attributable to Autohome Inc. was CNY 902 million for the third quarter compared to CNY 702 million in the corresponding period of 2019.

Non-GAAP basic and diluted earnings per share in the current year for the third quarter were RMB 7.55 and RMB 7.52, respectively, compared to RMB 5.92 and RMB 5.88, respectively, in the corresponding period of last year.

As of September 30, 2020, our balance sheet remained very strong with cash, cash equivalents and short investments of CNY 13.47 billion. We generated operating cash flow of CNY 504 million in the third quarter of 2020.

Let me now address our fourth quarter 2020 outlook, which reflects our current and preliminary view on the market and operating conditions and may be subject to changes. At this point, we expect to generate net revenues in the range of RMB 2.475 billion to RMB 2.484 billion.

In conclusion, we delivered better-than-expected top line results as the new initiatives continue to drive overall growth. Non-GAAP net income increased significantly by about RMB 200 million year-over-year, reflecting the effectiveness of our spending and cost control.

In addition, our follow-on investment in TTP will accelerate the development of our used car platform and further solidify our leading position in this area, bolstered by an expanded array of growth drivers and more balanced revenue mix and further enhanced operating efficiencies. We are well positioned to achieve our long-term goals and create even greater shareholder value.

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

(Operator Instructions) Our first question is from Eddy Wang at Morgan Stanley.

(foreign language) So my question is on the lead generation package side. So basically, we can see that this year, the auto market has been -- recovered quite well in the second half. And if I look at our lead gen package, in this year, there have not been any price hike. So I just wonder if -- we're approaching the year-end, and I think we are starting a renew process very soon. So can you give us some color on how you see the lead gen package, the price hike chance in next year?

[Interpreted] Okay. Let me take the question first, then I will invite Mr. Haifeng to follow on the answers. It's the right time in every year to ask the question whether we are going to raise the price or not.

As you know, last year we experienced the negative growth of the auto market. So we said that we are not going to raise up the price. And this year, we also experienced the negative growth of the market. And also, added on that, we have the COVID-19 epidemic. So that's why we decided to follow the tide of the time. So that's why we are not going to raise the price, but our pricing mechanism, the pricing system, may change to help our customers.

Now I'd like to invite Mr. Haifeng.

[Interpreted] As our Chairman, Mr. Lu, have said that, we are going to follow the tide. And also, we offer 2 ways for pricing with OEMs and dealers.

Well, they actually have 2 choices. Choice #1, which is at the flat price of 2020, which means there's no price hike. The second choice, they can choose a floating pricing model based on the new scenario.

Well, for the floating pricing mechanism, actually, we have targeted at those good-performing dealers. If they want to get more leads from Autohome, they can choose this second way, which is a floating pricing model. As you know, we generate the better-quality leads in the whole market.

We already communicated with a lot of OEMs and actually, 30% of them already showed their initial interest in choosing the floating pricing model. With further communicating and also the contract negotiation with those dealers, I believe -- with the OEMS, I believe that there will be more and more OEMs who may choose this floating pricing model.

Another thing I want to add on is that when we're talking about the floating pricing model, we already put a cap and a floor on the pricing. So there would be a price range with the cap and floor. So in this way, the dealers and the OEMs can feel assured and eased that the pricing is quite reasonable.

As long as they get more leads, actually, they can take the floating pricing model. If we do not generate enough leads, the price would also go down.

Actually, another thing is we already have talked with 4 OEMs, which they were doing the comprehensive CPL model with us, talking about the comprehensive CPL model, which will bundle the advertising and the leads generating business together, which is very similar to the overseas dealers business model, which is aggregated and bundled.

Let me add on to that as well. The Smart Shop 2.0 is also actually incremental lead for this. So we have already 2,700 plus coming up on that. And we believe there will be more next year. With that, I guess, Eddy, we have answered for you your first question.

Our next question is from Miranda Zhuang from Bank of America.

(foreign language) I have a follow-up question on the pricing for the leads generation product. Can management give us more color on the details of the product? For example, like is the floating price model an add-on to these membership product or it's a stand-alone product and where the dealers can choose either of them?

And also, any detailed colors on how the pricing will work for the leads? Will it be set by the company or like some sort of a bidding basis? And also how are the leads sold? Are they then sold, for example, like a package or like a one-by-one basis? Any detailed colors on the product could be helpful.

And my question is on the management's plan and strategy for sales of the big data products in next year. For example, will you bundle some of the products with the membership products for sale or bundle all the leads gen intelligent products for the dealers altogether through end-to-end SaaS products to sell to a dealer as a whole?

And then -- and for example, will you talk with -- negotiate with the OEMs to set an annual framework contract for the intelligent marketing, Intelligent New Car Launch product? Just please share with us any color on your strategy and plan for your big data product sales strategy next year.

[Interpreted] Talking about your first question about the floating pricing model. It is not complicated. Actually, it's very simple.

So basically, it's very simple because, as we said, the auto market experienced negative growth and we have the COVID-19 epidemic. So based on this big picture, we are not going to raise up the price. But we would have plus and minus 10% range on the floating pricing based on how many leads they have. The more leads, they have more pricing. The less leads, they have less pricing.

We don't calculate each of the lead price because the price varies a lot and it depends on is it a big brand or small brand. It depends on these different models. So we don't calculate the unit price for each of the model or each of the branding. Usually, for the big brands, they have -- they will generate a lot of leads. But small brands, their leads generation would be smaller and the pricing may be more expensive. So we would have to compare the same leads of the same brand. So actually, we don't calculate the detailed unit price.

Actually, during our communication with the OEM and the dealers, actually, the floating pricing model has been well accepted by them, and it's quite easy to understand. And the model is very simple. As Mr. Haifeng said, a lot of OEMs and dealers welcome such model.

I mentioned about the comprehensive CPL model, which we already started to work with 4 OEMs. So based on each of the leads, we would calculate how many are the numbers of the leads. The more leads, the higher the price. The less leads, the less the price. It's an end-to-end pricing model. We already started this comprehensive CPL model with 4 OEMs.

I think the key part is we have the underlying technology, for example, the intelligent marketing technology and big data technology, so we can generate high-quality leads. The more leads we generate, actually the more pricing we can get. And actually, the OEMs welcome such high-quality leads. It's a win-win situation.

Now your second question is about our Big Data business. We have worked really hard on this, and we actually have a very good revenue. If you look at the first 3 quarters, our revenue grew by 65%. And the third quarter alone, we grew by 51%.

I believe that in the future, there will be more opportunities lying ahead of us. No matter if working with OEM or on dealer side, I believe there will be tons of new business opportunities. But we need to give our team more time.

Now talking about the future opportunities. On the dealer side, we would have a lot of sales management system to launch CRM -- to launch for the dealers. And on the OEM side, we can create a lot of value -- we can actually fit into a lot of value chain from the R&D. We have a lot of big data products. We have a comprehensive SaaS service to offer to them. So that is one of our future strategy, which is industrial Internet solutions.

The day after tomorrow, we will be hosting an Investors' Open Day. We would like to welcome you to participate in this wonderful event.

(foreign language)

(Operator Instructions) Our next question is from Brian Gong at Citi.

(foreign language) Okay. I will translate myself. I still have a question -- a follow-up question regarding the floating pricing model. So management just mentioned some customer already signed for such pricing model. So my question is, based on the sales leads plus the track record for those customers, what's the initial view of management regarding the impact on our revenue for next year?

[Interpreted] Well, to answer your question, I think floating pricing model actually is the testing of our capabilities to generate high-quality leads. In the past consecutive 7 to 8 years, every year, the pricing will go up by 20%. In 2019, there are some dealers who have some complaints and different opinions over this. So we are a platform company. So that's why I said we have to follow the tide.

The past model is we just raise up the price. After the price hike, we don't care whether the leads numbers are growing -- going up or going down.

Now some of the OEMs and dealers started to accept our floating pricing model, that is to say we have to generate excessive high-quality leads to them to be able to generate more income.

So actually, on one side, if we want to raise up the price, on the other side, we have to bear the risk whether we can generate enough leads or not. If we cannot generate enough high-quality leads as the previous year, then there will be 10% deduction from the previous price, so which is the floor, 90%. However, if we can generate very good leads with excessive number, then we can go up by 10%, which would be 110% on the cap.

I have to say I'm very confident about our team's capabilities in generating high-quality leads because we have intelligent marketing tools and big data applications to support such generation leads business.

So for those OEMs who signed the floating contract with us, we want to make sure that they would have excessive leads.

Our next question is from Ritchie Sun at HSBC.

(foreign language) I will translate the questions myself. I have a question about the method of how to generate more high-quality leads for the future. So other than the methods like, for example, the big data and also technology behind the platform, so what about the new sort of user growth driver for the future? Or what's the strategy behind it? For example, like the younger users, they can be also the potential car owners in the future. But Autohome's user profile tends to be like 30 years or above for the age. And so could management share what are the user acquisition strategy ahead so as to drive more high-quality growth of the leads?

[Interpreted] Yes. To answer your question, we have already tried quite hard to go granule into the third tier, fourth tier, even fifth tier cities by launching the light version of Autohome app, which is very different from our major app. We will start more marketing and promotion of this light version app to attract young users from the lower-tier cities.

The second way is we have been launching and trying to generate young and fresh content on the product on our major app. We will do this step-by-step to better attract the Z generation users.

Actually, I already stated very clearly to the content generation team of our company. On one side, we have to keep the most professional positioning of content contribution to our app. On the other hand, we have to keep it fun. It should not be boring. To be funny and very professional, in this way, we can attract the young users.

For example, we have launched the young channel, and we also host a lot of activities to go into the college. So in this way, we would attract a lot of young users.

And also on the 818 Super Auto Show, we hosted the gala evening. We invited the superstar Mr. Wang Yibo, who have a lot of young followers and young fans.

And next year, we are going to launch more collaboration with some young viewers website. Those websites have a lot of young followers. So in this way, we can attract a lot of young users.

Actually, this is a very good question. I firmly believe that if we can win the hearts of the young users, we can win the market.

Just to add some facts here, like on the August 18 Global Super Auto Night, we had more than 260 million users. Most of them are young users. And also for traffic in the last quarter, around 90% of our traffic already are coming from Tier 2 and lower cities. So we are actually penetrating to younger and lower cities.

Our next question is from Thomas at Jefferies.

Can you comment about the outlook about the industry recovery momentum in 2021?

[Interpreted] Now talking about the outlook of the market of 2021, we communicated with OEMs and we also have our own observations. We believe that 2021 would be a growing market over 2020.

And we believe the growth can be around 6%.

However, if we compare next year with 2019, actually, it still will be down.

We also see another trend for next year, which would be more and more concentration of the brands in the market.

For the EV OEMs, we believe that they will be -- keep growing on a faster momentum.

Yes. I'll just add on to that. Of course, now already there are 23 EV makers working with us this year in different forms, advertisement, leads or CPM. That's going to definitely be a chance for us in the future.

Our next question is from Liping Zhao at CICC.

(foreign language) I have 2 questions here. First one is a follow-up question on your data product. Could management help us to break down the data products revenue by OEM and dealer? Second question is about the used car market. As we noticed, Autohome increased the investment in TTP this quarter. Could management share with us used car business updates and future strategy?

[Interpreted] To answer your first question, actually, for the matured product, we have a different product targeting at OEMs and these dealers: the (inaudible), which is the intelligent-based solution for OEMs; and the (inaudible), which is smart-based solution for the dealers. The ratio is between 50-50. Maybe OEMs are slightly bigger, but still roughly 50-50.

In the future, we are going to offer the total solution approach. The total solution approach would be more convergent. For example, the SaaS product will be more convergent than the total solution-based product.

Now talking about the used car business. We attach great importance to this business because this is a high-growth business. If you look at previous years, the used car business growth would be higher than the new car sales growth. This year, it's also the same momentum, but the total volume is down.

Now if you look at our investment in TTP, actually, for the used car business, we have the online information flow. We also have the TTP, which is a transaction platform off-line. In this way, we can combine online with off-line.

Now talking about our future strategy. We are designing the future strategy under the leadership of Chairman Lu. Our direction is very clear. We would go with the light asset model. We would be a platform and we would offer the dual cloud to help the OEMs to digitize their operating. And we want to achieve the C2B2C model, which would be the closed-loop model. We want to build the nationwide service network. Our target is to become the global #1 used car transaction and service platform.

Just one thing to add. We are also going to, of course, integrate financing, insurance and a number of other value-adding services into the entire transaction value chain. And that is the answer to you.

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

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

Thank you. This concludes today's conference call. You may disconnect.

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