Autohome Inc (ATHM) 2020 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by Autohome's First Quarter 2020 Earnings Conference Call. (Operator Instructions) As a reminder, please, this conference is being recorded. If you have any objections, you may disconnect at this time.

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 First 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. Thank you for joining us today. We kicked-off 2020 with a solid first quarter, reporting total revenue of RMB 1.55 billion. Notably, revenue from new initiatives increased by 32% year-over-year and contributed to 20% of total revenues compared to a revenue contribution of 15% for the same period last year. The exceptional revenue performance achieved by the new initiative was driven primarily by robust revenue from data products, which increased by over 80% year-over-year.

In the first quarter, total new passenger vehicle sales fell by 45% year-over-year as a result of the COVID-19 outbreak and subsequent expansion -- extension of the Chinese New Year holiday. In many cases, buyers postponed their vehicle purchase plans due to the extensive quarantine measures, while the continued spread of the pandemic around the globe further prolonged the period of domestic containment efforts. All these factors resulted in further delays in the near-term marketing demand of our customers.

Although consumers remain cautious during the first quarter, as the containment regulations have been eased in China, coupled with the government's stimulus policy, the market began to show a gradual improvement from April.

During the quarter, we witnessed an increased demand for online marketing services as automakers and dealers shift their focus from offline to online channels. To capitalize on this trade, we introduced 3 data products and tools. For example, we upgraded our intelligent showroom and embedded live streaming functions, both of which were designed to enhance the efficiency and effectiveness of online marketing programs. Our live streaming channel has been popular among automakers as well. Since the outbreak of COVID-19, about 50 automakers have delivered a total of 124 live stream programs on our platform. We also launched a 3-week spring virtual auto show in collaboration with China Council for the Promotion of International Trade, Automotive Sub-Council in April. This signature event presents an attractive -- presented an attractive marketing opportunity that drove sales for our customers at the time when offline auto shows are either delayed or canceled in China and abroad.

About 60 auto brands and more than 1,300 dealers have signed up for the event. In addition, as we remain committed to supporting our customers and the industry, we have been offering free trial of our smart instant messaging to more than 2,000 dealers. Our strategic approach to delivering our business and strengthening our technologies allows us to generate additional value to our customers, which in turn will further enhance our market leadership in the long run.

During the quarter, leveraging our advantages in big data analysis and industry insight, we enhanced our data product metrics that facilitates OEM decision-making. In the first quarter, 17 automakers purchased our data product offerings compared with 8 automakers in the same period of last year. In the first quarter, we have engaged with automakers for 15 programs for Intelligent New Car Launch and 29 projects for Intelligent Marketing Solutions.

In terms of our data products to dealers, in the first quarter, over 17,000 dealers purchased our data products. By the end of the first quarter, close to 3,000 dealers were using our Smart Call-Out and Smart Assistant, which we launched last year.

Regarding our traffic in March, the number of average DAUs who accessed our mobile website, primary app and mini apps was 31.7 million, relatively stable compared with the prior year period despite an unfavorable operating environment in auto vertical. With 2020 well underway, I am confident in our ability to maintain our undisputable market leadership given our well-defined long-term strategic plan and laser-focus on delivering value to our customers and auto industry.

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

Thank you, Min. Hi, everyone. As Min has already highlighted, we are pleased to report a solid first quarter to start 2020. Please note that as with prior calls, I will reference RMB only in my discussion today.

Net revenues for the first quarter were CNY 1.55 billion compared to CNY 1.61 billion in Q1 last year. For a detailed breakdown, media services revenue were CNY 566 million; leads generation services revenues were CNY 670 million; online marketplace and other revenues increased by 32% year-over-year to CNY 310 million, primary attributable to the increased contribution from data products.

Now moving on to costs. Cost of revenue was CNY 178 million compared to CNY 184 million in Q1 2019. Gross margin remained stable at 89% in the first quarter.

Now as for operating expenses, sales and marketing expenses in the first quarter were CNY 524 million compared to CNY 510 million in Q1 2019. Product development expenses were CNY 292 million compared to CNY 269 million in Q1 2019. Finally, G&A expenses were CNY 89 million compared to CNY 68 million in the same period of last year.

Overall, we delivered an operating profit of CNY 586 million for the first quarter of 2020 compared to CNY 657 million in the corresponding period of last year. Adjusted net income attributable to Autohome was CNY 646 million in the first quarter compared to CNY 701 million in the corresponding period of 2019.

Our non-GAAP basic and diluted earnings per share per ADS for the first quarter of RMB 5.43 and RMB 5.4, respectively, compared to RMB 5.93 and RMB 5.87, respectively, in the corresponding period of 2019.

As of March 31, 2020, our balance sheet remains very strong with cash, cash equivalents and short-term investments of CNY 13.3 billion. We generated operating cash flow of CNY 499 million in the first quarter of 2020.

Let me now address our second quarter 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 2.220 billion to RMB 2.320 billion.

In summary, our solid financial performance once again demonstrated the resilience of our core business as well as the strength of our new initiatives and disciplined approach to managing costs. As we fulfill our commitment to maximizing shareholder value, we are very pleased to pay our first regular annual dividend to our shareholders in April 2020 as scheduled. Going forward, we'll continue to expand our footprint in auto-related sectors while enhancing operating efficiency across each of our business lines, all with the ultimate goal of generating sustained long-term value for shareholders.

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

(Operator Instructions) Our first questioner is Miranda from Bank of America.

(foreign language) So as you mentioned, there is an acceleration in offline to online in business activities. So my question is regarding Autohome's strategy initiatives in this process, in particular, on 2 areas. The first one is on the online live broadcasting. So we would like to get management's view on like what's the difference of live broadcasting in the auto industry, which has low transaction frequency and high transaction value versus live broadcasting in like retail e-commerce platforms? When offline activities all come back to normal, do you expect live broadcasting for cars to be able to sustain a strong traction among users and dealers? And what's the company's strategy to compete in this area? And then my second area is about the private domain traffic management or customer relationship management. Recently, we are seeing an increasing amount of merchants using like tours such as mini-programs to attract and interact with users directly to transaction conversion. So just wondering what's company's strategy in product offering in this area?

[Interpreted] So first of all, thank you for your questions. Now to answer your questions, I have to say through the COVID-19 epidemic, we do see a clear trend that a lot of activities have moved online. We do see that the new car purchase loop has been transferred into they search online, they get a lot of information online and it's non-contained related -- research plus they make the purchase in the store. So this will become a close loop, and this will become a new model for the new car purchasing. For the 3 parts of this close loop, for Autohome, we already get prepared, and we already researched a lot of our products and services based on the 3 parts of this loop. For example, the best part, the online communication, we do have a lot of tools, including the 3D tools, the virtual reality, VR tools and also the virtual new car auto shows, et cetera, to cover the online broadcasting and communication.

Now on the second part, the noncontract based sales, we do have the live streaming and also the video-based sales. Now you asked a question, what's the major difference between the large amount transactions compared with the regular, the small transactions? I do believe there are a lot of differences. For large transactions, for the users, they have to take a look of the car, and they have to make comparison of the car. These 2 parts are inevitable.

Now on the broadcasting or live streaming, we do see that the anchorman or the hoster and the participation of the support of the OEM and the dealer are critical. As you know, the cars are quite expensive. So that's why for the live streaming, we do believe that our support with data products, with the product information and also training and helping and services for the live streaming was very important.

In first quarter, our live streaming platform, we already worked very closely together with OEMs and the dealers. This is already in utilization.

So my last conclusion is, for the live streaming, during the COVID-19 epidemic outbreak, this is very important. And also in the car purchasing loop, it is one of the critical parts, but it is not the most important part.

Okay. I'll answer your question on private domain user traffic. This is Lu Min speaking. Speaking of the private domain user traffic, actually, we have already paid a lot of attention on this area. And we have already started some of the projects internally. But everybody is talking about a private domain user traffic. It's difficult for the dealer, a single dealer or even OEM to make full use of the user traffic down there. So we're doing projects, hopefully, in Q3 or Q4, I don't know. We're doing the projects. Hopefully, in Q3, late Q3 or early Q4, we can launch new tools or products helping dealers, OEMs to apply more and more user traffic, the private domain user traffic, and helping them to convert the user traffics to the sales leads. We'll see. We'll try our best.

Next question is Eddy Wang from Morgan Stanley. (Operator Instructions)

(foreign language) My question is regarding management's view on the auto market recovery in the second quarter and in the second half of this year. As you mentioned that you have witnessed some improvement in terms of the auto demand in -- since April, what so -- do you think it's just a shift of auto sales from first quarter into the second quarter? Or you have seen a structured -- improved sentiment for auto sales in the full year 2020? And what will be the impact of your overall revenue in the second half of this year?

Okay. The pandemic to me, I think, it has a huge impact on the auto industry. And right now, there are so many people who have lost their jobs and plus the pandemic maybe still there, and there is some saying that there could be a second wave, things like that. So it hit the economy heavily. So I think this pandemic has a huge impact in the future as well. So I may ask Shao, Haifeng to address your specific questions.

[Interpreted] Well, thank you for your question. I would love to share my view regarding the market with you. If you look at this year, because of the epidemic of the COVID-19, we believe the new car sales for year-round would drop by 10% to 15%. That's also -- that's not only our estimation, but also the estimation from the China Council for the Promotion of International Trade, the Automotive Sub-Council.

Now if you look at the passenger car, if you look at the sales in April, it's still a negative growth. But we have to wait until May and June to verify whether this negative growth would continue or not, maybe that's due to some of dealers pushed the Q1 sales quota to April. Also as you know, the sales drivers, the marketing budgets always grow along with the total sales volume. If the sales volume go down, their marketing budget will also continue to go down.

Actually, this year, because of the COVID-19 epidemic, we do see a new trend, which is moving the offline budget to spend online. So that's why we do see this trend will continue, and this is invertible. So this year, we do see a lot of opportunities with aligning our data products as well as the new tools business.

Let me just add one point. Actually, I think, for the first time, online budgets were 50% of the total OEM marketing budget this year. It's a great opportunity for us.

Next question is Thomas Chong from Jefferies.

(foreign language) My first question is about our cost control initiatives. Can management share about our strategies in coming quarters? And my second question is about our overseas expansion strategy. Given that in overseas market, we are seeing the impact from coronavirus is still quite severe, how should we think about our global online auto show in August as well as our strategies for this year?

Thomas, I will answer your first question, and then will answer the second one. Regarding the cost control, we'll continue actually our prudent cost control programs and, in particular, in traditional business as we have implemented in the last 2.5 years. And we believe we will be able to actually optimize our overall operation and deliver good return to our shareholders. And that's our belief, and we are committed to do that in the future.

Okay. Regarding the development overseas, actually, we have already set up 2 subsidiary companies in U.K. and Germany already and the teams are already there. And actually, we have already launched an application called Yes Auto, and you may download it from the Apple store. And if you want to see the progress, maybe you should download that and take a look at it and the progress that we are making. But you're right, because of the pandemic, the whole process was being delayed because -- our application, there are some dealers already, but the whole process was delayed because all the dealer have shutdown. So it delayed our process, but we will continue our efforts. Hopefully, the pandemic is going to end soon. And August 18, we will launch the Virtual Auto Show in China as we did last year. This year, hopefully, we can launch the auto show at the same time in the U.K. and Germany, we will see. Thank you.

Our next question is from Frank Chen from Macquarie. (Operator Instructions)

(foreign language) I understand that COVID-19 may be a trigger for OEMs and dealers to shift their budget online. It's encouraging to see OEMs are now allocating over 50% of their budget online in the first quarter. Can management share with us what's the potential here looking ahead?

[Interpreted] First of all, thank you for your questions. Well, actually, for the first quarter, because of the COVID-19 epidemic, there is actually no offline activities. So that's why the OEMs moved more budgets to online. In Q2, we do see the offline marketing activities gradually recover. However, compared with 2019, the percentage or outbreak in the total budget is still less than what happened in 2019.

Why this is the case? That is because in Q1, it provided a relative opportunity for the OEMs to work with us. We launched the Intelligent New Car Launch tool program, and we also work with them to do the live streaming as well as video and other online activities. And the OEMs were very happy to see that the effect was really good with lower cost. So my judgment is, for the offline activity, it will not vanish, it will still be there. However, the size of the online will be gradually growing. It won't decrease the offline budget.

And Frank, let me also clarify one thing, what I meant is that the online spending for this year will exceed 50% for the entire year.

Next question is Tina Long from Crédit Suisse.

(foreign language) So my question is regarding the data products. So out of all the products that we have launched in the past 12 to 18 months, what are the products that actually have been received as the best out of -- from all the distributors, and what kind of data to back that up? And also in the next 6 to 12 months, what are the new data product rollout plan? And also what are the expected adoption rate by the dealers?

[Interpreted] Let me explain to you and clarify what is the data product. Our data product covers 2 major parts: one is Intelligent New Car Launch and Intelligent Marketing Solutions. These 2 are for OEMs. We also have products for dealers, the Smart Call-Out and Smart Assistant.

For the OEMs, the Intelligent New Car launch and Intelligent Marketing Solutions, there are already 17 OEMs procured this, and they already used this product. Actually, last Q1, I mean, Q1 in 2019, the number was only 8. This year, it was 17.

Now talking about the Smart Call-Out and Smart Assistant offered for dealers, the Q1 of this year, the number was 17,000; 17,000 dealers already used it. And if you compare with 2019 Q1, the number was only 14,000; 14,000.

So the core value of such products, not only offered to OEM, but also offered to dealers, is to try to enhance the conversion rate. The enhancement of the conversion rate can be 20% to 35%.

For the later half of this year, on the OEM side, we are trying to launch the intelligent activities. Actually, we want to connect the OEMs with the dealers through such intelligent activities. On the dealer side, for the later half of this year, we are going to launch the Smart Sales tools to help them enhance the conversion rate after customers visit the stores. And we are going to upgrade the Intelligent New Car sales. In this way, this product will be more perfect.

On top of what Jingyu has said, maybe I can explain a little bit more. Actually, there's a split of data products that we are developing and selling. For example, there's a product called Smart R&D, which is for the use of the R&D phase of the OEM when they design the new car models, things like that, we have the big data to help them and support them to design the models that supply needs of their customers, things like that, there are many.

And Jingyu mentioned the Smart Call-Out, for example, that's like an AI added tools to the dealers. Once they receive the sales leads from us, and their call center guys make phone calls to the lead. And when they talk to the customers, on the screen, there will be a set of messages or the parameters that customers are talking about, for example, the acceleration or what kind of a model. And the system will immediately recognize his questions and pop up the answer on the screen so that the telephone guy can give very precise answers and make explanation, things like that. This is very welcomed by the dealers. And for example, last year, the dealers that used this tool, they improved their store visit rate by 20% roughly, yes.

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

(foreign language) I will translate myself. So in the first quarter, the number of dealers was slightly impacted by the COVID-19. So when does the number of dealers can recover to normal level in management's point of view?

[Interpreted] Thank you for the questions. Talking about the numbers of the dealers, it always goes with the new car sales. If you look at the sales transaction volume, if the total sales, the year-round would go down by 15%, I would foresee the dealer numbers would also go down. Q1 would be the valley, and it will gradually recover. But overall speaking, the total number of dealers will also go down accordingly while the sales volumes go down. We would also watch what would happen further, and we have to watch and observe. However, I think one key element is very critical, which is the profitability level of different brands.

Now this year, if you look at the Japanese brands, actually the Japanese brands, their margin level would continue to remain strong. The German brands will be stable. The U.S. brands would decline. For the South Korea and the French cars, they would come -- they would be quite the worst. So for the Chinese brands, we have to wait and see to see how it evolves. I think all these brands, if you look at the mixture of all the different brands and if you look at the profitability level of different brands, you will have an idea.

Our next question is Tian Hou from T.H. Capital.

(foreign language) So the question is related to the supply chain of the OEM. So overseas, pandemic is actually happened much later than China. And they just started to go back to work, resume their business operation. So for the auto production, there are some major components that we actually need to import it from overseas vendors. So what do you see the supply situation in the second half? Will the overseas pandemic situation impact the potential manufacturing capacity?

Tian, thanks for your questions. As for the supply chain, of course, we were also worried about that in the beginning. Most of the OEMs have usually about 2 months inventory of, let's say, auto parts. And what we actually see you know most European manufacturers have resumed work. And the U.S., we're a little bit lagging behind in mid-May, but they will gradually resume to work in late May to early June, so that is a good sign. But that being said, as Mr. Lu mentioned, a lot of experts are warning about a second wave of the pandemic, we're going to see. If that happens, the supply chain will definitely be disruptive. But in the long term, I think, this will really, I guess, promote the localization of the auto supply chain in China. And as far as we understand, many auto OEMs in China are planning to do that. And even for test lines, they have planned 100% localize their supply chain by next year, sometimes next year. So this is something I guess we are sure about. Thank you.

Our next question is Robin Zhu from Bernstein.

(foreign language)

Okay. Let me answer your question briefly. Autohome, as we talked many times before that we are always exploring future opportunities while we're doing the current business. And today, we have already discussed the traditional business line advertisement and the leads generation. But in the future, I think, there are new areas that we're going to develop. For example, the data products we mentioned. And the used car part, I think, there's a good opportunity for us to expand our business. And we actually invested a lot. And 2 years ago, we start become profitable in terms of this business unit. And hopefully, in the next few years, we can expand our business even bigger. And then the aftermarket, we are looking to the aftermarket and see if we can develop the new products and services, things like that. Of course, these are to-be business. Also, we are looking to the possibility of to see. And for example, our car sales channel, it grows very smoothly. And actually we hope it will be even bigger in the future.

And also, we have already launched the shared car platform where if you find several share car companies with us, and we hope we can expand this way. So in the future, we will keep our traditional business growing. Of course, it will be affected by the industry. But on top of that, we'll develop new business lines. Thank you.

And this is the end of question-and-answer session. Now I hand back to management for closing comments.

Thank you. 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 further questions or comments.

Thank you. This concludes our conference call. You may disconnect now. Goodbye.

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