Ladies and gentlemen, thank you for standing by for Autohome's first quarter 2022 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. Hello, everyone, and this is Sterling Song. Welcome to Autohome's first quarter 2022 earnings conference call. Earlier today, Autohome-
Sorry about Mr. Song's line is disconnected, and we will connect him again shortly.
Cut to our line.
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 begin, please note that the discussion today will contain forward-looking statements made under the Safe Harbor Provisions of the US Private Securities Litigation Reform Act of 1995. Forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from our current expectations. Potential risks and uncertainties include, but are not limited to, those outlined in our public filings with the Securities and Exchange Commission. Autohome does not undertake any obligation to update any forward-looking statements except as required under applicable law.
The earnings press release in this call also includes discussions of certain unaudited non-GAAP financial measures. 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 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 Chairman and CEO, Mr. Quan Long, for opening remarks. Please go ahead, Mr. Quan Long. Thank you. Hello, everyone. This is Quan Long, Chairman and CEO of Autohome. Thank you for joining us today for our discussion of our quarterly results. To begin, we are delighted to announce and welcome a new member of Autohome's senior management team, Mr. Craig Yan Zeng, who joined Autohome as our Chief Financial Officer in the beginning of May.
Craig has over 20 years of experience in the capital markets and has held various senior management positions with both public and private companies, making him a rare management talent with a full suite of capital market experience across mainland China, Hong Kong, and the U.S. He has in-depth expertise in financial management, finance, investor relations, M&A, and risk control, as well as an excellent business philosophy and a strategic mindset. We believe that with his rich experience and outstanding leadership, Craig will be an asset to the company and help Autohome achieve its next stage of growth.
(Foreign Language)
With that, I will now turn the call over to our CFO, Craig Yan Zeng, for a closer look at our first quarter operating and financial results.
(Foreign Language)
Since the beginning of this year, the resurgence of the COVID-19 pandemic in China has impacted most industries, including the automotive industry. Despite the challenging macro environment, Autohome reported an extraordinary first quarter, with revenues totaling RMB 1.47 billion, of which the contribution from new business rose to 33.7% of total revenues. Our adjusted net income in the first quarter was RMB 403.8 million, with adjusted net margin of 29.7%. Our overall performance exceeded market expectations, and we maintained good profitability as well as a high profit margin level.
(Foreign Language)
We believe our steady financial performance and strong cash flow will support Autohome as we navigate through market uncertainties and focus on long-term development with sustainable competitive advantages. Meanwhile, our healthy balance sheet and ample cash reserves allow us to continue to implement our strategy and generate sustainable returns to our shareholders with our share repurchase program and dividend policy.
(Foreign Language)
Moving on to an overview of our first quarter highlights. During the quarter, we strengthened our collaboration with partners throughout our ecosystem to build an online traffic alliance and explore new ways to grow traffic. According to QuestMobile, Autohome's aggregated average DAUs grew by 7.5% year-over-year to 45.21 million in March, fortifying our leading position in the auto media vertical and surpassing the total DAU of the second and third largest players in the market combined. We also continue to develop our CN user base and strengthen the diversity of our content platforms through active development of short videos and live streaming content. Furthermore, we upgraded our NEV platform with a refreshed layout and user-friendly functionalities to cater to users diverse needs and behaviors, creating a more flexible and convenient user interface.
These initiatives have successfully reinforced Autohome's content ecosystem while delivering a better user experience. Furthermore, in the first quarter, our EV and used car business performed well, exceeding the market growth rate. Regarding digitalization, we have effectively expanded our OEM digital product lineup at the end of last year, continuously supporting the digital transformation in Chinese auto industry, as well as accelerating the process of digital upgrading of the industry.
(Foreign Language)
Generally speaking, although the auto industry has been impacted by the pandemic, it is still one of the most important pillars in China's economy and full of potential for future development. Given the elastic demand for cars and the ongoing development of the auto market, we have maintained our close business relationships with most of our OEM and dealership customers who continue to purchase popular media leads and digital products from us.
(Foreign Language)
Next, I'd like to provide more details on several aspects of our business in terms of content development by leveraging our big IP brands. We have steadily advanced our strategy of promoting a video-based content transformation. Furthermore, by expanding content categories and more accurately recommending content that caters to users' preference, we have attracted a more diverse audience. In the first quarter, Autohome launched four series of IP videos and accumulated over 100 million views in total. In addition, to meet EV users' growing demand, we have upgraded our NEV platforms accordingly. Crafting younger products' appearance, enhancing NEV content quality and diversity, enriching short video content and adding multi-dimensional tools to fully satisfy NEV users' needs for viewing, buying, and using cars.
(Foreign Language)
In the traditional business segment, we continue to focus on strengthening product differentiation and enhancing product and service quality for our membership product packages, while also constantly solidifying the fundamental foundation of the business, thereby creating more future cross-selling opportunities to develop new business lines and promote new products. In 2022, over 9% of the brands renewed their contracts for our leads subscription package. Notably, the number of paying dealers subscribing to our newly launched premium version package reached more than 12,000 during the quarter, and subscribers to the tech version reached nearly 66,000. Together, those two high-end versions account for over 80% of total subscriptions. Moreover, the penetration proportion of dealers who subscribe to our floating model has also significantly increased. Financially, revenue for our lead generation business in the fourth quarter increased slightly on a year-over-year basis.
In response to the pandemic's resurgences, Autohome proactively created pandemic-proof marketing plans such as online auto shows, to better serve our customers and minimize the impact to our business.
(Foreign Language)
On the data product front, Autohome continue to build our platform's big data analytic capabilities and our industry leading technology to drive innovation and empower the digital transformation of OEMs, dealers, and other stakeholders of the automotive industry. For dealer data products, we remain focused on improving core product quality to expedite the execution of our whole industry chain strategy. In the fourth quarter, we had over 18,000 dealer customers and an average product repurchase per dealer increased from 3.01 in 2020 to 3.59 in 2021 and to 3.91 in this quarter, representing an increase of nearly 30% in the past two years. Since the launch of our new data products at the end of last year, we have received wide recognition of OEMs to our one-stop solutions and service.
In the first quarter, more than 40% of our OEM clients purchased a data product subscription. As our business revenues continue to expand, our revenue streams will become more diversified despite the pandemic's current impact. We continue to provide additional digital products and actively accelerate the digital transformation and the upgrading of China's automobile industry. We expect that digital products will contribute an increasing amount of revenue to the company going forward.
(Foreign Language)
Regarding our NEV business, we focus on integration of brand and sales to building a full chain closed-loop marketing cycle through our NEV commerce services, while also generating diversified revenue streams. In the first quarter, we maintained our cooperation with most domestic mainstream NEV brands, and the revenue generated by our NEV business surged 156.1% year-over-year, exceeding the overall NEV market sales growth rate in several consecutive quarters. In addition, given the rapid growth of NEV sales, we continue to tap into new opportunities in the NEV sector, especially with respect to the new retail sales model, to reach more customers and products and services that meet specific demands. We expect that NEV retail model will begin to contribute revenue to Autohome this year.
(Foreign Language)
In the used car area, Autohome serves as upstream, cooperates with Tiantian Paiche as midstream, and joins hands with Ping An Insurance Group, an insurance group, in the downstream to form a complete closed-loop used car ecology, creating the most comprehensive used car transaction system in China at present. Autohome is the largest automobile consumption platform and vertical media platform in China with the highest traffic volume and the number of users in the same industry. Tiantian Paiche is the largest online used car auction platform in China, and Ping An Insurance Group is the largest financial insurance group in China, boasting a large number of high-quality automotive customers. Each of these three companies leads its respective field, and in combination, we create an effect that's much greater than the sum of its parts.
Together, we form ecological chain covering the upstream, midstream, and downstream of the industry and building an entry barrier, a huge advantage that our competitors don't have.
(Foreign Language)
As I mentioned a moment ago, although the passenger vehicle sales dropped slightly year-over-year market-wide in the fourth quarter due to COVID-19. Autohome's used car business unit together with Tiantian Paiche outperformed the market and achieved 5% year-over-year growth in terms of revenues. At the same time, we continue to deepen business synergies with Tiantian Paiche during the quarter to enhance and grow our used car business. Through our matching and auction capability, we now involve mostly about 20% of all used passenger vehicle trades in China, an increase of about 4 percentage points compared with last quarter.
Going forward, we will continue to invest substantial resources in development to ensure successful market launch of a new data product for used cars, and combine our car condition and car price data product with our certified used car program to become China's largest online real used car data and transactions platform.
(Foreign Language)
In conclusion, we will continue to solidify our traditional business foundations while actively investing in new business avenues as we move forward. Also, the COVID-19 resurgence in the first half of 2022 has posed a tremendous challenge to China's auto industry and the broader Chinese economy. Autohome proactively adjust our operation model to adapt to the new economic environment. We believe as the industry recovers in the second half of the year, Autohome's business quickly rebound with it. We will leverage our core competencies to explore larger markets and more sustainable profit margins to obtain a greater longer-term business benefits. Supported by our strong network impact, excellent innovation and capabilities and experienced visionary management team, we believe that Autohome will continue to lead the development of China's auto industry and create lasting value of the entire industry in the long run.
(Foreign language)
Next, let me walk you through the key financials for the first quarter of 2022. Please note that, as with prior calls, I will reference RMB only in my discussion today unless otherwise stated.
(Foreign Language)
Net revenues for the first quarter were RMB 1.47 billion. The decrease compared with the corresponding period of 2021 was primarily attributed to the impact of the ongoing chip shortage, as well as the COVID-19 pandemic uncertainties in China in quarter one of this year. For a detailed breakdown, media services revenue came in at RMB 267 million. Leads generation services revenues were RMB 708 million, and online marketplace and others revenues were RMB 496 million.
(Foreign Language)
Moving on to costs. Cost of revenues was CNY 255 million, and gross margin was 83%.
(Foreign Language)
Turning to operating expenses. Sales and marketing expenses in the fourth quarter were CNY 592 million. The decline compared with the corresponding period of last year was primarily due to a decrease in promotional spending. Product development expenses were CNY 355 million, an increase compared with corresponding period of last year, primarily attributed to higher investment research and development activities for digital products. Finally, general and administrative expenses were CNY 137 million.
(Foreign Language)
Overall, with the other operating profits of CNY 241 million and adjusted net income attributable to Autohome Inc. was CNY 438 million.
(Foreign Language)
Non-GAAP basic and diluted earnings per share were $0.87 and $0.87 respectively. Non-GAAP basic and diluted earnings per ADS were $3.7 and $3.7 respectively.
(Foreign Language)
As of March 31, 2022, our balance sheet remained very strong with cash equivalents and short-term investments of CNY 20.27 billion. We generated operating cash flow of CNY 496 million for fourth quarter of 2022.
(Foreign Language)
On November 18, 2021, our board of directors authorized a share repurchase program under which we repurchase up to $200 million of Autohome ADS for periods not to exceed 12 months thereafter. As of May 20, 2022, we have repurchased approximately 1.57 million ADS for total cost of approximately $443.9 million.
(Foreign Language)
With that, we're ready to take your questions.
Thank you management. Ladies and gentlemen, if you like to ask any questions to the management, please press zero one on your telephone keypad. To cancel, please press zero two. Once again, please press zero one on your telephone keypad to ask any questions. Our first question is from Xiaodan Zhang at the CICC. Please go ahead.
(Foreign Language)Good evening, management, thanks for taking my questions.
I have three here. First one is about the industry. Could management give some color on the supply chain pressure of auto companies? To what extent the current chip supply can meet market demand compared with the pre-pandemic period? What's management's expectation of the new car sales market in the second half of this year? My second question is about the data product. What's our R&D strategy in data products? The third question is about the used car market. What are management view on the used car market? Please give some color on the operation results of TTP. Thanks.
(Foreign Language)
(Foreign Language)
Well, thank you very much for the question. Let me echo with the question by quoting some of the data to you about the big market. Actually, if you look at the whole market, if we look at the already published data, you can see that in January and February, the market is still doing okay. However, getting into March, it has get into negative growth. So because of the pandemic, especially in April, for example, let me quote you with the number, which according to the China Passenger Car Association, the retail sales volume had dropped by 35.5% for the passenger car. Actually, according to another data, which is released by the China Association of Automobile Manufacturers, the whole selling volume had dropped by 43.4%. Actually getting into May, situation get even worse. For the first half of May, if you look at the China Passenger Car Association's number, the car sales volume dropped by 21%. It's only half a month, you know, sales volume, it already dropped by 21% comparing with the same period of last year. So actually, in the short term, we do see the pandemic actually still have some negative impact on the market, and there are a lot of uncertainties tied to the pandemic. Thank you.
(Foreign Language)
After we talked about the sales in the market, now let's shift to the supply side. If you look at the supply chain of the Chinese auto market, actually starting from April 2022, we do see the supply chain experienced a lot of challenges, especially due to the lockdown policies. For some of the cities, a lot of companies have to suspend, actually have to stop functioning. Also there are big challenges on the logistics side. Actually it already affected the supply chain a lot, especially on the supply side. The supplying capabilities have significantly dropped. Let me take Shanghai as an example. Shanghai has been under lockdown for quite some while. Now, Shanghai municipal government is trying to proactively reopen and restore some of the auto market, especially the production side.
(Foreign Language).
Well, actually now let me talk about the demand side. We already said that on the supply side, the government is trying to proactively push the restoration and the reopening of some of the plants. However, on the demand side, although a lot of our consumption has been already curbed by the pandemic, however, we do see the negative impact is getting, you know, the marginal effect is getting slimmer and slimmer. I personally think in the future, I'm still quite confident about the Chinese auto market. However, we also have to notice that, because of the overall economy is still quite weak, the consumers overall confidence level is still limited. So that's why auto consumption is a quite expensive and the large commodity is a kind of a quite expensive consumer goods. So if the consumer's confidence level has not been fully restored, I believe that would impact the demand side.
(Foreign Language)
I also want to quote what the China Association of Automobile Manufacturers' Secretary General, Mr. Chen Shihua had recently made a comment. He said that ever since February of 2022, due to the shortage of the chip supply in the market and appreciation of the raw materials as well as the large commodities price, over 20 OEMs had already announced that they're going to readjust the pricing on the new renewable vehicles, the NEV. Actually, after the price readjustment, we do see that on the demand side, the consumers had significantly reduced the number of, you know, consumers. That's why a lot of consumers believe the price may further drop, so they postponed their purchasing demand. In this way, from the perspective of consumer as well as the investors, we do see that the enthusiasm for investment and consumption had been significantly weaker.
(Foreign Language)
Well, actually, we do see that auto as a quite expensive consumption goods. It is strongly related to people's consumption confidence level. If the confidence level is low and people are getting more and more cautious and prudent in purchasing the car, we believe the auto market in the future would encounter the cold market and the downward shift market. If there is no significant supporting policy released by the government, I believe that this year may not be easy to reach the annual target designed at the beginning of the year. The growth target is not that easy to achieve. However, having said that, we are still very happy to see the silver lining. For example, on May 24th morning, the State Council held a meeting to discuss how the central government would further support the economy.
They announced a lot of measures to stabilize and boost the economy. For example, in some of the cities, the restrictive purchasing policy has been eased, and people are getting more freely to purchase the vehicles. Also the tax cut for the vehicles purchasing, the total amount has reached to CNY 60 billion. The CNY 60 billion consumption tax has been cut, which would boost the consumption market for the auto.
(Foreign Language)
Well, actually, luckily, we do see that a lot of local government as well as central government start to introduce more and more stimulus policies towards the auto market. We believe that with the more and more supporting policy getting released, I believe the market may turn around. We would pay close attention to the market move, and then making our strategies accordingly. Now let me comment on the chip supply. Currently, if you look at the chip supply in the auto market, it's still the supply is very tight. It cannot fully meet with the demand of the OEMs, and it's not easy to restore at the, you know, level before the pandemic. I believe it will take a while for the chip supply to get back to the normal rate before pandemic.
I hope that the chip supply, you know, especially the tight situation, will be eased gradually in the future, and the data would help the market to get to the normal new track.
(Foreign Language)
(Foreign Language)
Well, thank you very much. In terms of the data product, actually if you look at the OEMs to the whole auto market till the end, the core KPI, which is the sales volume, we do see that the marketing and sales chain is very long, and there's no single company which can cover such long value and business chain. Actually, we are the company who are trying to cover the whole marketing and sales chain by providing these customized product. For example, from the lead generation to the store visit, to boost transaction, to the real transaction, to the customer satisfaction rate enhancement. We are building our data product to cover all the value chain. Actually, 2022, what we have done is to consolidate our data as well as upgrading our technologies. By consolidating Ping An's data and a lot of data sources together, we are trying to create a big and multi-dimensional profile of the data, and we are trying to create a data barrier for our competitors. After we create such a data barrier, then we can come up with a more sophisticated and more upgraded data product. For example, we provide three key parts of our data product. One is we call it CRM Plus, and it covers the CRM, the chain. Secondly, it is a more active management model. Thirdly, it is a module-based and a very flexible system.
(Foreign Language)
Now, thank you for the used car business. We are quite optimistic about the used car business, and we expect that this year there will be 90 million cars being transacted in the used car market. The growth rate can be 8% year-on-year. We also see a lot of supporting policies get released. For example, in January 21, the National Development and Reform Commission released a document which is trying to boost the green consumption concept, and they significantly pointed out the used car business need to be boosted, and they encourage the building of more dealers for the used car business and trying to enlarge the circulation of the used car and boost the liquidity of the used car market. Secondly, on March 5, we do see that the government designed a further policy to boost the used car, the white goods consumption, and they also designed some detailed policies.
For example, enlarge the parking lot establishment and build more charging posts, etc. In this way, the government released more and more policies trying to boost the used car business.
(Foreign Language).
Well, we said we used to be quite optimistic about the used car market, but the real situation is more complicated than what we have believed. For example, there are pros and cons in this market. On the pros side, because of the chip supply shortage, that curbed a lot of launching of the cars in the new car market. A lot of the dealers and OEMs, they don't have enough car to sell. If you want to purchase a new car, you have to wait for a while for even a few months to get the car. So a lot of buyers, they shifted to the used car market to buy the used car, which boosted the market, which is a pro. However, on the con side, because used car are not standardized product, it is non-standardized, so you have to look at the car, test drive the car offline. Due to the COVID-19 pandemic policies, especially the quarantine policies, that curbed a lot of offline store visits to purchase the used car. So in this way, we do see that in Q1, the overall used car market had slightly dropped. However, we encountered positive growth, but the average market, the whole market had dropped. In Q2, we believe the market may continue to be weak. Let's put the hope on the second half of the year. If the pandemic policies can be, you know, the COVID can be better controlled, then we do the second half of the year, there will be more opportunities on the used car market. Thank you.
Thank you. Our next question is from Manny at Jefferies. Please go ahead.
Thank you, management, for taking my question. I have three questions. The first one is about how management can provide some color on the monthly business momentum and the impact of the Beijing Auto Show in second quarter under the pandemic outbreak, and our expectation on the auto industry outlook in second half?
The second question is about the competitive landscape in online auto vertical. The last question is on the media and lead generation outlook in the second half this year. (Foreign Language).
(Foreign Language)
Well, thank you for the question. Now talking about the Beijing Auto Show, yes, the time has been postponed, and the time is still uncertain of when it will be held. Actually, 40% of the new car launching has already been postponed, so that's why it already impacted the new car market a lot. If the COVID pandemic can be better controlled, hopefully for the second half of the year, if we do see less quarantine cities, then we believe that starting from third quarter, we will see some pickup in the auto market. Thank you.
(Foreign Language)
Now talking about the competition, actually on the to-B side, we continue to be the number one player in the market. Our market share is more than 50%, which is 52%. Actually for the rest of the two competitors, they are quite close. If you look at the market share breakdown between the top three players, I believe it was 5 to 3 to 2. Secondly, for the H1 of the year, in terms of how the media and leads business would evolve, actually it depends on the pandemic. Also for the media business, the advertising and marketing expenditures do get negatively impacted. For the leads business, if the COVID-19 pandemic can be better controlled, I believe that starting from third quarter, the leads business would start to perform better. Thank you.
Thank you. There are no further questions at this time. I will turn the conference back to management for closing comments.
(Foreign Language)
Thank you, everyone. Thank you very much for joining us today. We appreciate your support and look forward to updating you on our next quarter's conference call in a few months time. In the meantime, please feel free to contact us if you have any further questions or comments. Thank you, everyone.