Earnings Call: Q2 2021

Aug 25, 2021

Earnings release

Ladies and gentlemen, thank you for standing by for Autohome's Second Quarter and Interim 20 21 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, the 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, Otseong Home's IR Director. Mr. Song, you may begin. Thank you. Thank you, operator. Hello, everyone, and welcome to Autohome's 2nd quarter and the 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.autocom.com. On today's call, we have Chairman and Chief Executive Officer, Mr. Yuan Long Co President, Mr. Haifeng Sha Chief Technology Officer, Ms. Xia Wang Vice President, Ms. You Zhou and Finance Director, Ms. Huang Jiang, after the prepared remarks, Ms. Long, Ms. Sha, Ms. Wang, Ms. Joe and Ms. Jiang will be available to answer your questions. Before we begin, please note that the discussion today will 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 and applicable law. The earnings press release in this call also includes discussions of certain unaudited non GAAP financial measures. Our press release contains a representation of the non GAAP measures to the most directly comparable GAAP measure and is available on Autohome's IR website. As a reminder, this conference is being recorded. In addition, a live and archived webcast This earnings conference call will also be available on Autohome's IR website. Now, I will turn the call over to Autohome's Chairman Thank you, everyone, and thank you for joining us today. We are pleased with the improving metrics across our new initiatives in the 2nd quarter Along with margin expansion, total revenues for the Q2 were RMB1.94 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 improvement, PPP broke even at operating level for the first time in June, representing a significant milestone class. We also made Further progress in our cooperation with new energy vehicle automakers. During the Q2, revenues from NEB Brands jumped 238% year over year. Adjusted net margin in the 2nd quarter continued to expand, rising 2.7 percentage points year over year to 40.8%. As the impact Global chip shortage on the new passenger vehicle sales market gradually deepened in the Q2. The production sales of new PVs 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, we are adopting an even more cautious approach to plan marketing budgets and our traditional business is facing great challenges. On the other hand, China's auto market has 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 mass fleet 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 end user experience while implementing hierarchical 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 vigorously developing new initiatives Across data products, new energy and the used car business, we are creating our 2nd curve of growth to promote the long term sustainable development of our company. Specifically, our constant efforts in content enrichment are preparing our progress and we are pleased to see our traffic continues to lead the auto media vertical, surpassing total test volume of 2nd and the third players, while maintaining a rapid year over year growth. According to statistics from Press Mobile, In June, the number of average DAU who accessed our mobile website, primary app and the mini apps grew to 44,100,000, 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. We are enhancing our service quality. We are also proactively expanding our services to the non advertising business. For example, we help automakers with user operations, offering OEMs Direct access to their users and aggregates their own user assets. On the lead 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 the user operations, helping AUV Automakers see emerging and growing opportunities. In the first half of this year, we cooperated with 20 NEV brands, resulting in a 2 38% Year over year jump in revenues from NEV brands across our platform during the Q2, far exceeding the growth rate 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 lifecycle from selling to purchasing a used car, which enhances our ability to serve users and customers. And TTP supported by Autohome has improved its operation 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 synergy between Otseong and TTP. We are also looking for other opportunities that could lead to a synergistic development and the expansion of our auto ecosystem. Moving on to our data product, our consistent efforts in product optimization and effectiveness Improvement has been gaining momentum among customers. In the Q2, a total of 19 automakers Utilize our data products and the total number of programs for intelligent new car launch and 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 market share in the auto media vertical, while exploring fresh pathways in new business area. And profitability allow us to make investments in these key areas. We plan to announce our strategic upgrade plans In detail at the upcoming Investor Day on September 15 to see 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 We 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 upgrades and our cooperation with Ping An in terms of internal resources, traffic and technology, We 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 2nd quarter financial Thank you, Ruongdong. Now let me walk you through the key financials for the Q2. Please note that as with prior calls, I will reference RMB only in my discussion today unless otherwise stated. Net revenue for the Q2 were RMB1.94 billion. For a detailed breakdown, media service revenues came in at RMB600 1,000,000. Lease generation service revenue was RMB744 1,000,000 and the online marketplace and others revenue increased by 10% year over year to RMB594 1,000,000 primarily driven by the consolidation of TTP and the increased from beta products. Moving on to cost. Cost of revenues was RMB262 compared to RMB265 1,000,000 in the Q2 of 2020. Gross margin was 86.5% in the Q2 compared to 88.5% in the same period last year. Turning to operating Sales and marketing expenses in the Q2 were RMB552 1,000,000 compared to RMB872 1,000,000 a year ago. The decrease was primarily due to a decrease in promotional spending. Product and development expenses were RMB335 1,000,000 compared to to RMB326 1,000,000 in the Q2 of 2020. Finally, G and A expenses were RMB177 1,000,000 compared to $82,000,000 in Q2 2020. The increase was primarily attributable to the consolidation of TGP and the bad debt provision related to certain advertising customers. Overall, we delivered operating profit of RMB673 1,000,000 for the 2nd quarter compared with RMB871 1,000,000 in the in period of 2020. Adjusted net income attributable to Autohome Inc. Was RMB790 1,000,000 for the 2nd quarter compared to RMB881 million in the corresponding period of 2020. Non GAAP basic and diluted earnings Earnings per share for the Q2 were RMB1.57 and RMB1.56 respectively compared to RMB1.85 and RMB1.84 RMB4 in the corresponding period of 2020. Non GAAP basic and diluted earnings per ADS for the 2nd quarter was RMB6.27 and RMB6.26 respectively compared to RMB7.39 and RMB7.36 in the corresponding period of 2020. As of June 30, 2021, our balance sheet remained very strong with cash, cash equivalents and short term investments of RMB18.43 billion. We generated operating cash flow of RMB5 RMB81,000,000 in the Q2 of 2021. With that, we are ready to take your questions. Operator, please open the line for Q and A. We will now begin the question and answer session. First, we have Thomas Chong from Jefferies. Your question, please. Thomas, please go ahead. Operator, there is no one to ask. Sorry, can you hear? Next, we have Hi, Thomas. I'm sorry about that. The connection was had some problems. The question is about auto industry outlook. Can management share about the trend going forward? We will ask Well, thank you for the questions. Actually, if you look at the first half of the year and then we make some judgments over the future outlook. So first of all, Q1 data was really good in the auto market. Q2, we do see the data dropped shortly. And after we communicated with the industry experts, we found out that the lack Enough supply of chips as well as the raw material increasing of the cost does Yes, 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 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%. Okay. Thank you for Mr. Long's answer. Operator, we can go ahead. Next, we have Richie from HSBC. Your question please. Let me translate this myself. So I have two questions. So first one is, can management comment how will And second question is, what is the outlook for used car industry and how is the competitive landscape and what are Thank you for your question. Here we have our President, Mr. Sha, to answer your question. Mr. Sha, please. 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 The first characteristic is it is more or less a chaos market and a segmented market. Secondly, the market lack of enough trust and transparency. And thirdly, we 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 loss sometimes. So it may be on the edge So for Autohome, we do have a few strategies in used car business. The first one is like asset model. 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 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 chemistry with TTP. As you know, we have a lot of resources and also we Embedded the Internet technology and the know how with TTP and together with Ping An, we empowered TTP. So actually, in this 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 Okay. That is all for your questions. Operator, we can go ahead. Thank you. Next, we have Eddie from Morgan Stanley. Your question please. Yes, we can. Please go ahead. I have two 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 the dynamic The second question is about the tax. So as we noted that some of the Internet platform company, they are not yet approved in terms of the lower tax rate, 10% of the key software, The company tax rate. Just wonder if we have any this kind of The problem as well? Yes. Thank you. 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 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 more higher entry 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 3rd players, while maintaining the rapid year over year growth. So in this way, our DAU numbers also reached to historical high, which is RMB44,100,000. So in this way, we actually achieved great success We are 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 combined 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 not only being 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 clients with the laws and regulations. Now I want to As to your second question, it was 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 are fully compatible with laws and regulations, and we are eligible for applying for such favorable Tax policy. We would continuously keep a close eye on this policy, and we should understand the policy in the full right, And we would continue to apply for the tax favorable tax policies. Operator, we can go ahead. Thank you. Next, we have Brian from Citigroup. Your question please. Hi, Brian. Please go ahead. Hi, management. Now, thank you for the question. In terms of the automaker's budget on advertising, we believe that in Q3, the shortage of And in Q4, we believe this would the situation would be more eased. However, for the next half of the We can see the automakers' advertising budgets always go with its sales volume, and it also goes with So if the sales volume is under pressure and the profit target is under We believe their advertising budget would be under double pressure. Now the second question is about the dealers' numbers. Actually, we have some statistics Till 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 23,000 And 800, and that was last year. This year, this end of June, the number is 25,600, My last comment on this question is the coverage 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 dealers as Thank you for your question. We can go ahead. Thank you. Next, we have Liu from D. P. Your question please. So I'll translate my answer. So the first question is, we see like that sales and marketing expense in 2nd quarter declined So while our competitors still acquire users aggressively, so I want to What is our user growth strategy in the future? My second question is regarding data products. So We see our data products still grow robustly and what is the outlook for second half and Okay. Thank you for your question. We have our Vice President, Zhou You I'll answer your question first and then our President, Mr. Zhao, will answer your question. Mr. Thank you. Let me decompose your question. The first one is about the sales expenditure declining in Q2. Thus, our competitors, They are spending more in acquiring new customers. So actually, if you look at our customer and the traffic strategy, on the 2C and the 2B We are number 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 number 2 and the number 3 players. If we add up the PC side traffic, we definitely can see even more Actually, growth traffic advantages. So we are in the 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 did have a few strategies. Firstly, is go more granular level. We call sink down 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%. 2nd is, we are attracting more younger users. For example, the age At or below 35 years old, they are accounting for a high portion out of 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 That is for all the customers, competitors and in 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, Now, Mr. Xiao is going to address your second question, which is about the data product. We are very glad That you have noticed that we do achieve good growth on our new data product business. In Q2, the growth is about 47%. Our long term strategy for the data product is we will further enhance the total weight of the data product In our total revenue and leveraging on the high growth of the data product, we are going to achieve a higher growth So To better understand our scenario, we would warmly invite you to attend our September 15 news strategy conference. On this new strategy releasing conference, we are going to elaborate on the data product strategy and Actually, we also had a lot of new moves. For example, From the beginning of the year till today, we always have been upgraded our data product and optimized our data product. For example, this year, for the dealers data products, 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 That is all the answers. Operator, let's move on to the next question. We will now be taking one last question from Ashley from Credit Suisse. Your question please. I just want to check about our initiative starting this April that we require users to verify So message when they leave their contacts. So just want to check the background and impact And if we look forward, how would this impact the pricing in our next negotiation round with the dealers. Thank you. Thank you, Ashley. President Shao will answer your question. Thank you very much for your question. Actually, ever since And secondly, in terms of the quality of the leads we generated, we claim to be the best in the industry and we are proud to say Actually, after implementing this April's Blue If you look at the number of the leads, it dropped by 10%. Actually, if you look at the 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 And then we shift our focus into optimizing 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 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 was to lay a solid foundation for them to recognize we are the market leaders and the quality of our leads have That's all for the answers. Operator, time runs out. So, let's move on to the last part. Thank you. Due to 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. Thank you. Thank you everyone 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. Thank you, everyone. Bye bye. Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.