Autohome Inc

NYSE:ATHM

Earnings Call Analysis

Autohome's Financial Summary and Outlook

Autohome Inc. reported Q4 net revenues of CNY 1.91 billion, with media, leads generation, and online marketplace services showing year-over-year growth of 14.8%. Full-year revenue climbed moderately by 3.5% to CNY 7.18 billion. Despite share repurchase completions, Q4 operating profit and adjusted net income fell year-over-year, reaching CNY 367 million and CNY 503 million, respectively. The annual car sales achieved a record high, with a 5.3% increase driven by New Energy Vehicles (NEVs), forecasting a 3% growth for 2024. The future focus will be on NEV market synergies with Ping An Group and expanded retail stores, along with a steady dividend plan promising no less than CNY 1.5 billion payout from 2024 to 2026.

Revenue Growth and Income Stability

In the year 2023, Autohome Inc. witnessed a steady growth in total revenue, amounting to a 3.5% year-over-year increase, reaching RMB 7.18 billion. Their newer ventures, such as the NEV (New Energy Vehicles) business, experienced a significant surge, contributing to an 80% increase in revenue and forming nearly 18% of the total revenue. Data products and the online marketplace also saw over 10% growth compared to the previous year. The incremental revenue highlights Autohome's ability to innovate and embrace new market opportunities. Additionally, the company achieved an adjusted net income of RMB 2.16 billion, showcasing a robust net margin of 30.1% and emphasizing the stability of their profitability during expansion.

Artificial Intelligence and Retail Expansion

Autohome has integrated AI and large language models to enhance the quality of its data products and services. The company's strategic expansion into physical retail through the Autohome Energy Space stores, now present in 20 cities, underscores its digital leadership and commitment to growth in mid to low tier cities, which are marked as areas with significant growth potential. With plans to extend the presence of the Autohome Energy Space stores to around 50 cities, the company predicts increased brand awareness and a stronger footprint in the NEV sector.

Financial Discipline and Shareholder Value

Autohome's financial discipline has been exhibited in maintaining a strong balance sheet with cash, cash equivalents and short-term investments totaling CNY 23.55 billion. The company generated substantial operating cash flow of CNY 2.45 billion in 2023. A milestone achievement was the completion of a USD 200 million share repurchase program as part of their commitment to return value to shareholders. Additionally, Autohome has elevated its shareholder benefits through significant dividend payouts, reinforcing the company's confidence in its financial health and its dedication to long-term shareholder returns.

Synergies and Future Strategies

Looking ahead, Autohome plans to accelerate collaboration with Ping An Group to create a comprehensive ecosystem for car owners. The synergy derived from Autohome's traffic and content assets, combined with Ping An's large customer base, aims to enhance service quality and build a closed-loop ecosystem, factoring in the entire car ownership life cycle.

Q4 Financial Highlights

For the fourth quarter, Autohome reported net revenues of CNY 1.91 billion, with a gross margin of 80.8%, slightly higher than in the same period of the previous year. Despite this, the accomplished net income was at CNY 503 million, noticeably lower than the CNY 669 million in the corresponding quarter of the prior year. Operating profit also saw a decline from CNY 513 million to CNY 367 million. These figures reflect the challenges faced and the strategic investments made during the quarter to maintain a competitive edge and position the company for future growth.

Earnings Call Transcript 2023-Q4

[Operator]

Ladies and gentlemen, thank you for standing by for Autohome's Fourth Quarter and Full Year 2023 Earnings Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded. If you have any objections, you may disconnect at this time. A live and archived webcast of the earnings conference call will also be available on Autohome's IR website.It is now my pleasure to introduce your host, Mr. Sterling Song, Autohome's IR Director. Mr. Song, please go ahead.

[Sterling Song, executive]

Thank you, operator. Thank you. Hello, everyone, and welcome to Autohome's fourth quarter and full year 2023 earnings conference call. Earlier today, Autohome distributed its earnings release, which can be found on the company's IR website at ir.autohome.com.cn. Joining me today on today's call are Chief Executive Officer, Mr. Tao Wu; and the Chief Financial Officer, Mr. Craig Yan Zeng. Management will go through their prepared remarks, which will be followed by a Q&A session where they will be available to answer all your questions. Before we continue, 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 U.S. Securities and Exchange Commission and the Hong Kong Stock Exchange. Autohome doesn't undertake any obligation to update any forward-looking statements except as required under applicable law. Please also note that Autohome's earnings press release and this conference call include discussions of certain unaudited non-GAAP financial measures. A reconciliation of the non-GAAP measures to the most directly comparable GAAP measures can be found in our earnings release.I will now turn the call over to Autohome's CEO, Mr. Wu, for opening remarks. Please go ahead, Mr. Wu.

[Tao Wu, executive]

[Interpreted] Thank you, Sterling. Hello, everyone. This is Tao Wu, CEO of Autohome. Thank you for joining us in our earnings conference call today. We delivered solid operational and financial results in 2023 with overall growth driven primarily by our new businesses. Total net revenues for the year grew by 3.5% year-over-year to RMB 7.18 billion. Revenues from the online marketplace and others business increased by 14.6% year-over-year and accounted for 30.6% of total revenue. Notably, we continue to see strong growth in revenues from data products and TTP, which each increased by more than 10% compared to 2022. We also saw robust growth in our NEV business with revenues for the year increasing by over 80% year-over-year and accounting for nearly 18% of total revenue.Adjusted net income attributable to Autohome for the year was RMB 2.16 billion with adjusted net margin of 30.1%. We also completed a USD 200 million share repurchase program and significantly increased the dividend payout to shareholders demonstrating our commitment to generating returns for investors. In 2023 we made breakthroughs in the application of AI and large language models and innovative new business model. We launched new AI-driven data products, deployed large language models in various business scenarios and combined model-based decision-making with human expertise to enhance the service quality of our data products. We also made rapid progress in expanding our physical new retail presence, particularly in mid to low tier cities where we see significant potential for growth as the NEV market evolves.Our Autohome Energy Space stores, as a strong offline channel to complement our online capabilities, are now present in 20 cities across the country helping us build brand awareness among NEV users. Autohome has always been at the forefront of digitalization and business innovation, proactively promoting and leading the digital transformation of the entire automotive industry in China. Looking ahead, we are committed to maintaining our leadership in these key areas and creating unique advantages through the following strategies. First, we'll accelerate the collaboration with Ping An Group and focus on creating a closed-loop ecosystem for car owners and leveraging Ping An's resources to enhance our service capabilities.Second, we will enhance the quality of our content and reinforce Autohome as the go-to brand for all things automotive, creating a strong and lasting brand image as the leading authority in this space. Third, we'll put users at the center of our efforts providing convenient access to high quality comprehensive services throughout the entire car ownership lifecycle. Fourth, we will deepen our innovative business models focusing on developing our Autohome Energy Space stores and TTP. We believe that by aggregating industry resources, leveraging Ping An's potential business opportunities and user resources, we can create a unique value proposition and establish a diverse and dynamic ecosystem that empowers our long-term growth.With that, I will now turn the call over to our Chief Financial Officer, Craig Zeng, for a closer look at our fourth quarter and full year 2023 operating and financial results.

[Yan Zeng, executive]

[Interpreted] Thank you, Mr. Hu. Hello, everyone. I'm Craig Zeng, the CFO of Autohome. In 2023, we made user experience our core focus creating a comprehensive system encompassing content, tools and services to provide our users with high quality convenient and efficient auto consumption experiences. In the fourth quarter, we launched NEV Breakthrough Plan, a comprehensive evaluation program that assesses NEV safety across 3 dimension; collision, battery and intelligent driving. This program, which aims to address user concerns and accelerate the decision-making process, has received 325 million impressions and over 200 million views across the entire network. Additionally, we launched NEV Super Test, a program which carries out real-world evaluation of NEV performance over a period of 2 months.This initiative gives us the opportunity to collaborate with other parties on developing a more consumer-centric vehicle evaluation system, promoting the overall NEV category and helping automotive brands develop strong products with a better user experience. Looking ahead, we will maintain our focus on catering to the evolving needs of users so that we can create a rich and diverse content ecosystem that provides value and drives engagement. We'll also leverage a broad range of online channels to ensure that our high quality content reaches the widest possible audience. According to QuestMobile, our mobile DAUs increased by 25.4% year-over-year to reach 68.19 million last December demonstrating the effectiveness of our content-based user growth strategy. Our NEV business has grown rapidly with the expansion of Autohome Energy Space to 20 cities across the country.We've upgraded our brand, technology and store services to provide a high quality consumer experience across regional auto markets in East, South, Southwest and North China. We've also increased the number of Energy Space brand partners and expanded our offering of 3D holographic car models to include over 70 mainstream models. We remain optimistic about the potential of this new retail model, which is distinguished by cross-brand and digital approach. Looking ahead to 2024, we plan to further expand our footprint by opening franchise stores in around 30 additional cities. By the end of this year, our NEV service ecosystem will have a presence in around 50 cities allowing us to provide a comprehensive range of high quality one-stop automotive service experiences to consumers across the country.For full year 2023, our revenue from NEV brands increased 81.6% demonstrating the strength of our offerings in this area and our ability to outperform industry sales growth rates. We also made significant progress in our digitization efforts in 2023 as we applied AI technology and large language models across a wide range of our products and services. We launched products such as Cloud Smart Selection and [indiscernible], which leverages our AI technology and big data capabilities to help dealers engage with high value users and manage instant messages with users in different scenarios. We also introduced applications based on large language models such as AIPC and Operation Butler helping our data customers reduce overall cost and increase efficiency.In 2023, the average revenue for data products per dealer store and the average number of data products adopted by each data store, both grew by over 20% compared to the prior year as the number of data customers for data products continued to ramp up driving a 38% year-over-year increase in dealer data revenue for the year. We expect our digital products to maintain their strong growth momentum contributing to a more diversified revenue mix for Autohome. In terms of our used car business, we offer a wide range of products to help used car dealers manage their daily business operations more efficiently. For example, our one-stop platform for vehicle condition price inquiries provides a convenient way for dealers to access relevant information and has received positive feedback.We've also launched a membership product specifically designed for used cars providing dealers with a comprehensive information management platform. On the other hand, we have successfully expanded TTP's business through new retail stores. In 2023, TTP delivered a year-over-year revenue growth of over 10%. In conclusion, we have steadily grown revenue while achieving a more optimal revenue mix and driving significant increase in user traffic. Our new retail business is growing rapidly and our overall business is making steady progress. Looking ahead, we will continue to invest in new models, technologies and products and proactively explore opportunities for further business resource and user synergies with Ping An Group. Through these efforts, we aim to create new growth momentum and position ourselves for continued success in the future.Let me walk you through the key financials for the fourth quarter and full year 2023. Please note that as with prior calls, I will reference RMB only in my discussion today unless otherwise stated. Net revenues for the fourth quarter were CNY 1.91 billion. Breaking down by segment: media services revenues were CNY 500 million, leads generation services revenue were CNY 841 million and online marketplace and others revenues were CNY 569 million, up 14.8% year-over-year. Moving on to cost. Cost of revenue in the fourth quarter was CNY 368 million compared to CNY 371 million in Q4 2022. Gross margin in the fourth quarter was 80.8% compared to 80.4% in Q4 2022. Turning to operating expenses. Sales and marketing expenses in the fourth quarter were CNY 730 million compared to CNY 633 million in Q4 2022. Product and development expenses were CNY 356 million compared to CNY 330 million in Q4 2022.Finally, general and administrative expenses were CNY 157 million compared to CNY 103 million in Q4 2022. Overall, we delivered operating profit of CNY 367 million in the fourth quarter compared to CNY 513 million in the corresponding period of 2022. Adjusted net income attributable to Autohome was CNY 503 million in the fourth quarter compared to CNY 669 million in the corresponding period of 2022. Non-GAAP basic and diluted earnings per share in the fourth quarter were both CNY 1.04 compared to CNY 1.36 and CNY 1.35, respectively, in the corresponding period of 2022. Non-GAAP basic and diluted earnings per ADS in the fourth quarter were CNY 4.15 and CNY 4.14 respectively compared to CNY 5.42 and CNY 5.41, respectively, in the corresponding period of 2022.Let me now turn to a short summary of our year 2023 full year results. Total revenues were CNY 7.18 billion, an increase of 3.5% year-over-year. Of that; media services revenue was CNY 1.87 billion, leads generation services revenue was CNY 3.11 billion and online marketplace and others business revenue increased by 14.6% year-over-year to CNY 2.2 billion. In addition, we delivered an adjusted net income attributable to Autohome of CNY 2.16 billion with adjusted net margin of 30.1%. As of December 31, 2023 our balance sheet remained very strong with cash, cash equivalents and short-term investments of CNY 23.55 billion. We generated net operating cash flow of CNY 2.45 billion in 2023.In November 2021, our Board of Directors authorized a share repurchase program under which we were permitted to repurchase up to USD 200 million of Autohome's ADS for a period not to exceed 12 months thereafter. In November 2022, our Board of Directors authorized an extension of this share repurchase program for another 12 months. As of December 31, 2023, we have completed the share repurchase program. We've repurchased approximately 6.73 million ADS for a total cost of approximately USD 200 million.With that, now we are ready to take your questions. Operator, please open the line for Q&A session.

[Operator]

[Operator Instructions] The first question comes from the line of Thomas Chong from Jefferies.

[Thomas Chong, analyst]

[Interpreted] My question is about the industry outlook. Can management comment about the 2023 industry performance and how we should think about the trend and the outlook in 2024 as well as the opportunities ahead?

[Tao Wu, executive]

[Interpreted] Thank you very much for the question. Actually in 2023, we do see the trend of first low and then high momentum in the auto market in China. In terms of 2023, the sales volume hit historical high. According to the statistics of the CPCA, in Q4 we do see a quick recovery in auto sales especially for the retail sales has gone up by 13.8% year-over-year and quarter-over-quarter for the third quarter, it was up 1.4%. That is because close to the end of the year, there are a lot of promotions nationwide. For example, the offline auto show and providing consumption vouchers and coupons for car purchasing and some of the destock for the combustion cars, which failed to meet the National VI standard. And also in this way, it boosted the sales.As for 2023, the passenger car sales has gone up by 5.3% majorly due to the NEV car. We also see some challenges in this industry. For example, it's very competitive in starting the price wars and the margins have been squeezed. According to the data published by CPCA, for 2023 the auto industry especially the revenue has gone up by 12%. However, the margin is only 5%. Compared with the overall industrial corporate margin which was 5.8%, the auto market margin is quite low. So in this way according to the data of CPCA, for the first half of 2023 there were 50.3% of the dealers suffered loss and this is quite challenging for the 4S stores. Now looking into 2024, we firmly believe that the auto market will be a pillar industry for the national economy. It will be continuously supported by the government especially at the beginning of 2024, we do see a lot of local governments extended and they initiated a lot of supportive policy to stimulate the purchasing of the car.For example in January, Guangzhou launched the subsidy for purchasing cars during the [ newsprint ] and in Zhengzhou, they also issued consumption coupons for car purchasers. So this would help to stimulate the market demand and also help to drive up the sales in the auto market. According to CPCA, in 2024 the auto market will continue to stabilize and will continue to providing a good development momentum, which will achieve 3% of the growth. Finally, in terms of the structure of the auto market, NEV has always kept growing in a rapid way. The penetration rate of the NEV has gone up from 28% back in 2022 to 35% in 2023. It will be expected to reach 40% in 2024. With the higher penetration rate, we do see some momentum change for the purchasers and we believe that the competition in the traditional combustion car market will be even more aggressive.So we do see that no matter it's the domestic brands or the JV brands, a lot of the traditional car makers are trying to explore to launch a lot of NEV car models to fit into the NEV growth market. That would also help the OEM to try to be more innovative to enhance its competency to fit into this market. In general, we believe that with more and more supporting policies to be released, this would further stimulate this market and rejuvenate the consumption mentality. We are quite confident in 2024's auto market in China.

[Operator]

Next question is we have the line from Xiaodan Zhang from CICC.

[Xiaodan Zhang, analyst]

[Interpreted] I got 2 questions here. So first of all, we have noticed that the gross margin and operating profit margin declined year-on-year in 2023. So what's your expectation for the margin trend in Q1 2024 and onwards? And secondly, could you please elaborate on your strategies for enhancing the synergies between Autohome and Ping An Group?

[Yan Zeng, executive]

[Interpreted] Well, thank you very much for the question. Now talking about the GP margin. Well, yes, in 2023 compared with 2022, we do see some slightly down in the GP margin. Now talking about cost, we have provided a more diversified content ecosystem so that's why it drives up some of the costs. In terms of the user experience, we have enhanced the recruiting of the new customers and the promotions. In this way, we also expanded about 20 renewable NEVs offline experience stores and we provided some promotion subsidies and we also offered a lot of support for the dealers. So in this way, we provided also training and a lot of other resources to attract local consumers to come to the store to do the test drive and to boost the car sales. Now in terms of the content, we have invested more and more in high quality content not only the text and picture base, we also invested in video and live streaming. So in this way, it drives up some of the cost.Now in terms of the cost and expenses, we have enhanced some marketing investment. For example we launched the 818 auto show -- global auto show and also online auto show, et cetera. And also we invested more heavily in high quality IP. For example, we have initiated the NEV Breakthrough Plan and NEV Super Test. So in this way, we are providing more professional content. So we are focusing on providing professionalism and unique content. Now in terms of the momentum of the profit, we do see that the whole industry is under stress and is receiving a lot of challenges. But Autohome has always been quite stable in terms of the profit although we are facing with some challenges. But if we can strictly control the cost and expenses and we would enhance efficiency as a long-term goal, we believe we can achieve a good balance.

[Tao Wu, executive]

Now talking about the second question, which is about the synergy between Autohome and the Ping An Group. Now I want to make the comment. So first of all, Autohome and Ping An Group, each of them have its own unique characteristics as well as resources and we can make our business quite complementary to each other. For example, Autohome has a lot of traffic. We have about 70 million DAUs every day and we have professional content and tools. We have very enriched 2C and 2B services and experiences. For Ping An Group, they have about 60 million car owners, which are their insurance customers and in their platform, there are about 200 million registered customers. So they also have a lot of enriched 2B and 2C services and experiences. So in terms of the service quality, we believe that each of us can play the merit of our strength and we can provide the online plus offline seamless connection and also providing the car owners from shopping the car, using the car and post sales of the car services to create the closed-loop ecosystem for the car users.In terms of the tools, content and services; we believe that we can create a lot of synergy. We can consolidate a lot of resources to create the 1 plus 1 is higher and more than 2 effect. So in this way, we believe that our 2 companies are quite complementary to each other and in this way, Autohome would leverage on the resource of Ping An Group and to enhance our investment yield and to enhance efficiency and try to build our vision and make our vision -- realizing our vision. We want to be the first-class international 2B and 2C content provider, tools and the service provider and we want to be the unified auto purchasing and auto sales service platforms.

[Operator]

Your next question comes from the line of Brian Gong from Citi.

[Brian Gong, analyst]

[Interpreted] I have 2 quick questions. First one is along with rising resi mix from NEV traditional OEMs, their scale is declining and this also impacts the scale of the dealer store. How does this impact our business especially for our leads generation? And the second question is last year we announced dividend. How should we think about our dividend plan in the future?

[Tao Wu, executive]

[Interpreted] Thank you for the question. Well, talking about the market. If you look at the market, we do see the major sales was still contributed by the traditional combustion cars and also the dealership model is still the mainstream model because 60% of the sales are still combustion cars. In 2023 for the combustion cars, there were about 336 million cars whilst the renewable energy car is only about 20 million. So we do believe that to serve the base market, we do still need a lot of dealers and 4S stores. However, in terms of the future momentum, we do see that with the penetration rate of the NEV car gradually going up, we do see the shrinking of the 4S store and the dealership model would be the future momentum, but it will not drop very sharply. So during this process, we would work together with those dealers and they try to transform along with those dealers and then try to readjust our business model.Now in terms of our car ecosystem and as well as our service system, we are also trying to work very closely with our combustion car dealers and try to work together and build a lot of our synergy. Now talking about our performance. In the NEV car market, we are quite promising. In terms of the revenue, our revenue growth is higher than the market average. Now if you look at the NEV car OEMs, originally they showed the responsibilities for R&D, manufacturing, sales, marketing and post sales. But the whole value chain is too long and it's quite risky to cover all the value chain. So in this way, we do see some of the NEV OEMs started to adopt a lot of dealership and franchising model. So in this way they have to leverage Autohome, which are the vertical media, which can help them to achieve better sales. So we do see that our leads business are still very promising. We have no worries about especially our leads business and the future growth.Well, actually we also readjust our business along with this new business model and with the new characteristics, we seize the new market opportunities. For example we established our new retail business that is the Autohome Energy Space store. In this way we help those OEMs to get into the lower-tier cities and into better channels to make their sales. This is a proactive change trying to get more fit into this new structure of this market and this is a brand new business model for us. It helps us to achieve a better collaboration with the NEV car brand and to enhance its sales. So we believe that in the future if our retail business is expanding, that would bring a lot of extra revenue for Autohome and we are very confident about this future business.Now talking about the dividend payout plan. In the past few years, Autohome has always continued to providing a better return for our shareholders. Before 2021, our actually dividend payout ratio is 20% of the net profit. Actually in 2022, our Board actually renewed the dividend payout system and policy. We announced that we are going to pay out no less than RMB 500 million as the dividend, which equals to 28% of the net profit in that year. At the end of 2023, we further readjusted the dividend payout ratio system. We announced that we're going to make about RMB 1 billion dividend payout and continuously from 2024 to 2026; for this future 3 years, we would provide no less than RMB 1.5 billion dividend payout.Now overall if you can see that in the past few years, Autohome had always continuously enhanced its dividend payout system and trying to provide a better return for our shareholders. On one hand, this indicates that our company has very good financial condition. We have abundant cash reservoir and very strong cash flow. On the other hand, this also shows that we have long-term commitment to providing better return to our shareholders and this was quite rare in this market. We not only enhanced the dividend payout ratio, but also pushed up the absolute amount of the dividend we paid out. In the future, we will keep close attention to the market moves and we would be in a timely manner to report and communicate with our Board meetings and we are trying to provide better returns for our shareholders.

[Operator]

Our next question comes from the line of Ritchie Sun from HSBC.

[Ritchie Sun, analyst]

[Interpreted] I want to ask about Energy Space stores. So we plan to open 30 more cities in 2024. So could management share what would be the revenue contribution in 2024 and how much cost will be allocated to such expansion plan?

[Tao Wu, executive]

[Interpreted] Thank you for the question. Yes, we built about 20 Autohome Energy Space stores in 2023. In 2024, our plan is to open 30 new stores covering from Tier 1 city to Tier 3, Tier 4 cities. Because we're providing the franchising model so in terms of the cost, opening new stores would not drive up a lot of cost because we provide more supporting function. So that's why we didn't provide a very rapid growth of these stores because we want our business to be stable, healthy and prudent. Because this is a new business, we are still in the exploration phase. Now talking about the revenue. If you look at the revenue especially in Q4 of 2023, it already reached over RMB 10,000 -- actually it was RMB 16 million and we do see with more and more stores get into a maturing operating stage, that will drive up our retail revenue. And as for the future revenue incurred in 2024, because it's still too early for me to provide any guidance at the current stage, but I believe that we would keep in a timely manner to communicate with you if we further generate more and more revenue in the future.

[Operator]

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

[Tao Wu, executive]

[Interpreted] Thank you. Thank you, everyone, for joining us today. We appreciate your support and we look forward to updating you in our next quarter conference call in a few months' time. And in the meantime if you have any further questions, please feel free to contact us. Thank you. Goodbye.[Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]