ATRenew Inc
NYSE:RERE
If you don’t study any companies, you have the same success buying stocks as you do in a poker game if you bet without looking at your cards.
Utilize notes to systematically review your investment decisions. By reflecting on past outcomes, you can discern effective strategies and identify those that underperformed. This continuous feedback loop enables you to adapt and refine your approach, optimizing for future success.
Each note serves as a learning point, offering insights into your decision-making processes. Over time, you'll accumulate a personalized database of knowledge, enhancing your ability to make informed decisions quickly and effectively.
With a comprehensive record of your investment history at your fingertips, you can compare current opportunities against past experiences. This not only bolsters your confidence but also ensures that each decision is grounded in a well-documented rationale.
Do you really want to delete this note?
This action cannot be undone.
| 52 Week Range |
1.03
2.99
|
| Price Target |
|
We'll email you a reminder when the closing price reaches USD.
Choose the stock you wish to monitor with a price alert.
This alert will be permanently deleted.
Earnings Call Analysis
Summary
Q2-2024
In the second quarter of 2024, ATRenew reported a 27.4% increase in total revenues to RMB 3.78 billion, surpassing their guidance. This growth was chiefly powered by a 29% rise in net product revenues, reaching RMB 3.4 billion. Key drivers included robust sales of pre-owned consumer electronics and an increase in service revenues from PJT Marketplace and multi-category recycling. The company's gross margin stood at 20.8%, while the non-GAAP operating margin improved to 2.5%. Looking forward, ATRenew anticipates third-quarter revenues between RMB 3.97 billion and RMB 4.07 billion, representing 21.9% to 25% year-over-year growth.
You don't have any saved screeners yet
Good morning, and good evening, ladies and gentlemen. Thank you for standing by, and welcome to the ATRenew's Incorporated Second Quarter 2024 Earnings Conference Call.
At this time, all participants are in a listen-only mode. We will be hosting a question-and-answer session after management's prepared remarks. Please note today's event is being recorded. I would now like to turn the call over to our first speaker today, Mr. Jeremy Ji, Director of Corporate Development and Investor Relations of the company. Please go ahead, sir.
Hello, everyone, and welcome to ATRenew's Second Quarter 2024 Earnings Conference Call. Speaking first today is Kerry Chen, our Founder, Chairman and CEO, and he will be followed by Rex Chen, our CFO. After that, we will open the call to questions from the analysts.
The second quarter 2024 financial results were released earlier today. The earnings release and the investor slides accompanying this call are available at our IR website, ir.atrenew.com. There will also be a transcript following this call for your convenience.
For today's agenda, Kerry will share his thoughts on our quarterly performance and business strategy, followed by Rex, who will address the financial highlights. Both Kerry and Rex will join the Q&A session.
Let me cover the safe harbor statements. Some of the information you'll hear during this conversation today will consist of forward-looking statements, and I refer you to our safe harbor statements in the earnings press release. Any forward-looking statements that management makes on this call today are based on assumptions as of today, and that ATRenew does not take any obligations to upgrade our assumptions on these statements.
Also, this call includes discussions of certain non-GAAP financial measures. Please refer to our earnings press release, which contains a reconciliation of non-GAAP measures to GAAP measures. Finally, please note that unless otherwise stated, all figures mentioned during this conference call are in RMB, and all comparisons are on a year-over-year basis.
I'd now like to turn the call over to Kerry for [ dividends ] and strategy updates.
[Interpreted] Hello, everyone, and welcome to ATRenew's Second Quarter 2024 Earnings Conference Call. We are pleased to share our achievements this quarter and the strategies we have implemented in the evolving landscape where the circular economy has been driving consumer behavior.
In the second quarter, we achieved solid growth, especially at the [indiscernible] and in value-for-money retail business, even though consumers are more prudent with spending. To boost domestic consumption, the government has taken actions to encourage large-scale trade-ins of consumer goods. As a result, more products have entered the pre-owned market through e-commerce platforms and physical retailers.
In the near term, we have already witnessed a significant increase in recycling volumes in cities like Shenzhen, more importantly, we believe such policies and support will have a long-lasting impact by raising awareness of sustainable consumption and the recycling of secondhand goods. Such support provides greater certainty to our sustained growth outlook.
Looking specifically at our business performance in the second quarter, our total revenue reached RMB 3.78 billion, up 27.4% year-over-year, exceeding the high-end of our guidance. Product revenue was RMB 3.4 billion, up 29% year-over-year, serving as the main growth driver. Notably, other volume related to our core self-operated consumer electronics recycling business grew 27.8% while other volume of the overall self-operated business that included low ASP business grew 38.9% year-over-year, leading in the secondhand industry.
Among primary recycling scenarios, trade-ins have become an increasingly mainstream way to shop. We collaborated with JD.com on their old Apple product for new Apple product initiatives, which received widespread trades from users. In May, the recycling value of used products created in through JD.com grew 97.6% year-over-year. During the 618 Shopping festival, the trade-in volume of used consumer electronic products from JD.com increased by 100% year-over-year.
In our platform business, revenue grew 14.6% year-over-year to RMB 370 million. PJT and Paipai marketplaces maintained healthy take rates with an increasing number of third-party merchants, leveraging our inspection capabilities and adopting our consignment model. The GMV of our multi-category recycling service business increased by nearly 400% year-over-year, serving as the main driver of platform business growth and reflecting that in the current [ microeconomic ] environment and increasing number of users are willing to explore recycling services beyond consumer electronics categories.
On the gross margin front, we successfully turned the gross margin of the Apple trade-in business positive in the second quarter, raising the overall product revenue growth margin to 12.1%, an increase of 1.2 percentage points from the first quarter of 2024. Gross margin at the Group level slightly dropped to 20.8% as the proportion of product revenue increased by 1.1 percentage points compared with the second quarter of 2023.
Even though the economies of scale have also led to improved cost efficiency, the non-GAAP fulfillment expense as a percentage of total revenues decreased by 0.3 percentage points year-over-year, while the non-GAAP selling and marketing expense as a percentage of revenue fell by 1.1 percentage points year-over-year. This overall resulted in a 0.7 percentage points improvement year-over-year in the non-GAAP operating profit margin, bringing it to 2.5% in the second quarter of 2024.
The achievements we've discussed so far are rooted in our core strengths in recycling scenarios and supply chain capabilities. Going forward, we will continue to build on these strengths to drive further growth and success.
On one hand, we have strengthened our service capabilities in our core business of consumer electronics, recycling and transaction services. In June, we renewed our strategic agreement to deepen our business collaboration with JD.com in areas such as consumer electronics recycling, trade-ins and the retail of value-for-money secondhand products. This renewal also introduced new trade-in methods for Apple products. We continue to meet the high standards and specific needs of JD users through our industry-leading fulfillment and supply chain capabilities.
Our trade-in business through JD has experienced rapid growth. In the first half of the year, the recycling value of products traded in by JD users increased by over 50% year-over-year. Notably, in June, the recycling value of products fulfilled by trade-in program surpassed that of regular recycling for the first time, establishing it as the leading recycling method through JD.
Trade-ins provide a better user experience than revenue recycling, effectively capturing users demand for upgraded devices and receiving growing acceptance and adoption by our users.
For our Apple's official trade-in business, we successfully turned the gross margin positive as anticipated in the second quarter. During this typically off-peak period, we achieved RMB 160 million in revenue. Specifically, we ensured a positive operating margin for the segment in the second quarter while aiming at a long-term operating profit margin of 3% to 4%. Expenses at the operating level are simple, and we expect Apple for official trade-in business to bring more positive operating profit.
We continue to build our offline fulfillment capabilities to strengthen our business mode. As of the end of the second quarter, we operated 1,516 AHS off-line stores in 260 cities nationwide with a net increase of 19 self-operated stores and 69 jointly operated stores in the quarter. To meet users' demand for multi-category recycling, we upgraded the store image for location of over 50 self-operated stores.
Additionally, we have a nationwide doorstep service team of over 600 staff to address users' diverse fulfillment needs. Our service team maintains a consistent brand image and service standards, offering face-to-face device inspections and on the spot payments, which provides several advantages over traditional mail in recycling.
In the second quarter, the doorstep recycling business sustained the same year-over-year growth rate as the overall C2B business. Our in-store and doorstep fulfillment options offer users flexible and convenient recycling choices.
On the other hand, we are further enhancing our core capabilities in client shopping scenarios and supply chain management. These improvements aim to provide users with a wider selection of premium products while strengthening the brand recognition of AHS Selection.
We are witnessing a clear trend that consumers are increasingly looking for value-for-money high-quality pre-owned products. We offer a curative selection of premium secondhand products in our offline stores, allowing consumers to directly access the quality of 35 pre-owned items that are 95% and 90% new, stimulating their interest in trying and purchasing these products. By linking in-store inventory with our nationwide online inventory, we provide consumers with cost-effective options for buying secondhand items. This capability has successfully gained the trust and recognition of our AHS Selection brand.
In the second quarter, product revenue from AHS Selection in our off-line stores and on our official website, surpassed RMB 210 million, marking a 31% increase from the previous quarter and an eightfold increase year-over-year. Product revenue brought by our 1P2C retail business increased by 125% year-over-year to RMB 960 million. Retail channels included Paipai Selection, AHS recycle websites and physical stores Douyin, etc.
Building on our robust end-to-end supply chain capabilities from sourcing to processing to sales, we are exploring synergies with retail partners in addition to the established retail channels of Paipai, AHS store and live streaming platforms.
In June, our B2B transaction platform, PJT Marketplace partnered with Douyin e-commerce to empower more small- and medium-sized businesses to thrive in the new retail landscape by leveraging PJT's leading secondhand consumer electronics supply chain. Key elements of our collaboration include our operation center, which supports product quality inspections and PJT supplying secondhand consumer electronics to Douyin e-commerce. Additionally, PJT has established a strategic partnership with [indiscernible] a leading retailer in mass market cities. Together, we are exploring opportunities for secondhand products through [indiscernible] extensive offline store network. Initial sales pilot programs have already been launched recently.
In closing, we would like to share our perspective on establishing our brand as the top-of-mind choice for consumers nationwide when it comes to recycling.
Starting last year, we have increased our marketing efforts to promote our upgraded services in recycling to raise the awareness of our brand and to improve public understanding of recycling trade-ins and circular consumption. We have distributed educational content about recycling and trade-ins on popular social media platforms, including Douyin, Xiaohongshu [indiscernible] video platform while partnering with key influencers to advertise our brand name.
Moreover, we have collaborated with leading consumer brands to launch the revived [indiscernible] initiative. In the second quarter, we rolled out trade-in programs in partnerships with 20 brand owners, strengthening the concept of sustainable circular consumption. To name a few [indiscernible]. We jointly encouraged more consumers to pick up request, return more used goods and claim the rewards.
Given the clear shift in consumer behaviors, we believe it is crucial to proactively seize the opportunities presented by the circular economy. We will continue to invest in our brand. We aim to acquire greater mindshare for our brand and services among consumers through strategic brand marketing, cross-brand partnerships and revamping our stores.
As we enter the third quarter, we are preparing for the upcoming launch season for new cell phone models in September and October. We look forward to serving even more users by facilitating the recycling and transactions of their secondhand products through our enhanced service offering.
Now I'd like to turn the call over to our CFO, Rex for financial updates.
Hello, everyone. We are pleased to report another profitable quarter under non-GAAP measures. On revenues we once again exceeded the top end of our guidance. Before taking a detailed look at the financials, please note that our figures are in RMB and all comparisons are on a year-over-year basis, unless otherwise stated.
In the second quarter, total revenues increased by 27.4% to RMB 3,776.7 million, primarily driven by the strong growth in net product revenues. Net product revenues increased by 29% to RMB 3,401.8 million, while net service revenues increased by 14.6% to RMB 374.9 million.
Growth in net product revenues was primarily driven by an increase in the sales of pre-owned consumer electronics, both throughout the company's online and offline channels. The increase in service revenues was primarily due to an increase in the service revenue generated from PJT Marketplace and the multi-category recycling business.
The overall gross transaction value of Marketplaces increased consistently with service revenues and the take rate of our Marketplaces was 5.28% in the second quarter of 2024. About $30 million was directly attributable to our multi-category recycling business with an average service take rate of 3%. Multi-category recycling business accounted for 8% of total service revenues in the second quarter of 2024, while the figure was 1% in the same period of 2023.
Now let's discuss our operating expenses to provide greater clarity on the change in our actual operating base expenses. We will also discuss our non-GAAP operating expenses, which better reflect how management views our results of operations The reconciliations of GAAP and non-GAAP results are available in our earnings release and the corresponding Form 6-K furnished with the SEC. Merchandise costs increased by 28.6% to RMB 2,990.6 million, in line with the growth in product revenues. Gross margin at the Group level was 20.8% in the second quarter.
Product revenues gross margin, which we also refer to as 1P business gross margin was 12.1%. Fulfillment expenses increased by 22.1% to RMB 328.3 million. Excluding share-based compensation expenses, which we will refer to as SBC from hereon, non-GAAP fulfillment expenses increased by 22.9% to RMB 321.7 million. Under the non-GAAP measures, the increase was primarily due to, first, an increase in personnel costs as the Company conducted more recycling and transaction activities compared with the same period of 2023; and secondly, an increase in operation center related expenses as the Company expanded its store and operation station networks.
Non-GAAP fulfillment expenses as a percentage of total revenues decreased to 8.5% from 8.8%. Selling and marketing expenses increased by 5.6% to RMB 354 million. Excluding SBC expenses and amortization of intangible assets and deferred cost resulting from assets and business acquisitions. Non-GAAP selling and marketing expenses increased by 11.7% to RMB 283.3 million, primarily due to an increase in advertising expenses and promotional campaign related expenses.
Non-GAAP selling and marketing expenses as a percentage of total revenues decreased to 7.5% from 8.6%. General and administrative expenses increased by 26.1% to RMB 72.5 million. Excluding SBC expenses, non-GAAP G&A expenses increased by 41.9% to RMB 56.2 million, primarily due to an increase in personnel costs.
Non-GAAP G&A expenses as a percentage of total revenues was 1.5% compared with 1.3% in the same period of 2023. Technology and content expenses increased by 10.6% to RMB 49.8 million, excluding SBC expenses and amortization of intangible assets and to personnel cost resulting from assets and business acquisitions.
Non-GAAP technology and content expenses increased by 12.6% to $43.7 million. The increase was primarily due to an increase in personnel costs in connection with the ongoing upgrade of the company's operating center and system. Non-GAAP technology and content expenses as a percentage of total revenues decreased to 1.2% from 1.3%.
As a result, our non-GAAP operating income was $94.1 million in the second quarter of 2024 representing a significant increase of 81% year-on-year. Non-GAAP operating profit margin was 2.5% compared to 1.8% in the second quarter of 2023 and our ongoing share repurchase program, which the Board of Directors approved an uplifting limited to purchase USD 50 million through June 27, 2025. We have returned approximately USD 8 million to our shareholders for a total amount of 3.3 million ADSs as of June 30, 2024.
As of June 30, 24, cash and cash equivalents, restricted cash, short-term investments and funds receivable from third party payment service providers totaling RMB 2.8 billion. Our strong cash position safeguards a sustainable growth outlook.
Now turning to the business outlook first to third quarter of 2024. We anticipate total revenues to be between RMB 3,970 million and RMB 4,070 million representing an increase of 21.9% to 25% year-over-year. Please note such that this forecast only reflects our current and preliminary views on the market and operational conditions, which are subsidy change.
This concludes our prepared remarks. Operator, we are now ready to take questions.
We will now begin the session question and answer session. [Operator Instructions] And the first question will come from Joyce Ju with Bank of America.
[Interpreted] I'll translate myself. This is Joanne on behalf of Joyce from Bank of America. Congrats on the solid result this quarter. We see there are recent domestic policies that have increased support for large-scale consumer goods trade-ins such as the subsidies announced by the National Development and Reform Commission in July. How do these policies impact your business?
[Interpreted] Thank you for the question. Since the State Council released its action plan for large-scale consumer group trade-in in March, we observed both central and local policy support, mainly focusing on computers, cars and home appliances. In joint, NDRC and Ministry of Finance issued measures to further support these trade-ins. We've seen more cities implementing specific subsidies for electronic products, including home appliances and computers. ATRenew and JD.com have collaborated to meet users' trade-in needs, securing more high-quality firsthand recycling products.
Currently, phone-specific subsidies are being implemented at the local level. For instance, in Shenzhen's July trade-in subsidy program, we processed new consumer electronics products from JDs trade-in orders. The number of successful recycling transactions increased 2.5x compared with the number in June, even though June was a peak month considering the grand promotion season, reflecting the popularity of such initiatives. In the second half of the year, we expect more cities to introduce similar subsidies, further promoting the effective recycling of idle electronic products within the circular economy.
However, we primarily view these policy subsidies as catalysts for enhancing users recycling awareness. Some studies suggest this round of subsidy may last longer than previous programs like home appliances going to the countryside. Therefore, we aim to seize these opportunities to strengthen the recycling system, enhance the AHS recycle brand recognition and guide users towards trade-in.
We anticipate that as national and local subsidy policies are introduced, user acceptance increases and our fulfillment capabilities strengthen. These factors will collectively promote further penetration of this unique service model into the circular economy. Thank you for the question.
The next question will come from [indiscernible] with CICC.
[Interpreted] Congratulations on the solid results. And I have 2 questions. The first one is about the top line. What are the contributions of the compliance refurbishment business and your Apple trade-in business? And the second one, could you please elaborate on how you include our non-GAAP operating margin?
Okay. Thank you. I will take your question. In terms of the compliant refurbishment, we saw a 50% year-over-year increase in the second quarter, reaching RMB 300 million in product revenue. In the first half of this year, we continued to enhance our selection of sales recycled goods swiftly identifying suitable performance for refurbishment and the improving efficiency across our value chain. Currently, we have achieved 95% comparison coverage in the mobile phone category, laying a solid foundation for future replication to other categories.
At the same time, we have enhanced our repair coverage and capabilities and processing capabilities for different phone conditions. Additionally, we have bolstered our sales capabilities for 1P goods opening up channels for both retail and business buyers, better connecting the end-to-end industry chain.
Regarding Apple's official trade-in service, we have successfully optimized our gross margin as planned, achieving a positive gross margin in the second quarter. Although the overall gross margin for our Apple business in the same quarter was already low single digits, we've observed significant improvements in the gross margin for goods receiving during the second quarter. We will continue to refine this business in the second half of this year, aiming to provide an excellent trade-in experience for Apple's official users while maintaining steady profitabilities.
In the first half of this year, in addition to our consumer end trade-in service, we also enhanced our service to Apple's corporate offerings based on Apple's orders from a number of Fortune 500 corporates. We expect to recover used devices from [indiscernible] corporate clients in next 1-3 years. Through such a program, we can access the corporate service market while addressing the needs of leading international and domestic corporates when they're disposing of used workplace iPhones and MacBooks of their employees.
In terms of profitability, we reported in [ a consecutive ] quarter with positive non-GAAP operating profit in the second quarter. Non-GAAP operating profit was RMB 94 million. Non-GAAP operating margin was 2.5% during the promotional season of e-commerce platforms compared with 0.8% in the second quarter of 2023. Such improved operating efficiency with a testament to the economy of skilled back by our end-to-end supply chain.
As mentioned earlier, in the second quarter of 2024, non-GAAP fulfillment expenses increased by 2.9% and non-GAAP sales and marketing expenses increased by 11.7%, both grow slower than our top line.
Labor costs in relation to fulfillment as a percentage of total revenues decreased by 0.2% compared with the second quarter of 2023, although promotion fees related to the branded promotion of AHS recycle increased, but the commission fees and preferred promotion fees of PJT Marketplace and the Paipai in relation to sales and marketing as a percentage of total revenues dropped. So above are the main reasons behind the improved margin. Thanks.
The next question will come from Michael Kim with Zack Research.
Thanks for taking my questions. First, just curious how the gross margins for the recycling of luxury goods compared to consumer electronics and then assuming the mix continues to shift in favor of luxury items, just wondering how that might impact overall gross margins? And then I do have a second question.
Okay. So for your -- for the first question, currently, approximately 90% of our total revenues comes from the product sales related to recycling, quality inspection, refurbishment and the resell of [indiscernible] products. So the remaining 10% of our total revenues come from service revenues generated by our platform. Revenue is equivalent to the gross profit for this segment in our financial statements. Of this service revenues, 80% is attributable to our multi-category recycling business operated under the platform model. But in terms of the operating profit margin, Selection goods products will be similar to our electronic products.
So when we [indiscernible] the recycling business of high-value goods, including luxury items, we categorized some as a part of our multi-category business alongside other than consumer electronic categories. This indicates such that the multi-category recycling business currently has a limited impact on our overall gross margin. However, we believe that by expanding the scope and accessibility of our multi-category recycling services, we can positively influence our overall gross profit mix and margins as well as operating profit margin.
Makes sense. Appreciate that. And then second, just given the strength of your balance sheet and your asset-light business model, just curious to hear your updated thinking on the capital management front. I know you talked about the Board recently upsizing and extending the share repurchase authorization, but just wondering how you might be thinking about potentially instituting a dividend down the road and/or capitalizing on potential M&A opportunities?
Okay. Thank you for the questions. In terms of the -- in terms of our shareholder returns, we will maintain regular and open communication with the Board and the marketers to explore the feasibility of share buyback and dividend plans. And our current plan to use most of our current year profit for share repurchase in current year. So considering the current capital market environment and the content stage of development, we will adopt a prudent approach to capital utilization, and we do not have any M&A plan now. Thank you.
This will conclude our question-and-answer session. I would like to hand the conference back over to management for any closing remarks. Please go ahead.
Thank you. Thank you all again for joining us. A replay of today's call will be available on our website shortly, followed by a transcript when ready. If you have any additional questions, please feel free to email us at ir@atrenew.com. Thank you.
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.