ATRenew Inc
NYSE:RERE
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Good morning, and good evening, ladies and gentlemen. Thank you for standing by, and welcome to ATRenew Inc.'s Third Quarter 2024 Earnings Conference Call. [Operator Instructions] Please note today's event is being recorded.
I will now turn the call over to the first speaker today, Mr. Jeremy Ji, Director of Corporate Development and Investor Relations of the company. Please go ahead, sir.
Thank you. Hello, everyone, and welcome to ATRenew's Third 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 third 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. Please pay attention to 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 business and strategy updates.
[Interpreted] Hello, everyone, and welcome to ATRenew's Third Quarter 2024 Earnings Conference Call. We are pleased to share our performance highlights, our latest practices in promoting consumer goods trade-ins and our strategic insights on the pre-owned industry.
Our total revenue for the third quarter reached RMB 4.05 billion, achieving year-over-year growth of 24.4%, which is in line with our forecast. To dive deeper, product revenue grew by 25.6% year-over-year. Breakdown by sources, our core recycling business revenue in Mainland China increased by over 30% year-over-year, significantly outpacing the growth of the overall secondhand consumer electronics recycling and transaction market in China.
As consumer spending slows down, we keep our pace to open new physical stores to meet growing demand for the recycling of idle goods. At the end of the third quarter this year, we had a total of 1,637 AHS stores nationwide. Physical stores as our primary consumer touch points to collect pre-owned products remain the most crucial channel for building user trust and securing firsthand sources of supply. We will continue to enhance our AHS stores service capabilities and user experience to reinforce the top-of-mind brand awareness of AHS Recycle. As a result, we anticipate accelerating our store opening in the next 2 to 3 years.
Regarding the trend of our recycling business, we shared interim data during our second quarter earnings call that highlighted the growing mainstream adoption of trading services among users. Although smartphones and other consumer electronics have not yet been provided with direct trading subsidies, we observed strong demand for trading services. In the third quarter, the value of goods collected through JD.com via regular recycling and trading services increased by over 40% year-over-year, of which trading services doubled year-over-year.
It is worth mentioning that in recent Singles Day brand promotion, we worked closely with JD Electronics Business Group by co-investing in user experience and order fulfillment capabilities. We have achieved the fastest growth rate in recent years. During the brand promotion, the total value of products recycled via JD.com increased by 77% year-over-year. Trading solutions became even more popular, generating a year-over-year increase of 246% in value of products collected. On the sales front, 1P retail revenue generated from JD.com increased by 71% year-over-year. These highlights will be reflected in our fourth quarter earnings.
Against the backdrop of China's national consumption stimulus and trading subsidies, we fully utilized our established supply chain capabilities and end-to-end fulfillment capabilities covering recycling, inspection and distribution co-built with JD.com, relentlessly [ advancing our educating ] trading user experience. Additionally, in the third quarter, our Apple official trading program also achieved healthy growth with a steady improvement in gross profit margin sequentially.
In our category expansion efforts, the transaction value of goods and multi-category recycling business increased by 270% year-over-year. This asset-light platform business, providing innovative user experience is rooted in our existing stores. In the first quarter, service revenue generated from this segment grew by 400% year-over-year. As of the end of September, 587 AHS stores nationwide offered multi-category recycling services. The asset-light multi-category recycling business also serves as a key driver for obtaining higher service frequency and store visits per user, acquiring cross-selling. It also contributes incremental profit to existing stores and strengthens the competitive position of our stores.
On the selling end, our direct-to-consumer sales have been particularly strong as consumers are more open to pre-owned products. Leveraging our proprietary supply chain capabilities, our effective consumer engagement channels like Paipai on JD.com, AHS Recycle official websites and physical stores meet growing user demand for value-driven pre-owned electronic products. In the third quarter, 1P2C product revenue through Paipai on JD.com, AHS Recycle official websites and stores as well as new media retail channels grew by 87.4%, 301.3% and 114.6% year-over-year, respectively.
Regarding service revenue, which accounted for 9.4% of total revenues; it increased by 13.9% year-over-year in the third quarter on an aggregated take rate of 5.34%. Take rate of core PJT Marketplace business had a 0.5% uplift compared to the same period of 2023. Take rate of Paipai POP business adjusted down slightly, while Paipai pivoted for its direct retail functions and upgraded its consignment offering.
On the profitability front, we achieved a non-GAAP operating income of RMB 104 million this quarter with a non-GAAP operating margin of 2.6% and are reporting our first GAAP operating income of RMB 24.9 million. This achievement is closely tied to our economies of scale, which our CFO, Rex will elaborate on later.
We have observed referencing IDC market insights that China's secondhand consumer electronics industry is growing by roughly 10% year-over-year. We believe: firstly, trading becomes a trending option among users, thus outpacing and driving the growth of the industry; secondly, as consumer spending slows down, the demand for the disposal of pre-owned products and value for money quality assured pre-owned smartphones continues to grow.
As many of you have experienced, the secondhand market is in its growth stage. For our core secondhand consumer electronics business, which is our business foundation, our long-term strategy focuses on strengthening our scenario plus supply chain advantages and consumer trust in the AHS Recycle brand, efficiently serving users while securing more firsthand sources of supply. By integrating supplies from consumers and businesses, leveraging our supply chain capabilities for compliance refurbishment and increasing retail sales to consumers, we are achieving effective economies of scale and unleashing the value of the industry. We believe that within this massive secondhand market, whether consumer electronics or gold and accessories, bags and watches, vintage liquor or trendy footwear, there are unique trading characteristics and substantial market value. We will relentlessly focus on innovation, keep user experience-centric and expand our offerings to cover more services and product categories.
As we remain steadfast in creating user value, we are committed to building AHS Recycle into a top-of-mind brand in the long run. We continue educating consumers of the AHS Recycle brand via progressive brand exposure on new media platforms such as Douyin and Kuaishou.
Looking at longer-term development, we are committed to doubling the growth rate of the industry by further acquiring user mind share, serving their needs for competitive recycling and trading experiences and solidifying our industry-leading position in the full spectrum of recycling, transaction and retailing services.
This year, on the front of ESG, AHS Recycle has initiated the revised [ Aihuishou ] campaign in collaboration with leading consumer brands. We established a group-wide strategic partnership with L'Oreal Group, encouraging consumers to responsibly dispose of empty cosmetic containers in exchange for physical gifts of L'Oreal brand. In addition to user attraction and repeated use of our services, this initiative encourages broader consumer brands' participation in eco-friendly recycling while raising awareness about environmental protection.
Now I'd like to turn the call over to our CFO, Rex, for financial updates.
[Interpreted] Hello, everyone. We are pleased to report another profitable quarter under non-GAAP measures and the first quarterly operating profit milestone under GAAP measures on strong year-over-year growth of total revenues. Before taking a detailed look at the financials, please note that all amounts are in RMB and all comparisons are on a year-over-year basis unless otherwise stated.
In the third quarter, total revenues increased by 24.4% to RMB 4,051 million, primarily driven by ongoing solid growth in net product revenues. Net product revenues increased by 25.6% to RMB 3,672 million, primarily driven by increased sales of preowned consumer electronics through our online and offline channels.
Net service revenues were RMB 379 million, representing an increase of 13.9%. The increase was primarily due to an increase in service revenue generated from PJT Marketplace and the multi-category recycling business. The growth in service revenues went along with the upward trend in the overall gross transaction value of our marketplaces, delivering an overall marketplace take rate of 5.34% in the third quarter of 2024. During the quarter, multi-category recycling business contributed over RMB 30 million to service revenues, delivering a healthy improvement in take rate. Our multi-category recycling business attributed to close to 9% of service revenues in the third quarter of 2024 compared with 1.7% in the same period of 2023.
Now let's discuss our operating expenses. To provide greater clarity on the trends 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 measures results are available in our earnings release and the corresponding Form 6-K furnished with the U.S. SEC.
Merchandise costs increased by 24.2% to RMB 3,243 million, in line with the growth in product sales. Gross margin at the group level was 20% in the third quarter compared with 19.8% in the same period last year. Gross profit margin for our 1P business was 11.7% compared with 10.7% in the same period last year. Fulfillment expenses increased by 20.7% to RMB 347 million, excluding share-based compensation expenses, which we will refer to as SBC from here on.
Non-GAAP fulfillment expenses increased by 21.9% to RMB 344 million. Under the non-GAAP measures, the increase was primarily due to: first, an increase in personnel costs and logistics expenses as we conducted more recycling and transaction activities compared with the same period of 2023; and second, an increase in operation facility-related expenses as we expanded our store network in the third quarter of 2024. Non-GAAP fulfillment expenses as a percentage of total revenues decreased to 8.5% from 8.7%.
Selling and marketing expenses increased by 5.3% to RMB 350 million, excluding SBC expenses and amortization of intangible assets and deferred costs resulting from assets and business acquisitions. Non-GAAP selling and marketing expenses increased by 12.7% to RMB 257 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 6.3% from 7%.
General and administrative expenses decreased by 0.7% to RMB 69.3 million. Excluding SBC expenses, non-GAAP G&A expenses increased by 9.5% to RMB 55.4 million, primarily due to increases in personnel costs and office-related expenses. Non-GAAP G&A expenses as a percentage of total revenues decreased to 1.4% from 1.6%.
Technology and content expenses increased by 35.5% to RMB 53.4 million, excluding SBC expenses and amortization of intangible assets and deferred costs resulting from assets and business acquisitions. Non-GAAP technology and content expenses increased by 47.2% to RMB 49.6 million. The increase was primarily due to an increase in personnel costs in connection with the ongoing maintenance of our operation centers and system. Non-GAAP technology and content expenses as a percentage of total revenues increased to 1.2% from 1%.
As a result, our non-GAAP operating income was RMB 104 million in the third quarter of 2024, representing a substantial increase of 40.9% year-on-year. Non-GAAP operating profit margin was 2.6% compared to 2.3% in the third quarter of 2023. In addition to non-GAAP operating income, we are delighted to report our first quarterly operating income under GAAP measures at RMB 24.9 million. This reflected our milestone of digesting the majority of the impact from the amortization we have been reporting.
In terms of our ongoing share buyback plan, under which we are authorized to repurchase up to USD 50 million of our ADSs through June 27, 2025, we have returned approximately USD 20.1 million to our shareholders for a total of 8.2 million ADSs as of September 30, 2024. In the third quarter of 2024, we used USD 12.1 million to repurchase approximately 4.9 million ADSs.
As of September 30, 2024, cash and cash equivalents, restricted cash, short-term investments and funds receivable from third-party payment service providers totaled RMB 2.4 billion as we collected more pre-owned products when flagship smartphone models were released in September and October and obtained more products in preparation for the brand promotion during the fourth quarter and repurchased our ADSs in the open market, Total cash balance dropped compared with the end of -- as of the second quarter, even though our cash position remains strong, safeguarding a sustainable growth outlook.
Now turning to the business outlook. For the fourth quarter of 2024, we anticipate total revenues to be between RMB 4,740 million and RMB 4,840 million, representing an increase of 22.4% to 24.9% year-over-year. Please note that this forecast only reflects our current and preliminary views on the market and operational conditions, which are subject to change.
This concludes our prepared remarks. Operator, we are now ready to take questions.
[Operator Instructions] The first question today will be from Joyce Ju with Bank of America.
[Interpreted] Could management help elaborate a bit on how trading subsidies are driving your business growth? Specifically, how do you quantify the incremental business from trade-ins? And what are the expectations for trading business in the fourth quarter of 2024 and also the year after?
[Interpreted] Thank you for your question. We've been working closely with JD.com as a first mover in supporting the National Consumer Goods trading program. In the third quarter, our recycling and trading business through JD.com increased by over 40%, with the trading business doubled. This momentum continued during the Singles' Day grand promotion, where trading recycling value increased by 246% year-over-year.
There were 3 factors:
First, convenient trading options were offered with joint efforts by JD and AHS Recycle.
Second, many phone brands launched new products ahead of the grand promotion, coupled with trading subsidies.
Third, consumers prefer trading services over regular recycling services.
Although smartphones have not yet enjoyed direct subsidies from the current nationwide trading stimulation scheme, our partnership with JD on cross-category trading is thriving, thanks to our industry-leading secondhand supply chain capabilities. Users are actively exchanging their used smartphones and smart appliances for discounts on new home appliances. For instance, there were 100,000 orders where users traded in their used phones when purchasing new home appliances during the grand promotion.
We believe that the adoption of trade-ins is still in its early stages. Alongside platforms and brands, we need to continue educating users to help more consumers experience this cost-effective purchasing approach. For instance, we expect that through JD Electronics, there is nearly 60 million units of smartphones distributed through this channel annually. And with the advancement of our collaboration, we expect the penetration rate of this scenario has substantial growth rate. As the Ministry of Finance advances its social and economic development objectives and fiscal policies, we look forward to progress on their goal to enhance the support for large-scale equipment upgrades and to extend the variety of scale -- the variety and scale of consumer goods trading program.
We believe that in the evolution of consumer behavior, trading are destining to become mainstream. We remain committed to strengthening our secondhand supply chain capabilities, providing efficient infrastructure support for the industry and fostering improvements in consumer sentiment. As the next step, we continue optimizing price inquiry services, order placement, quality inspection fulfillment experience, uplifting the proportion of face-to-face fulfillment orders, ultimately bringing our services to the next level.
The next question comes from [ Won Zhao ] with CICC.
[Interpreted] Could you please provide more color on the progress of your multi-category recycling business? This business segment has shown strength this year. What's the profit contribution? And how do you plan to further grow this emerging segment?
[Interpreted] Thank you for the question. Our multi-category recycling business is built on the AHS Recycle brand and rapidly developed by leveraging the existing AHS stores. It operates as an asset-light platform business model. To meet users' growing demand, we offer recycling services for luxury goods, gold, jewelry, premium liquor and other high-value items. In the third quarter, the recycling value of multi-category recycling business increased by 270% year-over-year, generating over RMB 30 million in service revenue, which was recognized as gross profit. After deducting store and fulfillment costs, 46% was converted to store level operating profit. This has further enhanced the competitive strength of our stores.
Breaking down by category, gold and luxury goods remain core segments, accounting for 77% and 18% of the multi-category business, respectively. In terms of revenue contribution, the 2 categories had similar levels. Users have embraced our multi-category recycling services due to the convenience and premium services, competitive pricing and transparent service take rate with the huge existing domestic pre-owned luxury market size and gold recycling market size reaching hundreds of millions. We possess the service capabilities and pricing advantages needed to thrive in this massive market, making the long-term potential for our multi-category recycling business promising.
Of our 769 self-operated AHS stores, 587 now offer multi-category recycling services with more services to add on down the road, gradually covering mainstream users in first and second-tier cities. In extended lower-tier cities, we are exploring opportunities to integrate the services with joint operated stores. As we continue to expand AHS store network, we are confident in our ability to meet the recycling needs of more users.
The next question comes from Michael Kim with Zacks Small-Cap Research.
Maybe just to follow up on some of your earlier comments. Just curious to get your thoughts on what you're seeing in the market for pre-owned smartphones in terms of transaction volumes? It would seem like there are tailwinds on both the supply side with ongoing growth in shipments of new smartphones in China, as well as on the demand side with rising demand for used phones just given the somewhat challenging macro backdrop. So just curious to get your thoughts there?
[Interpreted] Thank you for the question. First, on the supply side, under the national trading initiative, although our main category of mobile phones has not yet directly benefited from the subsidy policies, our cross-category trading capabilities have enabled us to better capture consumer and recycling sources.
As mentioned in previous earnings calls, we have industry-leading supply chain capabilities, including our self-developed compliant refurbishment processes that enhance pre-owned product quality and boost sales. This year, the coverage rate of compliant refurbishment in our 1P business has grown from single digits to meaningful double digits, primarily. We are more effective at identifying products suitable for reconditioning, which has resulted in sustained revenue growth from refurbished products on both a quarterly and annual basis. On one hand, through our PJT Marketplace, we are meeting the needs of more retailers. On the other hand, we leverage our self-operated AHS Select retail channels to directly serve consumers seeking quality assured pre-owned smartphones.
On retail distribution, our 1P2 consumer revenue grew by 120% year-over-year. Within this segment, revenue from AHS off-line stores and official websites increased by over 300% year-over-year. We believe that cost-effective purchasing options are gaining increasing acceptance, especially from prudent consumers in the mass market. We continue our efforts to advance our retail brand channels and capabilities.
This concludes the question-and-answer session. I would like to turn the conference back over to management for any closing remarks.
Thank you. Thank you all again for joining us. A replay of today's call will be available on our IR website shortly, followed by a transcript when ready. If you have any additional questions, please feel free to reach us at ir.atrenew.com. Have a nice day.
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
[Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]