SAP Q2 2023 Earnings Call Transcript

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July 27, 2023

There are 4 speakers on the call.

Operator

Ladies and gentlemen, thank you for standing by for Autohome Second Quarter and Interim 2023 Earnings Conference Call. At this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation. As a reminder, this conference call is being recorded. If you have any objections, you may disconnect at this time.

Operator

It is now my pleasure to introduce your host, Sterling Sung, Autohome's IR Director. Mr. Sung, please go ahead.

Speaker 1

Thank you, operator. Good morning, everyone, and welcome to Autohome's 2nd quarter and interim 2023 earnings conference call. Earlier today, Autohome distributed its earnings press release, and you may find a copy on the company's website atwww.autohome.com.cn. On today's call, we have Chairman And Chief Executive Officer, Ms. Xuan Long and Chief Financial Officer, Ms.

Speaker 1

Craig Yanceong. After the prepared remarks, our management team will be available to answer 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.

Speaker 1

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 Stock Exchange of Hong Kong Limited. Autohome doesn't undertake any obligation to update any forward looking statements, except as required under applicable law.

Speaker 1

Please also note that Autohome's earnings press release and this conference call include discussions of certain unaudited Non GAAP Financial Measures. Please refer to our press release, which contains a reconciliation of the non GAAP measures to the most directly comparable GAAP measures and is available on Autohome's IR website. As a reminder, this conference call is being recorded. In addition, a live and archived webcast of this earnings conference call will also be available on Autohome's IR website. I will now turn the call over to Autohome's Chairman and CEO, Ms.

Speaker 1

Zhong, for opening remarks. Please go ahead, Ms. Zhong. Thank you, Sterling. Hello, everyone.

Speaker 1

This is Quan Long. I'm Chairman and CEO of Autohome. Thank you today for joining our earnings conference call. In the Q2, our financial and operational results continued to recover steadily with a 5.8% year over year increase in total revenue, marking 4th consecutive quarters Online marketplace and others revenue experienced strong growth of 20.4% compared to the same period last year, becoming the primary driver of our top line growth. Notably, TCP and data products both delivered double digit year over year revenue growth, And the revenue from NEB Brands maintained its robust growth momentum as revenue continued to expand in scale.

Speaker 1

Not only has our revenue risen, but our profitability has also significantly improved. Adjusted net income Attributable to Autohome for the Q2 was up by 20.6% year over year, and our adjusted net margin remains at a comparatively high level of 31.1%, an increase of 3.8 percentage points year over year. During the Q2, we actively advanced our CN strategy, Making steady progress across content optimization and the business diversification, while expanding our traffic through multiple channels. Our goal is to provide users with high quality content, practical tools and exceptional services, thus enhancing Autohome's brand recognition Among users, in May, we unveiled our 1st Autohome underspaced franchised store in Haikou, marking the beginning of this new retail franchise model across the country. We also accelerated the application of AI technology in all scenarios and promoted the digital upgrade and the reconfiguration of customer business processes, enabling our partners to reduce costs and increased efficiency.

Speaker 1

In addition, our collaboration with Baidu Large Language Model has yielded Remarkable results in both user end and customer end product application providing both cohorts Looking ahead, as technology continues to develop, New technologies will eventually penetrate all aspects of the existing industrial chain. Autohome has taken advantage of this chance To transform technology into productivity, introduce innovative business models and use technology and innovation to drive the digital transformation of the automotive industry. We are confident that with long term accumulation of cutting edge Autohome is well positioned to seize rising opportunities, break new grounds and ultimately achieve diversified business growth. With that, I will now turn the call over to our CFO, Ms. Craig Zeng, for a closer look at our second Thank you, everyone.

Speaker 1

Thank you, Mr. Song. I'm Craig Song, CFO of Autohome. In the Q2, We further enriched our NEV themed content and activities To enhance our content offering, we are also introducing new business models and technologies to meet the ever evolving needs of users and customers. On the continent front, in mid June, we hosted the Future City NAV Technology Festival, A major industry IP following the August 18 Super Auto Show, we combined 3 d videos, on-site Test drives and the Star Stars Music Festival to create an exciting experience for NEV owners and young users.

Speaker 1

At the event, we debuted China's 1st mobile exhibition truck featuring a large scale holographic display, Providing consumers in low tier cities with more comprehensive information, our NEVs and the Evolut NEV brand To expand their reach into this market, in line with the government's policy to support NEV consumption in rural areas, The event received positive feedback with a total exposure of over 2,000,000,000 across the entire network. Furthermore, early this month, We launched the NEB Content Creator Acceleration Plan to help our content better align with the development of the NEB market and the users' actual needs. This plan is designed to provide creators with more exposure and monetization opportunities, encouraging them to join Autohome and contribute to the production of NUV content, thereby diversifying our content portfolio. As we strengthen and build our own platform's premium content, we are also expediting the development of a new media ecosystem By creating content that is tailored to the unique characteristics of various platforms, helping to promote Autohome's brand and holistically drive traffic. According to Press Mobile, in June, our mobile DAUs increased by 31.7 percent year over year to reach RMB62,701,000 demonstrating our continued leadership in the Automotive Media Vertical.

Speaker 1

On business front, in the Q2, new business continued to lead Autohome's overall business development. First, our NEB business. In the Q2, revenue generated from NEB Brands grew by 60% year over year. The successful launch of our Autohome Analyst based Franchise Store in Haikou, Hainan Province marks the industry's definition of its disruptive new retail model, and this space provides a comprehensive One stop service for car selection and purchase, making it easier than ever for consumers to find their ideal cars. Automakers also benefits from this innovative approach to NEB sales as it offers a cost effective solution to the issue of Single brand sales volume not being able to support the cost of store building and operation.

Speaker 1

And this space has been gaining traction With an increasing number of cooperative brands and the 3 d holographic modeling now covers more than 40 mainstream vehicle models. Furthermore, we are seeing more and more automakers and the franchisees actively reaching out To Autohome, we expressed interest in this model. As additional energy space franchise stores are established via recipes in the second half In terms of digitalization, We've leveraged the GPT model to develop 2 decision making assistance products. Our car selection assistance Aggregates and extracts information from Autohome's platform, helping users finding their ideal car based on their preferences, Needs and Budget. Operation Butler is a digital assistant for dealer management that can automatically integrate, Store operational data, generate analysis and make suggestions on command to guide dealers in their operation and the management decisions.

Speaker 1

In addition, our existing data products have seen a steady increase in adoption with more than 21,000 dealers Using our data products in the Q2, moreover, in the 1st 6 months of the year, key metrics such as the average number of data products Adopted by each ZetasDor and the average revenue of ZetasDor products plus ZetasDor both grew by double digits compared to the prior year Period. Going forward, we'll continue to apply 2 fundamental capabilities, large language models and the knowledge graphs across actual business scenarios to improve our data products quality and the usefulness. In terms of the used car business, Autohome used car business units, including PPP, We experienced accelerated revenue growth in the Q2. KTP's revenue saw a significant increase in the Q2 and the first half of the year, We are also maintaining its profitability. Through Autohome's matching and auction services, our platform accounted for about 24.7% of all used car transactions in China represented year over year growth of 2.1 percentage points.

Speaker 1

We have integrated our used car business with new car retail stores, providing car owners who purchase new cars With an easy way to dispose of their old cards, furthermore, we extended used card testing and other services to this course, Cultivating more direct connection with consumers, while creating and exploring new opportunities for business collaboration. Overall, Autohome's core business remains stable with strong growth across our new businesses. We've made significant progress in the development of new product and the model, further strengthening our leading position in key areas. As we move forward, we will continue to focus on the industry's 2 major trends, namely, NEV and artificial intelligence, Constantly innovating to bring superior products and services to our users and customers, while constantly Let me walk you through the key financials for the Q2 of 2023. Please note that as with prior calls, I'll reference R and D only in my discussion today, unless otherwise stated.

Speaker 1

Net revenues for the Q2 were RMB1.83 billion, up 5.8% year over year. For detailed breakdown, media services revenue came in at RMB 532,000,000, lead generation services revenues were RMB 760,000,000 Online Mixed Place and Others revenues were US541 million dollars up 20.4% year over year, primarily attributable to greater contributions from PDP and Data Products. Moving on to costs. Cost of revenues in the 2nd quarter was RMB330 1,000,000 compared to RMB279 RMB9 1,000,000 in Q2 2022. The increase was primarily attributable to a rise in operational costs.

Speaker 1

Gross margin in the Q2 was 82% compared to 83.9% in Q2 Turning to operating expenses. Sales and marketing expenses in the Q2 were $824,000,000 compared to $739,000,000 in Q2 2022. The increase was primarily attributable to the escalation in marketing and promotional spending. Product and development expenses were CNY313 1,000,000 compared to CNY362 1,000,000 in Q2 2022. The decrease was primarily attributable to a decline in personnel related expenses.

Speaker 1

Finally, general and administrative expenses $191,000,000 compared to $127,000,000 in Q2 last year. The decrease was primarily attributable to the reduction of expected credit losses. Overall, we delivered Operating profit of $342,000,000 in the 2nd quarter compared to $301,000,000 in the corresponding period of 2022. Adjusted net income attributable to Autohome Inc. Was $369,000,000 in the 2nd quarter compared to $472,000,000 in the corresponding period of 2022, representing an increase of 20.6% year over year.

Speaker 1

Non GAAP basic and diluted earnings per share in the same quarter were $1.16 and $1.15 respectively, compared to both $0.94 in the corresponding period of 2022. Non GAAP basic and diluted earnings per ADS in the 2nd quarter were 4.62 and 4.61 respectively, compared to 3.77 for both in the corresponding period of 20 22. As of June 30, 2023, our balance sheet remained very strong with cash, cash equivalents and short term investments of CNY 23 point $34,000,000 We generated net operating cash flow of $522,000,000 in the Q2 of 2023. On November 18, 2021, our Board of Directors authorized a share repurchase program under which we are permitted to repurchase up to US200 $1,000,000 of Autohome's ADR for a period not to exceed 12 months thereafter. On November 3, 2022, our Board of Directors authorized an extension of the share repurchase program for another 12 months, Expiry on November 17, 2023, as of July 21, 2023, we have repurchased approximately 4,700,000 ADS for a total cost of approximately US141 million dollars With that, we are ready to answer your questions.

Speaker 1

Operator,

Operator

Our first question comes from the line of Xiaodong Zhang from CICC. Please go ahead Xiaodong.

Speaker 2

So thanks management for taking my questions and congrats on the solid results. So first of all, what is your outlook for the domestic out of market in the second half of twenty twenty three. And could you please update us on the new retail model for NEVs and what is the expansion plan going onwards? Thank you. Thank you for the question.

Speaker 2

My name is I would like to take your questions. So firstly, let me give a summary of what's happening in the market. As you can see, starting from the Q2, the auto market started to recover as people had expected. And for the second half of the year, we do believe that the outlook is quite promising. To further elaborate on that, Firstly, because last year due to the impact of the COVID-nineteen, the base was quite low.

Speaker 2

Secondly, In Q1, we all knew that there were price wars. And starting from Q2, with the easing of the price war, Consumers also gradually stopped watching while holding cash and started to get into this market. So that's why we believe that for the second half of the year, the outlook of the auto market would be quite promising. And also with the National VIB, transitional policy was introduced and the pricing would gradually going stable. And especially recently, the central government launched a lot of stimulus policies and a favorable policies to better stimulate this market.

Speaker 2

All this would help the market to gradually push forward. Well, we believe that there are structural opportunities in this market, especially in these two areas. The first Would it be NEV, second would be the used car. Now let's talk about the first one. The NEV would still be the focus of the market.

Speaker 2

According to the China Passenger Car Association's latest data, till the end of June, the penetration rate Of the passenger car for the NVV, it reached 32.4% based on a lot of campaigns, for example, Boosting the consumption policy of the central and the local government and the marketing activities of a lot of NUVs in multi And also a lot of new car models get launched to the market. We believe the sales transaction volume of the NEV will continue to improve And for this year, the penetration rate would continue to go high. And also, on June 12, MIIT, together with other 5 ministries and the departments, they launched a policy on notice on 2023 order to the countryside campaign. And actually, on June 21, the Ministry of Finance, the Tax Bureau and AIMIIT co launched the 4th extension of the NGV purchase tax cuts. So we believe this would be very helpful to boost the consumption of the NGV.

Speaker 2

Now the second would be the used car. We believe this would become a very important part of the intrinsic driver for the Chinese auto market. According to the data, in May, June, for 2 consecutive months, the used cars transaction volume reached year on year and month on month And also with the independent registration system being launched for the used car, we believe a lot of car dealers group, They would have a lot of potential to further grow business. And with the NGBs development and with more and more car purchasing and low cost And also this week, The meeting of the political bureau of the Chinese Communist Party shows that the central government would try to stimulate the domestic consumption, especially to push forward the fundamental function of the consumption to boost the economy growth And also to enlarge the general public's revenue and also household income to expand consumption and to boost the end consumption demand. And also, they would leverage on boosting the domestic consumption consumption and also consumption for the large furnitures, etcetera, home appliances.

Speaker 2

So in this We are very confident that the Chinese auto market would enrich the long term and stable growth. We believe that consumers, The potential demand would gradually be released. And also, with people's awareness, we'll always try to improve And the technology breakthrough and innovation would bring a lot of new opportunities for the NVB and the used car business. So in summary, I would see a long term long cycle and a huge potential for the growth of the NUV market. My name is Zhenyan.

Speaker 2

I would like to take the second question. Actually, starting from September of 2022, the Autohome Energy's base offline store was launched in Shanghai. This was the first and great efforts in our retail channel and NEV innovation. And the store operating was quite good and the business has been successfully promoted. And a lot of consumers and the customers and the dealers, They all think highly of this business model.

Speaker 2

And in June of this year, in Haikou City, we Started the 1st franchised store of such out home and space franchising store. Actually, in terms of the retail new business model, We have a lot of pilot projects, including the holographic modeling, the test drive reports, the lead services, The purchasing order and also the offline activities. For example, the holographic modeling, we already started to work with more than 40 mainstream OEMs. So based on the different characteristics of different cities and its different market potential and market volume, we will very soon Start to roll out the franchising stores nationwide, and we are trying to build the one stop solution for the NGV consumers. And for the OEMs, We are going to help them to get reach out to the consumers and to offset their channels.

Speaker 2

So currently, we are still proactively Contracting with a lot of franchisees and partners, we are going to seek for more opportunities. Before end of 2023, we are going to newly establish 10 to 20 offline stores, especially in both middle and the lower tier cities. I think in the future, I would keep you updated on what are the latest progress. Thank you.

Operator

Thank you.

Speaker 3

Thank you.

Operator

Our next question comes from the line of Richie Sun from HSBC. Please go ahead, Richie.

Speaker 3

I will translate this myself. Thank you, management, for taking my questions. So I noticed that we have a very strong DAU growth. Can you please Explain the drivers behind that and how should we interpret the consumption power of these users and the monetization potential? Thank you.

Speaker 2

Well, thank you for the question. In terms of the user growth, Yes, we achieved the wonderful user growth based on the following reasons. Firstly, Autohome launched the high quality professional and fun content to attract the users. We also made in-depth study of the user behavior. In this way, we can create content in a targeted way to attract For example, in June, we're going to host the Future City NVV Technology Festival Dedicated to the NVV Autos, through a lot of synergy and we are going to create wonderful experience for the NVV car users And we are also going to launch the 1st mobile exhibition truck featuring a large scale holographic display.

Speaker 2

In this way, we would allow a lot of lower tier cities users to experience multiple and UV brands. For example, a few weeks later, we are going to work together with CCTV to host the 5th 8/18 Auto Show. In this way, this Global Auto Show would be a large company. This would also be a very famous IP launched by the Autohome in the NV Industry. Through a lot of enriched content, we're going to help the OEMs and the brands to have more media coverage, to attract more users and to bring wonderful experiences.

Speaker 2

In terms of the channels, we also established a better ecosystem in the new media to create the differentiated and new content. For example, we have already informed the matrix of 1 off content to attract the traffic. Last week in Q2, we do see that the new media contributes a lot to more traffic. In terms of the content, in the past, we are more auto Related or auto consumption related, now we made expansion to the auto life and also the services. We are trying to build a car ecosystem centered by using the car.

Speaker 2

For example, ever since this year, in our Autohome app, We newly launched the car wash and also the special favorite rates on fueling as well as the car In terms of the NVV, we believe this would be the major driver for the auto the transaction volume in the auto market. For this group of customers, based on the content, we have a lot of new initiatives. For example, We found out that with the divestment of NVV, a lot of our car consumers based on their purchasing car needs and content demand, They are more diversified. Comparing with the traditional combustion car users, the NUV car users pay more attention to the battery life, Mileage as well as the order outlook and the smart driving cabinet and the intelligent cabinet, etcetera. So based on these fundamentals, Autohome started to collaborate with Beijing BIT and EI Corp.

Speaker 2

To establish a lot of real time user data, especially on the battery life, endurance data to give Secondly, in the NGV, especially the intelligent driving assessment system, we also launched the real time testing and assessment data for the users to consider. We also launched the cloud models highlights, combining the core function, the interactive features and the real time data. In this way, the highlights would attract a lot of NGV users.

Operator

Thank you. Our next question comes from the line of Thomas Chong from Jefferies. Please go ahead, Thomas.

Speaker 3

Thanks management for taking my questions. I have two questions. The first question is about Our thoughts about the used car market and the strategies for TDDI. The second question is about the use of cash. Can management share about our use of cash in the coming years?

Speaker 3

Thank you.

Speaker 2

Thank you for the question. Talking about the used cars, in the Q2 of this year, We do see the domestic used car sales volume grow by 21.3%. According to the China Auto Association's estimation, The year round used car would be expected to grow by 25%. So we believe there is a great potential for the volume to grow in the used car market. As we just mentioned about the TTP, Actually, the TTP together with other used car models in the older home, in the Q2, we accelerated the growth.

Speaker 2

The TTP's 2nd quarter and the first half of this year's revenues grow rapidly, which outpaced the industry average. It also become one of the new business driver for the older homes business growth. From August of 2022, TBP had become profitable and its profitability has been greatly enhanced for the first half of this year. We believe that the used car business of Autohome in 2023, we can keep a good profitability. In terms of the business model, we already associated with the used car and the retail new business Through the retail stores, we are helping the car users, especially the new car purchasers To handle the used car, especially to simplify the trading process of the used car and to solve the untransparency Pain points of selling the used car and for purchasing of the new car, the selection time cost was high, etcetera.

Speaker 2

We also consolidated the resources with Ping An Group, TTP and Beijing BIP and EAI Corp. And also the Yireannub offline experience stores. After we associate and also leverage among all the resources, We are trying to create more business synergy. In summary, in the future, we will keep to establish the Consolidated one stop solution ecosystem for the used car, especially leveraging on a one stop solution for buying a car and selling your car plus It's AES model. And we are going to seize opportunity in the used car business and enlarge our competency And also, we want to quicken the growth of the used car business and keeping in leading industry position.

Speaker 2

Now let me answer your second question. Actually, we have abundant cash reservoir in the firm And we already established the dividend payout plan designed by the 2022 in Q1 of this year. Comparing with the dividend payout of 2021, the dividend payout ratio of 20.72 enhanced by 8 percentage points. According to the corporate BOD, they already approved that starting from 2022 in the next 5 years, every year, we would If dividends pay out no less than RMB 500,000,000, so we attach We would also consider other plans, which we can enhance the shareholders' return. Now in terms of the share buyback or repurchase plan, in this market, we already continue to carry out the US200 $1,000,000 share buyback plan.

Speaker 2

We already made US140 $1,000,000 share buyback And in the future, we will continue to carry out this repurchase plan. And meanwhile, we would also pay highly attention to other investments in other businesses, And we're trying to create shareholders' return. Thank you.

Operator

Thank you. Our next question comes from the line of Brian Gong from Citi. Please go ahead, Brian.

Speaker 1

Thanks management for taking my question. Congratulations on solid results. My question is regarding data products. How many data products we have for dealers now? And what are Penetration for each product to our dealers.

Speaker 1

On OEM side, when do we expect the amount on the products to recover? Thank you.

Speaker 2

Thank you for the question. Talking about the dealer business, actually in the second quarter, We had more than 20,000 of paid dealers and we have more than 10 products, which is quite matured to help them, including the smart marketplace, the smart exhibition hall and the smart quality Inspection and Intelligent Assistance and Smart Cloud, Telemarketing and Smart Cloud Services, which covers The France and before and after sales, the whole process of the dealers, we help the dealers to get into the end to put their core competency and to better serve the customers. In this way, we help them to achieve lean management and to improve its value to the customers. And we also received wonderful feedback from the dealers and we have a lot of high penetration rates for many products and our product ARPU all have been enhanced. In addition to that, based on the GPT model, we have launched the new decision assistance tools, for example, the car selection assistance and operating bottler models, which can help the dealers to enhance its decision making process Now talking about OEMs, during the COVID, we helped them to do a lot of online campaigns to replace Online exhibition for the all new models.

Speaker 2

Now post COVID, their demand has changed. We would also

Operator

All right. Thank you. We have now reached the end of the question and answer session. Thank you for all your questions. I'll now turn the conference back to management for closing comments.

Speaker 1

Thank you, everyone. Thank you for joining us today. Appreciate your support and look forward to updating you on our next quarter's conference call in a few months' time. So in the meantime, Please feel free to contact us if you have any further questions or comments. Thank you very much, everyone.

Speaker 1

Thank you. Goodbye.

Operator

Thank you. That concludes today's conference call. Thank you for participating. You may now disconnect.

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