Cara O’Brien – IR James Qin – CEO Nicholas Chong – CFO.

Vivian Hao – Deutsche Bank Piyush Mubayi – Goldman Sachs Evan Zhou – Credit Suisse Ella Ji – Oppenheimer Gene Munster – Piper Jaffray Anne Shih – Brean Capital Amanda Chen – Morgan Stanley Gregory Zhao – Barclays Na You – ICBC International Anthony Tong – 86 Research Wendy Huang – Standard Chartered Bank Ming Zhao – UBS.

Ladies and gentlemen, thank you for standing by for Autohome’s Third Quarter 2014 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 is being recorded. If you have an objection you may disconnect at this time.

It is now my pleasure to introduce your host Cara O’Brien, of FTI Consulting. Ms. O’Brien, you may begin..

Thank you operator. Hello everyone and welcome to Autohome’s third quarter 2014 earnings conference call. Earlier today Autohome distributed its earnings press release and you can find a copy on the company’s website at www.autohome.com.cn. On today’s call we have Mr. James Qin, Autohome’s Chief Executive Officer and Mr.

Nicholas Chong, Autohome’s Chief Financial Officer. After their prepared remarks, James and Nicholas will be available to answer your questions. Before we begin however, 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 the public filings with the Securities and Exchange Commission.

Autohome does not undertake any obligation to update any forward-looking statements except as required under applicable law. The earnings press release in the call also includes discussions of certain unaudited non-GAAP financial measures.

The press release contains a reconciliation of non-GAAP measures to the most directly comparable GAAP measures and is available on Autohome’s IR website. Also as a reminder, this conference is being recorded. In addition, a webcast of the conference call will also be available on Autohome’s IR website.

I will now turn the call over to Autohome’s Chief Executive Officer, Mr. James Qin.

James?.

Thank you Cara and hello everyone. I’m very excited that we’re reporting another strong set of results for the third quarter of 2014. We again exceeded our expectations for the top-line and delivered very strong profits and cash flow making this the fourth quarter in a row as a public company where we have achieved this.

Nicholas will go through our third quarter financial results in detail. But let me first highlight some of our most important financial achievements for the third quarter. Net revenue increased 64.6% year-over-year to RMB451.1 million. Net income increased 25.5% year-over-year to RMB170.9 million.

Net cash provided by operating activities increased 43% year-over-year to RMB122.8 million. We believe these results prove we’re the clear industry leader recording the highest top-line growth, strongest margins and fast cash performance among our derived peer set.

We have also made additional progress across all our key strategic initiatives and many of our goals for these initiatives have been realized. First, with respect to increasing our share of wallet from automakers, the revenue contribution from automakers, continue to outgrow the macro market and increase quarter-after-quarter.

In the third quarter of 2014 we achieved year-over-year growth of 43% in revenues from automaker advertising services. Second, for increasing and further monetizing our dealer network, again we have the fast growing net dealer network in the industry, with increases in both volume and ARPU.

This is proof that we have strong value in both media and transaction platform.

In the third quarter, we were especially excited to see that revenue contribution from the dealer Yellow Page business which includes both dealer advertising and dealer subscription services for the first time became our major revenue contributor reaching 51% of total net revenue.

With this, we believe our dealer network is sizeable enough for us to initiate new and more products to further scale up our business. Third, with our mobile offering, we’re exciting in both traffic and download. We provide ourselves an ability to transform the business to be more mobile focused.

We’re now well equipped with mobile-ready content to engage today’s always connected users. Fourth, we have and will continue to build out our offerings in the used car sector to get ready for the medium to long-term growth in this area. The results from our initial strategies are apparent.

We complete many victories from solid execution and we have a great foundation in place. With respect to the future and detail our progress going forward, we believe it will be most constructive to talk about how we view our business model and how that directs our strategies and activities.

More specifically I will talk in terms of the commonly known sales funnel that many consumers built through were making product purchases. Autohome’s new car sales funnel includes three basic stages. First, moving from little product awareness to purchase desire. Second, moving from desire to action resulting in sales lead generation.

Third, moving from sales lead generation to actual sales. We’re proud to be the clear market leader of stage one and two. And we’re in the pilot stage of stage three.

At the top of the funnel, the intent is to capture users’ awareness of auto products and help them learn about automobile content – automobile knowledge through our user generic content and professional generative content. It’s about how we drive relevant traffic flow and create user stickiness. This is just stage one.

Converting purchase desire into action and turning that into sales lead is a different process. Therefore the middle of this funnel is our pricing product and data listing platform. The bottom of the funnel is to allow car buyers to complete transactions online.

We believe this is what internet vertical is really all about and we believe that we have unique position as a completely new car sales funnel across the industry. Now, let me go into more detail on each of the three stages and our progress. Stage one, product awareness to purchase desire. For stage one to be effective you need three things.

First, easy access to your platform. Second, good product and content. Third, good engagement with your audience. To give you a summary of our success in this area, on the mobile front, there are increasingly strong mobile traffic trends.

In September the number of average daily unique visitors who access our websites by mobile devices and a number of average daily unique visitors to our mobile applications amount to approximately 4.0 million and 2.9 million respective, this represent growth of approximately 32% in the total number of average daily unique visitors on mobile platform compared to June 2014.

On the PC side, according to iResearch, Autohome traffic has remained the dominant leader among China’s automobile website and automobile channels of internal portals in terms of average daily unique visitors, average daily page views and average daily time spent.

Especially we recorded a meaningful sequential increase in the number of average daily unique visitors on PCs amounting to around 8 million in the third quarter of 2014 versus 6.4 million in the second quarter of 2014. Strong user engagement is also a fundamental need for stage one.

We’re constantly enhancing features to enhance stickiness with our users. To give you some examples. Our user review section which allows users to provide ratings on different aspects of car models is proving very useful to car buyers and have been rapidly increasing in popularity.

In September 2014, the number of page views in this section almost to three fold compared to September of 2013. Also, a recent product enhancement enables users to add or modify their comments and ratings in the user review section on a continued basis after buying a car versus it being a one-time action as before.

We see our users embracing this feature and they’re increasingly more engaged with our platform. We feel we have stage one covered. Turning to the middle of the funnel, that is where users start as a consideration period. It is critical here to have consumers become sales leads and Android conversion phase. This is where the next stage takes over.

Stage two, desire to action, resulting in sales lead generation. As our traffic has grown so rapidly, it became important that we adjust our approach and caused to be consumer rated with the quality of sales lead that we’re providing.

Currently, we’re focused on having three main commercial products that will allow us to monetize the sales lead based on the quality and benefit that we provide. Some of this are often running and others are still in the trial phase. Let me start with our fully functioning dealer Yellow Page business.

This includes our deal advertising services and dealer subscription services. Both of which in the third quarter recorded a significant year-over-year growth. The main driver of this is deepening penetration in Tier-3 and Tier-4 cities and building out our network of strong relationship.

Next is our Group Buy initiative which we started testing in September. We aim to leverage the broad user base in our online social community and convert them into higher quality leads for our dealers to create actual commercial benefits for Autohome. Our site will post a pre-negotiated discount of the dealer.

We then connect user online and drive them dealer’s offline locations. We believe, with the power of internet, it’s a better alternative for OEMs and dealers who had been paying upfront for offline advertising for their in-store promotion activities when they don’t know what the ROI will be.

It is exciting to highlight that the leading dealer brand such as Mercedes and GM have participated. Lastly, let me move to our cost per lead initiative. We aim to charge cost per leads on top of the listing leads which is hard to dealers at a fixed subscription fee.

We believe we’re well known for having high quality leads in the market that makes existing customers waiting to top-up for their new product. This can help our customers effectively for further sales target with more transparent and accurate spending. We’re making solid move in stage two.

We firmly believe that the quality of our lease is the core competence for us to further accelerate growth and to differentiate ourselves in a market. Now moving to the bottom of the funnel, this is where we closed the transaction loop.

To us, generating our monetizing lead is now the ultimate transaction rather on an eventual growth is for buyer to complete transaction online. This lease was stage three, which is sales lead to actual sales.

Given our unraveled reach among dealers, automakers and highly motivated car buyers, we have a unique platform and our aim is to provide an end-to-end auto shopping experience from awareness and interest to decision and action. And this initiative should help us fully close the transaction loop in the future.

As mentioned last quarter, in June we formally launched Autohome Mall, a permanent transaction platform which will allow us to be a long-term transaction facilitator.

We can offer users a one-stop shop as they can go to Autohome Mall pick the car model they want, purchase coupons with discounts to buy the car they want with our leading Autohome platform. Autohome Mall has facilitated over 7,000 transactions involving 205 car models from 57 car brands in the third quarter.

We believe this highlights the value of this platform for marketing partnership and sales facilitation. A key focus for us right now is preparing to for a second time participation in Double 11 event which will take place again in November and we’ll include a full price car transaction trial.

This is a major online sales promotion campaign on Double 11, a popular online shopping festival in China. Given what a strong event was how last year as we achieved a record of over 15,000 transactions in just one day. This year, we have significant support from both OEM and dealers and we’re planning for this to be even more successful.

As we look ahead, as a vertical with a strong brand, Autohome should be able to make it quick and easy for customers to move forward with actual purchases. We aim to be at a forefront when this occurs.

As you can see, stage three is in strong shape as well and we are making important refinements that will benefit our business a great deal in the long-term. However, reaching the bottom of the sales funnel after transaction, it’s not a done deal with the car buyers, rather a customer lifecycle should exist.

And if leveraged correctly, should cultivate loyalty and the repetitive behaviors through more products and services provided by Autohome. Therefore, we’re also considering how to better serve repetitive users and one important part of that is, our used car offering. This is still our fragmented market in China.

But we strongly believe in this long-term potential as we have been cultivating this market for more than two years. Given the fact that hand-car market in China is still not clear and open, we must use technology to use help authorize it.

Through leveraging technology know-how and strong online presence, our role is to organize the second hand car information that established in open and transparent platform, we’ll keep you updated on this. Now I would like to summarize a few last things. First, we delivered very strong results in the third quarter.

And I remain certain that we are well placed to meet all of our near and long-term strategic goals. With our consistent track record, we have confidence to further grow the business with a more diversified product portfolio and new initiatives.

Second, we are successfully transitioning from being only a PC oriented company to being both a mobile and PC oriented company as evidenced by strong mobile traffic growth.

Finally, we’re also excited about the results of our transaction initiatives and the early success of Autohome Mall, which provides another potential long-term growth driver and will help us round-out the performance of our sales funnel.

In short, we’re leveraging our leadership position and investing for long-term growth and I’m very excited about what the future will bring. Before I turn the call to Nicholas for the financial overview, I would like to say a few final words on the follow-on offering that we announced earlier today.

We announced a proposed offering of primary and a secondary American Depositary Shares by Autohome and certain of its existing shareholders including Telstra Holdings Pty Limited. The proposed offering is expected to provide for greater liquidity of the ADS in the market by increasing the public slot.

The company proposed to offer 1,650,000 ADS and assigning shareholder proposed to offer 6,850,000 ADS in aggregate. The month and timing of the proposed offering are subject to market conditions and other factors.

With that, let me turn the call over to Nicholas, who will walk through the financials for the third quarter in more detail and go over our outlook for the fourth quarter as well. Nicholas..

Thank you, James. Hello everyone. As James noted we have posted very strong results for the third quarter coming in ahead of our initial expectations. Let me spend a few minutes to drill down into the numbers and talk you through some specific details for the third quarter.

Note that I will reference RMB only in this discussion, but you can find equivalent U.S. dollar numbers in our press release issued earlier today. Net revenues for the third quarter increased 64.6% to RMB545.1 million from RMB331.2 million in the corresponding period in 2013.

This increase was due to increases in revenues from both advertising services and dealer subscription services. Breaking this down further, advertising services revenues increased 59.9% to RMB385.7 million from RMB241.3 million in the corresponding period in 2013, as we increased revenues from both automaker advertisers and dealer advertisers.

The increase in automaker advertising services revenue was attributable to an increase in average revenue from automaker advertisers as automakers continue to allocate more advertising budgets to Autohome’s online advertising channels.

The increase in dealer advertising services revenue was mainly due to an increase in the volume of advertising, purchases by dealer advertisers as a result of our expansion into new geographical markets and deeper penetration into existing markets. We also increased the rates for our dealer advertising services.

Turning to dealer subscription services, revenue increased 77.2% to RMB159.4 million from RMB90 million in the corresponding period in 2013. This was mainly driven by an increase in the number of paying dealers as we expanded into new geographic markets especially within China growing Tier-3 and Tier-4 cities.

And gain deeper penetration into existing market as well as an increase in the share wallet from the paying dealers during the third quarter. As James has noted, we sold dealer subscription services to 14,614 dealers in the third quarter of 2014 compared with 8,883 dealers in the corresponding period in 2013 which is very encouraging.

Cost of revenue for the third quarter increased 48.6% to RMB96.7 million from RMB65 million in the corresponding period in 2013, primarily due to increases in value-added taxes and surcharges, content related costs, bandwidth and IDC cost and depreciation.

The cost of revenue included share-based compensation expense of RMB1.7 million and RMB1.6 million for the third quarter of 2014 and 2013 respectively. Operating expenses for the third quarter increased 150.2% to RMB246.8 million from RMB98.7 million in the corresponding period in 2013.

As a percentage of net revenue operating expenses for the third quarter increased to 45.3% from 29.8% in the corresponding period in 2013 as we have been continuously reinvesting in key strategic areas such as sales and marketing and product development for future growth opportunities.

Breaking this down further, the increased headcount in both sales and marketing and product development as other administrative stuff to support our growing business, we also increased marketing expenses in connection with the promotion of our brand, through such engine, navigation sites and mobile platforms, which includes the corporations with Baidu for enhanced auto related content results on PC powered by Aladdin.

Lastly, we invested in growth initiatives on the product development site such as mobile initiatives that James outlined earlier. Operating profit for the third quarter increased 20.3% to RMB201.6 million from RMB167.5 million in corresponding period in 2013.

All-in-all, net income for the third quarter increased 25.5% to RMB170.9 million from RMB136.2 million in the corresponding period in 2013.

Basic and diluted earnings per share and per ADS, EPS, for the third quarter were RMB1.59 and RMB1.52 respectively, compared to basic and diluted EPS in the corresponding period in 2013 of RMB1.36 and RMB1.34, respectively.

Adjusted net income, which is defined as net income excluding share-based compensation expenses and amortization expenses of intangible assets related to acquisitions, increased 30% for the third quarter to RMB183.9 million from RMB141.5 million in the corresponding period in 2013.

Non-GAAP basic and diluted EPS for the third quarter were RMB1.71 and RMB1.63 respectively compared to Non-GAAP basic and diluted EPS in the corresponding period in 2013 of RMB1.42 and RMB1.40 respectively.

Turning to balance sheet and cash flow information, as of September 30, 2014, Autohome had cash and cash equivalents and term deposits of RMB1,710.1 million. Net cash provided by operating activities in the third quarter of 2014 was RMB122.8 million compared to RMB85.9 million in the corresponding period in 2013.

Let me now address our outlook for the quarter ahead. For the fourth quarter of 2014, we currently expect to generate net revenues in the range of RMB610 million to RMB636 million representing a 58% to 64.8% year-over-year increases.

Again, I must mention that these comments on our outlook reflect our current and preliminary view on the market and operating conditions, which are subject to change. This concludes our prepared remarks and now we would like to take any questions you may have. Operator, please open the line for Q&A..

(Operator Instructions). We will now move on to our first question from the line of Vivian Hao from Deutsche Bank. Your line is open. Please go ahead..

Hi, James and Nicholas. Thank you for taking my question. I have one question and probably one follow-up based on that. We have provided quite a-strong top line growth guidance for the 4Q.

Can we quantify the incremental growth that has come from Baidu/Aladdin partnership? And also what is the leads conversion improvement so far we have seen from this new partnership? And the follow-up question is essentially on the cost side. For this quarter, the sales and marketing costs seems to be surging quarter over quarter.

I’m just wondering what, is the associated cost that’s come from the Baidu/Aladdin related into sales and marketing. Thank you..

Hi, Vivian. I think your question specifically first is quarterly sales and marketing expense. I think for Aladdin project, because unfortunately it is commercial contract. We were, it is difficult for us to disclose the number.

But in general I can tell you the major spending for Q3 which the incremental spending will be number one on further investment in mobile apps, especially for some of the mobile app stores. So that’s one. And if you look at that, our average DAUs for our apps in Q3 increased almost 0.5 million from Q2 so that’s a huge jump.

And obviously we need to invest on that front to help us safely across the – from a PC only to PC and mobile both focused. So that’s one thing. The second thing is obviously Aladdin. We use I think a streamline to cater the cost of Aladdin. So, basically you can, back on envelope you should be able to calculate the number of our marketing cost increase.

So that’s one. And secondly, is on the increase, on the forward-looking in Q4, I think it’s difficult. Even for now it’s probably difficult for us to really quantify the incremental revenue generated from Aladdin effect. Because there are couple of factors for example, when car makers understand Autohome’s PC traffic is going to have a small jump.

Obviously they are going to allocate some more budget swaps. So, that is what we call the spill-over effect. And currently majority of our dealer listing services are still subscription based which is a flat fee for all subscriptions no matter how many sales we generate for those fillers.

So, that’s why we’re really focused to our – to promote our cost per sales lead product in order to capture the incremental sales lead we generate from Aladdin project. So, to answer your question in a direct way, it’s difficult for us to quantify that..

Okay.

Can we comment on the leads conversion improvement?.

I think it’s probably too early to update you that. But I think we are planned to update you once we feel the – we already enter a mature stage of CPL product. Right now it’s in the very early stage..

Okay. Thank you. That’s very helpful..

We will now move on to our next question from Piyush Mubayi from Goldman Sachs. Your line is open. Please go ahead..

Thanks Nicholas, thanks James and congratulations on the good numbers. Can I just ask how should we be thinking about the impact of the Group Buy and the cost per lead initiatives? Should we be thinking about these on current ARPU? And if yes, what is the magnitude of the increase we can anticipate and when do you think that should start to kick in.

And second, just following up on Vivian’s question with regards to the SG&A, could you give us a sense of whether – just remind us when did that Baidu agreement kick in and when does that lapse and is it being booked on an equal basis through the quarters or is it lumped into the quarter? Any color around that would be helpful..

Piyush, this is Nicholas here. So, adding on the Baidu arrangement, this basically started in July 1, and it’s good for one year to June 30. And we book it on a straight line basis..

Okay. Thank you..

Yes. I think in terms of Group Buy, I think if you have to make me make a sort of choose between ARPU and the volume, probably it will definitely impact on ARPU rather than impact on volume. And when that will have meaningful impact is probably, right now it’s too early to tell.

I mean, I wish I could answer you more but I think only after we feel comfortable about the commercial product, the pricing and the customer demand, I think at that point we can probably tell you more about from our point of view the revenue impact of our Group Buy and CPL product because Group Buy is similar to CPL product, it’s just the commercial term is a little bit different but still it’s based on the – it’s a pay for performance commercial product..

Okay. I understand..

I think to view on what James has mentioned, adding is what we have been seeing all along is like we, in terms of our dealer business, the first thing that we had been doing from the start, five years ago, we have been trying to deepening the penetration.

So that’s why we have been – that’s why you can see that we have the goal number of paying dealers. So, now that I think we have achieved a meaningful size. This way we started to grow more differentiated products like the Group Buy and the cost per lead to give more services to the dealers.

And also by the way, also two years ago, we started the dealer advertising as well, right. So, you could take it as those are adding further value to our dealers and we are able to bring ARPU up..

Yes. And also in the backdrop of upcoming November 11 sales event as you can see, probably majority of our dealer consultant work was we’re working with dealers to make sure the November 11 sales event will be a successful one. So I think that is the focus of the dealer consultant team at this point..

All right. Thank you..

We now move on to our next question from Evan Zhou from Credit Suisse. Your line is open. Please go ahead..

Hi. Good evening, James and Nicholas. Thank you for taking my questions. I’ve two questions. The first question is on your 4Q guidance.

Can we be provided some more colors on kind of the further breakdown on it? Is the good number really coming from still a pretty decent OEM ad budget spending towards the year end, or are we actually going to charge any revenues from our new auto eCommerce initiative, especially during the November 11 period.

So, any of that color will be helpful? And I have a follow-up, thanks..

That question is about the first quarter, first quarter guidance and whether or not we can give the more spilt..

I think, well, I think on the fourth quarter, right, I think basically you can see that as what we have said before the – for the OEM advertising will be able to grow faster than the market. And the dealers like, actually the overall growth rate will be faster than the OEM advertising growth rate like what you have seen in the last three quarters.

So, I think the trend remains the same. As far as the eCommerce I think basically we are not, there is no meaningful revenue this quarter, this year. I think basically we continue to focus on the testing..

Yes. I mean, the first three quarters of our revenue growth, I think as far as I can tell is kind of pretty smooth. I didn’t recall any sudden jump or drop of, for example OEM advertising where our Yellow Page business. So, it’s kind of stable.

So, if you have to force me to give you a prediction, I would assume the historical pattern probably will happen again in fourth quarter..

Yes. I think the OEM advertising has been growing between 42% to 46% in the first three quarters so that’s consistent with what I said..

Yes. And on the November 11 sales event, it’s currently what I think just as what we have done in last November 11, we didn’t believe there will be like meaningful revenue coming directly from the eCommerce event..

Yes. I think the purpose is to make sure we want to add more value to the internet users, the OEMs and dealers, that’s our priority..

All right, got it. Thanks. And my second question is regarding the full price car transaction trial that James just mentioned in the prepared remarks.

Can you maybe provide some more – share with us some more details on that? What’s kind of the scale? And operationally, how do we plan to roll out this in our November 11 event? Are we going to say take inventories for those cars and any kind of potential impact to the financial statements, either on the P&L or the balance sheet would be helpful? Thank you..

So, currently for the November 11, what we intend to do is that take the full payment over the internet. However, as far as I know, we do not take the inventory at this point..

Thank you. Cool. Thanks. Just a very quick follow-up.

So maybe can you maybe update us with the latest headcount number? And specifically are we adding more salespeople to our kind of eCommerce related initiatives? What kind of the people going forward will be helpful?.

Okay. So the headcount number for the – so I’ll distribute. The headcount number for Q3 2014, the total number is 1,654 full-time employees.

Do you want to know the split?.

Yes..

I think sales and marketing, the split is 50% over of the 1,654..

Okay.

And how much – how many did we like increase this quarter or year-over-year?.

So, quarter-over-quarter probably only increased less than about 10%, I think it’s about 10%, maybe a little bit more. Year-over-year, the whole workforce growth by 51%, so I would assume probably the sales and marketing growth probably a little bit higher than that.

Because in general, we grow more people on the product and development, so that’s the highest growth in terms of different market. The second one would be the sales marketing, the last one will be G&A and cost of goods sold the content development people..

Yes..

Thank you. Next question comes from the line of Ella Ji from Oppenheimer. Your line is open, please go ahead..

Thank you and good evening James and Nicholas. I have two questions.

And first, a follow-up relating to your November 11 sales event, should we expect to – should we expect a big step-up in sales and marketing expenditure from 3Q because of maybe more sales events on November 11? And then relating to that, you have a lot of cash now on your balance sheet.

What is your focus area of spending and how should we think about your margins trend for 2015? That’s my first question..

I think that’s probably a three-part and I’ll answer the second part which is the comment on well, we have lot of cash on our balance sheet. But to be honest, and Nicholas is going to answer the market and then the whole – sales and marketing expense in Q4. To be honest, I don’t think we have a lot of cash on our balance sheet.

It’s divided, we are absolutely cash balanced and by the market, I would assume, I don’t have the number on top of my head. I would assume across all my peers, say around like $3 billion to $5 billion, company I will probably be one of the lowest in terms of cash as a percentage of market.

And I think in order to further grow our business, especially in the long-run, we need to have a bigger war chest in order to do the proper investment..

Group initiative..

Yes. So that’s the cash..

Okay, yes. And I’ll address the questions on the margins and the sales and marketing. I think if you, consistent with what we have been saying all the while. If you look at 2014 year-to-date we have posted strong performance overall both revenue and margin. Our profit level has been leading in the industry.

And actually and on the gross margin side, we have been continued to able to leverage, to have operating leverage. Gross margin in Q3 2014 was 82%. A year ago, Q3 was 80.4%, Q2 was 81%. So, we continue to grow on our gross margin.

But what we continue to do is that we’ll continue to reinvest in sales and marketing and product development and making an investment in future growth opportunities in areas like transaction platform to move our products in a used car.

I think if you look at 2014, as we shared previously we believe that our – we are coming at margin which is in-line with average of the past three years, which is about 35%, so highly above that. As for 2015 is probably too early to speculate, provide a pause on the speculation but they continue to create value in the auto industry.

And going forward, I think we should look at our margin profile by separating the existing business and the new business. I think the existing business includes our media business and lead-gen business. We have been successful in two businesses and are now able to enjoy economy of scale.

I think new businesses refers to transaction business and also on a medium to longer term as referring to used car and after market services, we are still in trial. So, that’s on the margin side.

And on a sales and marketing, I think the spending this year for the November 11 will be more or less in line with what we spent last year for the November 11. So, because if you compare this Q3 obviously there isn’t similar I mean, there isn’t the November 11 event in Q3 this year, all right.

So, as it is by itself the sales and marketing cost will be higher than in Q4 would be higher in Q3. But compared with last year, the sales – the November 11 expenses will be more or less in line..

So, we now move on to our next question of Amanda Chen from Morgan Stanley. Your line is open, please go ahead. Amanda Chen from Morgan Stanley, your line is open. Please go ahead. Ms. Amanda Chen from Morgan Stanley, your line is open. Please ask question. Thank you. Amanda Chen is gone, I’ll move on to our next question. Gene Munster from Piper Jaffray.

Your line is open, please go ahead..

Good evening and congratulations. You talked about increased ad rates. And can you remind me how often you revisit the ad rate pricing? And separately, as you’ve had obviously success with Autohome Mall, is there any feedback you’ve had from dealers as you get further down the funnel? Thank you..

Okay.

The first question is the price, do you mean the price from OEM advertising or the price of dealer subscription?.

The OEM advertising price..

OEM advertising is we reserve the right to increase the price twice per year. But usually we only increase price once per year, and that will happen at the end of – at the beginning of the second quarter. That’s April.

And the average price increase for the last couple of years if I remember correctly published around 25% to 30% year-over-year, so that’s one. Secondly, about the Autohome Mall what’s the reaction from dealers? I think majority of the dealers view that as a complimentary to the existing business.

Because from their point of view, even given the current mark cap of both Alibaba and Chindung, currently the combined GMB only account for around 10% of total China’s retail business. So, majority of the dealers are at this point they don’t believe the online will take over their business.

However because of the Autohome Mall, we actually work hand-in-hand with some of the dealers to provide them the aftermarket services opportunity, basically we sell the cars for them and they only need to, they need to deliver, they need to do the order fulfillment and deliver the car and also the opportunity to capture after market services.

So, I think right now, from their point of view, this is more like a complimentary to their existing business..

Okay. That’s very helpful. Thank you..

We’ll now move on to our next question from Anne Shih from Brean Capital. Your line is open. Please go ahead..

Hi James, Nicholas. Thanks for taking my question.

Could you just comment on the overall outlook for dealer and OEM spending for the rest of this year and perhaps next year given, I think, the lower expectations for auto sales growth?.

The lower expectation on auto sales growth, actually I think in terms of industry outlook, we are maintaining cautiously optimistic about this business because it varies from car maker to carmaker. For example, the first nine months of the market, if I remember correctly I saw an article talking about the BMW.

China’s business grow by 18% higher than some of the Japanese brand, software decrease in first seven months of 2014. So, it really varies. So, we’re cautiously optimistic about the outlook market outlook in China. However, we do believe we’re going to benefit a lot from this online to offline shift.

And in the store term we’re taking a measure and cautious approach to develop the transaction platform. And as long as we believe our execution is right, and that we think we can provide a long-term growth of our current business.

And in the long run, where we’re optimistic and firmly believe that the paradise shift of buying car from offline experience to shift one online experience even though definitely we need some brick tool and that’s what we’re working on..

Thanks.

And just a separate question if I could, just in terms of the competitive kind of dynamics here, what are your thoughts around the increased costs for your marketing spending on say, like navigation pages? Should we expect like considerable increases here or meaningful increases here?.

Navigation. Right now I think that navigation is basically a fixed price. And it’s just now, the price we pay is not paid for performance commercial product rather than it’s a fixed fee, it’s a cost per time product. And the way I see this is we have some existing presence at the navigation side.

As long as the major navigation side will not aggressively increase their price and our cost will be, our cost increase over the navigation side will be somewhat limited. I think right now the focus more or less are on the mobile side.

For example, starting from this quarter, I would believe it is because of November 11, what we have seen is that at least in October, the active user sort of conversion price on most of the China’s Android APB stores have increased significantly.

What we believe was the combination of November 11, and the further spending on different China’s verticals for example, some of the group buying companies, some of the like 58.com are like, most companies are spending more. And that will increase the marketing price on mobile applications..

(Operator Instructions). We will now move on to our next questioner, Amanda Chen from Morgan Stanley. Your line is open, please go ahead..

Hi. I’m sorry for the disconnection. I only have a very quick one question about the used car business.

Do, management expect any regulation reform will happen in the short-term, say 2015? And are you going to open this service to individual used car sellers such as (inaudible)?.

Sorry, could you repeat your question, I didn’t get it the first time?.

Oh, sure. Just a very quick one.

Do you expect any regulation reform will happen in the short-term about the used car market?.

The regulation because of emission control and registration control. To be honest, I really don’t know because it’s really difficult to comment on the regulation change and especially with our current government focusing on some other things, such as A-Pac at this point. I don’t know.

But I think we feel a little bit excited about the fact that more and more, we see money started fall into the used car business because fundamentally we believe as long as there is enough stakeholder and there should be some underlying lobby for us to make sure the company – the government will expedite the regulation change.

However, I don’t really know and it’s difficult for me to comment on that..

We will now move on to our next question from Gregory Zhao from Barclays. Your line is open. Please go ahead..

Hi James and Nicholas. Congratulations on the strong quarter and thanks for taking my question. I only have one question about our Autohome Mall, the upcoming event, promotional event. From the website I can see we are doing some promotion like giving out some Samsonite luggage as a gift for the successful auto transactions.

So for such kind of promotions, do we bear the expenses or some dealers will share the expenses with us and where we book such kind of expenses? Thanks..

So, for Samsonite, I think I already signed the contract. We bought the Samsonite sales, so that would be out of our marketing expense..

Okay. Thank you..

We will now move on to our next question from Na You from ICBC International. Your line is open. Please go ahead..

Good evening. Thanks for taking my question, a quick follow-up here. Can you share with us how many dealers and automakers are working with your Autohome Mall? And do you have any expectations on the revenue generation, the revenue contribution for this business. And also a follow-up on the 10 Double 11 campaign.

We noticed that there are many players like Alibaba, JD.com, and also others working with automakers and the dealers have been eminently. Does Autohome Mall working with this platforms together for the 10 11//11? Thank you..

I can comment on the November 11. So that number is changing everyday because it’s a one-day sales event and we totally only November 10s is where we’re going to have a final number on what is the final term and how many dealers are working with us.

And having said that, for the Q3, for the Q3, currently there are 57 brands working with Autohome Mall, in terms of dealers, I don’t have that problem..

Yes, adding on the, just a view on what James had said. On the Mall Autohome actually so far from June to now we have worked with 63 brands and 230 car models. So, yes, it’s encouraging. We’re able to see more and more about this patient, yes..

But do we have a long-term contract, a long-term cooperation agreement with the dealers on the Autohome Mall because we are working on this for longer term to lead the transaction platform?.

The term would be more or less like event driven, not a long-term contract at this point, probably, it’s not a major trend at this point..

Okay.

So are you working with Alibaba and JD.com for the Double 11 together?.

No comment on that. I think this probably while we don’t – we usually do not comment on other companies..

We will now move on to our next question from Anthony Tong from 86 Research. Your line is open. Please go ahead..

Hi. Good evening. Thank you for taking my questions. First of all, a follow-up question on the used car side. James, could you further elaborate your view on the used car market.

Is that a huge opportunity, but still very far away or are you already picking up signs auto market is taking off? And also could you provide an update on your used car portal, the che168.com? Any color on traffic such as MAU, DAU, user engagement, time spent and the number of used car dealers on the platform, that’ll be helpful? And what is the timetable for the monetization going forward? So how do you plan to monetize? Is there going to be any other types of products other than dealer subscription.

Any color would be helpful. Thank you..

Yes. So, basically there are three questions. First is the outlook for used car sector, second one is our DAUs or some of our other metrics talking about the chel68.com.

The third one is the outlook of the revenue model of the used car business?.

Yes..

I think based on the CADA, which is a China association of dealers I think. From January to August this year, for the passenger car market, the used car is only – is 2 million used car transactions, 2 million used car vehicles transact from January to August. The year-over-year growth is 12.7% that’s based on CADA number.

On the other hand, from January to August, the new passenger car sales is 12.5 million and a year-over-year growth rate is 10.7%. So, the new passenger car market compared with the used passenger car market at this point is 5 to 1. Compared with the U.S. in general, new passenger car market compared with the used passenger car market is usually 1 to 3.

So naturally we all believe that there would be a huge potential for China’s used car market in the long run definitely. However, with the current limitation on the regulations, not what they really have a clue that when this market is going to skyrocket. So that’s my take on your first question. The second question is our, the chel168.

I think there were two components of chel168. the first one is our PC platform, the second one is our mobile platform. In general we view that together. And the 2014 Q3, the number of used car listings are already of the 1.8 million vehicles in 2014 Q3. So that’s the number we disclose at this point.

The third question is the monetization, I think similar to the new car business what we envision in the future, the monetization will come from probably first from the dealer subscription business which we provide based on subscription for dealers, secondly provide some of the payable performance on the retail business and lastly if some of the OEMs do have a budget to promote on the used car website or used car mobile sites, we’re going to capture that part of the revenue..

Okay. Thank you..

We’ll now move on to our next question from Wendy Huang from Standard Chartered. Your line is open. Please go ahead..

Thank you.

Can you share with us your latest thoughts on the M&A? Will you consider to, acquire some companies or maybe introduce strategic partners? And also secondly, how should we expect dealer subscriber growth in 2015 given the over 50% growth that you have already achieved this year? And lastly, do you have any number regarding the mobile revenue contribution that you can share with us? Thank you..

So, the first question is about our M&A strategy, Nicholas will take that..

Yes, on our M&A, we obviously we’re open minded on that. We will continue to look at opportunities and willing to talk to different people. And then but currently we do not have any specific targets..

I’ll answer the mobile revenue at this point and maybe Nicholas..

Yes I will take the second question, yes..

The mobile revenue currently, our mobile traffic, the way we monetize our mobile traffic are two ways. The first one is there are some of the OEM will advertise our mobile platform so that’s opposed on the mobile size and mobile applications. So that’s one.

And secondly is, for the subscription business, the subscription we provide to dealers cover both mobile generated sales lead and PC generated sales lead. So, hopefully in the future when we introduce more CPL based products we can specifically money some of the mobile traffic. So currently it’s all planning.

The only standalone is the mobile advertising. And the mobile revenue in Q3 currently is around 7% on our total OEM advertising business..

Yes, then to comment on the second question. I think what we can see is that we would still be able to continue to grow the number of paying dealers next year.

And so, next year we’ll be able to both the growth in terms of volume and ARPU especially given that right now we have reached out to a critical – we have a critical mass in the number of dealers.

As mentioned earlier in the discussion, we do, we’re able to roll-out more value added products and so this is to the dealers which would help us increase the ARPU..

Your next question comes from the line of Ming Zhao from UBS. Your line is open. Please go ahead..

Hi James and Nicholas. Thank you for taking my question. Basically, I have two questions. First is regarding your November 11 sales event. So you mentioned about full price payments.

So could you just clarify how you will book the revenue from this event from the transactions? And also could you share if you have any targets for this event? This is the first question.

And the second question is about the allocation of automakers’ marketing budget between the portals and the verticals because what we see in the Q3 is that the market share of verticals increased very significantly versus the portals.

We learnt from some automakers that because – the reason for that is because the market, the auto demand was quite weak in Q3. Therefore, the marketing departments of automakers shift some of the budgets from the portals to the verticals because the verticals apparently have a better effect in sales lead generation.

Could you comment on that? Do you think the trend will sustain going forward in 2015 or do you think there could be a reversal in the trend? Thanks..

Okay. I’ll answer that part first. I think in general what we have seen is, the margin dollar shift from offline media to online media. And among online media, the margin dollar is shifted from traditional portals to more – to verticals. So that is a trend what we have seen in the last couple of years and we believe is going to continue.

On a specific quarter-over-quarter, I don’t really know because different car makers have different situations. Some car maker had tremendous Q3, other car makers probably don’t. So, that I don’t know. But in general I think, more the verticals are going to take more market share in terms of OEM advertising.

And the first part of your question is about the full car price. I think I have to explain a little bit more about the full car price, how we’re going to book the revenue, Nicholas is going to answer you in detail. But I think that is only a small trial, probably that will be 1%, maybe even less than 1% of our total number of transactions.

Last year, we facilitated more than 15,000 transactions last year. I don’t think we’ll just sell 15,000 cars at a full price through Autohome. So, this is only a trial. We need to figure out whether or not China’s consumers are waiting to pay more than RMB150,000 to a website directly. I think that’s the thing we want to try.

The majority of the November 11 sales facilitation will be similar to what we have done last year it will be a little bit tweak but similar. Basically it’s still the cash coupon model, which is the consumers pay Autohome RMB499 to get a cash coupon. And then they go to the participant dealers and to negotiate the price.

And after they negotiated the price show the SMS or the coupon confirmation and then get the car. However, for that one, for the cash coupon business what we have done this year is we negotiated the deal with the dealers to block a certain amount of inventory. Basically what we say is that, this November, we are going to sell this number of cars.

So please do not sell this number of cars, this number of inventory to other people because we’re going to take inventory. I think that’s already a major step ahead because last year was typical for us to do that. So, as I mentioned, this is the long journey, this is only the beginning of the long journey.

And we fully believe with Autohome’s tremendous user membership. Secondly the way we can facilitate the transaction, lastly the unparallel content with the professional editorial being the helper for China’s consumer to make their purchase decisions. We think in the end that we are going to be the winner of this change.

But this is only the beginning of the journey. So let’s – do not worry about the new – the full price transaction. Maybe at the end of the day we can sell I don’t know, fill the numbers here, a 100 cars but that doesn’t mean anything..

Yes, I think the intent is to really test out the process and to be able to add that in to the user’s, the OEMs and the dealers. I think the, on the revenue for the November 11 will not be significant because it’s basically on a one-day event. And we basically only book the net revenue adding for the coupons.

And net of some of that related, if any rebates for that. So, it would not be significant revenue coming out from that. But again, as what we have said just now is to make sure that is able to add value to the dealers, OEMs and users..

I think that, because a lot of the – I have a frequent discussion with a lot of you guys. I can promise you this, once we complete our first 1,000 new cars full price transaction, we’re going to happily report to you a split and what we have done and what is going forward what we will do.

Currently I think it’s too immature for us to share more color with you because it’s only trial and error process. And inevitably every great company needs to go through that. All right. Thank you very much for joining us today. And we appreciate your support and we look forward to updating you fourth quarter 2014 conference call in a few months time.

In the meantime, please feel free to get in touch with us if you have further questions concerns or comments. And thank you everyone..

Thank you..

That does conclude our conference for today. Thank you for participating. You may all disconnect..