Edith Kwan - Director, IR James Qin - CEO Nicholas Chong - CFO.
Ming Xu - UBS Vivian Hao - Deutsche Bank Amanda Chen - Morgan Stanley Piyush Mubayi - Goldman Sachs Nora Zhang - Merrill Lynch Nathan Snyder - CLSA Gregory Zhao - Barclays Anne Shih - Brean Capital Robert Cowell - 86Research.
Ladies and gentlemen, thank you for standing by for Autohome’s Second Quarter 2015 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.
It is now my pleasure to introduce your host Edith Kwan, Autohome’s Investor Relations Director. Mr. Kwan, you may begin..
Thank you, operator. (inaudible) 2015 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 will 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, 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 this call also includes discussions of certain unaudited non-GAAP financial measures.
The press release 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 webcast of this conference call will also be available on Autohome’s IR website.
I will now turn the call over to Autohome’s CEO, James..
Thank you. Hello everyone. Thank you for joining our second quarter conference call. Today we are excited to announce another set of strong quarterly results. In the second quarter revenue 70% year-over-year, exceeding the top and above our expectations for the seventh quarter in a row.
Meanwhile adjusted net income grew 48% and our adjusted net income margin reached 38%. We are pleased with what is a standout performance in our industry and these solid results reaffirm that we have been making the right moves with our strategy.
During the past few quarters, we have been constantly working very hard to extend our transaction platform by our strong brand recognition and the influence superior content, extensive OEM support in our dealer network. As a result, our transaction platform has taken off very nicely.
Currently, given a slow-down of auto sales in China market, we believe it is an ideal time for us to prove the works of our transaction capability to auto makers and dealers. Therefore, we have decided to further invest in second half of this year to run top our business. I would talk more about this and our rationale in more detail later in the call.
Before that, I’d like to work through our progress in the second quarter. In short there are key areas of strengths in the quarter. First, we made a great deal of progress with our mobile offering and our mobile platform continue to gain traction. Secondly, we introduced many things to further build up our e-commerce capabilities.
Third, we solidified our strategy to focus on used car transactions and will allocated new resources in this area going forward. Now let me provide more detail on our performance. Autohome has been well recognized at the leading online media platform that can enhance the brands strengths and bring sales for automakers.
Immediate to the weakened auto sales recently, our automaker revenue still grew 64% year-over-year in Q2. We are confident that this revenue will remain reasonably strong as we enter the second half of the year.
The reason for this is that during the industry headwinds some of the automakers would possibly be in the process of reviewing their budget to eliminate the platform with low return on investments. However, they would also consider maintaining or even inheriting current operations with platforms that bring them actual sales benefits.
This is where Autohome stands out, as we have in fact being demonstrating our value to our customers with superb ROI and thus we continue to achieve our industry leading growth. In terms of traffic, during the second quarter we continue to see great progress on the mobile front.
Mobile usage is delivering strong traffic growth and this also translates in to growing revenue. Mobile advertising revenue grew 45% sequentially and more than doubled compared to the same period last year, accounting for 13% of automaker advertising service revenue. Also, mobile accounts for more than 50% of our sales lead contribution.
In June, the combined number of average data unique visitors for our mobile site and mob applications amounted to approximately 9.8 million, which grew 88.5% year-over-year. The mobile app traffic continues to grow faster than the mobile site, which indicates our early investment in mobile apps is paying off.
As users are increasingly more mobile centric in content consumption, we will continue to ramp up our investments in mobile technology and traffic in the coming quarters. With mobile technology, we will continue to enhance our user experience and advertising technology, which will require large reinvestment in engineering sector.
For traffic, we all know that traffic to mobile apps is very [heavily] booming, once you pay to acquire a user the cost of customer acquisition will eventually become zero when they become a repeat user. Thus in the long run, it drives down cost and brings network effect.
I want to emphasize that the investments we are making in mobile are for the long term. This are large and strategic investments, the results will take time, but we think that we’ll be forming a necessary foundation for users to adopt and embrace our mobile products.
For our lead gen business; there was encouraging growth in our dealer yellow page business in the second quarter, which advanced to 77% year-over-year. Dealer subscription revenue alone increased significantly 88% year-over-year, with dealer subscription ARPU increased 37% year-over-year.
In Q2, we continue to widen our coverage to 18,768 paying dealers, up 37% compared with the corresponding period a year ago. Our dealer network is the foundation of our lead gen business, and we have been on further creating value for the installed base of dealer customers.
As mentioned in the last conference call, we have done a great deal to help improve the conversion rate for dealers. Our critical enhancement is our i-Autohub platform which is helping dealers manage sales leads more efficiently and access extensive information of our users’ behavior.
The user data which we just started to provide is being well received by dealer customers. This is very encouraging for us. Having developed an extensive network of dealer customers is just a preliminary stage for our lead generation business.
We will continue to add headcount to fuel this fast growing business, and in particular we are adding remote sales consultant to serve dealers in a more cost efficient way, as we continue to penetrate more geographic areas.
Our key focus is to position Autohome as an online market place in the automotive space in China to inherit the sales efficiency of the whole ecosystem, while providing better service and price transparency for car buyers.
We are currently working on establishing a market place where we are able to take credit from transaction and prove our ability to close the transaction loop. Therefore establishing this market place has become very important for us.
Our intent is to add further [laps] of growth for our business by demonstrating our transaction value for the industry and ultimately monetizing this ability in a greater way going forward. To help accomplish this, we were very busy in the second quarter launching several new transactions production and services.
First, we upgraded and refreshed Autohome Mall. It is now a one-stop platform that offers top stores, sales promotions and aftermarket services including auto financing and insurance service. We also now have online shopping assistant there to help facilitate transactions.
Second, for certain automaker customers a new offering is exclusive to online selling of car models. The automaker has received a very positive results and repeat their cooperation with us. Third, for dealers, right now early stage of scaling up of our performance based product especially the cost for sales.
We launched group-buy early this year in order to take credit from the transactions that Autohome facilitated. In Q2, our group-buy services already covered 17 cities with stable conversion of about 25%. Starting in July, we kicked off the first ever nationwide group-buy campaign which covers 34 cities.
We engaged with over 1000 dealers across the country covering more than 70% of auto brands in the whole cities. During the industry downtime it really is a favorable timing for our performance based products to take off and that we will continue to invest with resources in it.
Fourth, we scaled up our new shopping assistance service to enhance the shopping experience on Autohome.
As you know, the company has transitioned from a media platform in to a transaction platform, and to do this, it is important to have a direct service between Autohome and our users, like giving personalized attention and providing advance knowledge of products, market trends and sophisticated services through the purchase process, including evaluating users needs, making car model recommendations and providing price transparency.
Online shopping assistance are becoming more trusted consultants to facilitate transaction and help with certifying the last mile consumer needs. We view the new shopping assistant as a very important tool for our market place to take off.
Therefore in the second half of the year, we enlarge our investments especially in the shopping assistant service team. With all of those efforts in the first half of 2015, we were very pleased that Autohome facilitated about 40,000 new car transactions while maintaining our industry leading margin.
Lastly, it is important to note that we are enlarging our transaction capability, not just in relation to the new car business but also in the used car business.
In the past few months, we have been doing all kind of trials inherently; from there we saw a lot of promising results, and that’s why we feel that now is the time when we should be putting in resources to ramp up our used car transaction service.
Therefore the used car business is also one of the key areas where we need to grow our headcount in the coming quarters. Before I turn the call over to Nicholas, I want to briefly summarize a few things.
We are singularly focused on becoming a full transaction centric company in both new and used cars, and are very excited about opportunities ahead of us.
We believe that our success in this area won’t rely on our single business model, instead a basket of products and services that we offer is working together to move up as quick as possible towards the market based transaction. And our media value and lead generation capability is certainly the fuel for our transition in to our transaction platform.
We are working very diligently to solidify our micro case strategy. It is important to note that this effort will come with the need for strategic investments and that we believe the time for this is now. Our goal continues to be to sustain our leadership in our sector, as measured by user engagement and transaction volume.
We believe the ultimate result will be that we maintain and further strengthen our position as the dominant player in China’s automobile consumer market over the long run and which will justify our current investment. One last point I have related to Li Xiang, our former President who recently stepped down from that role as announced in June.
I want to thank him for all his great contributions to expanding Autohome and throughout his time serving the company for more than 10 years. With that I will now turn the call over to our CFO, Nicholas, for a closer look at our second quarter results and our outlook..
Thank you James. Hello everyone. As James has really highlighted, we are very pleased to report solid financial results for the second quarter. Net revenue came in ahead of our initial guidance and net income advanced remarkably as well.
Further we maintained a very healthy level of cash proving that we are able to effectively manage our business and balance sheet for the benefit of the overall business. I am extremely proud of our ability to deliver sustained strong performance quarter-after-quarter.
Now let me go over the key drivers of the second quarter performance in greater details. Note that I will reference RMB only in this discussion, but you can find the equivalent US dollar numbers in our press release issued earlier today. To start, our topline performance was very strong.
Net revenue for the second quarter increased 69.9% to RMB861 million from RMB506.8 million in the corresponding period in 2014. Breaking this down further, we again attributed across the board strength in various revenue components of note.
During the quarter, the dealer yellow page business which includes dealer advertising and dealer subscription services grew 76.7% year-over-year. Separately dealer advertising services revenue significantly increased by 59.8% to RMB144.8 million from RMB90.6 million in the corresponding period of 2014.
Meanwhile dealer subscription revenue increased 87.6% to RMB263.7 million from RMB140.6 million in the corresponding period in 2014. We balanced growth on both volume and ARPU.
The strong performance was mainly driven by the increased number of paying dealers which was the results of deeper penetration in the existing markets as well as an increase in the share wallet from the paying dealers.
As noted in the press release, we saw dealer subscription services to 18,768 in the second quarter compared with 13,693 dealers in the corresponding period in 2014. Also ARPU was up 36.9% which of course very encouraging.
Turning to automaker advertising services; revenue increased 64.2% to RMB452.5 million from RMB275.6 million in the corresponding period in 2014. This strong growth is solid proof the high recognition of our brand among automakers and while due to that strength we are quite resilient during the slow-down of auto sales.
Gross profit for the second quarter increased by 75.1% to RMB723.7 million from RMB413.3 million in the corresponding period in 2014. We continued to gain leverage from revenue increases and efficiency from economy of scale in our operations.
Turning to the cost side of the business; as I’ve mentioned in the past, while we are certainly reinvesting heavily in the future business, we are at the same time very cost efficient and prudent with our spending on the existing business.
Operating expenses for the second quarter increased 116.1% to RMB345.7 million from RMB160 million in corresponding period in 2014. As a percentage of net revenue, operating expenses increased to 40.1% from 31.6% in corresponding period in 2014.
We have been continuously reinvesting in key strategic areas such as sales and marketing including the Baidu Aladdin investment as well as in other mobile traffic acquisition efforts, product development in general, administrative needs. This is all required for growing the business.
Even with this increase in expenses during the quarter we are still delivering industry leading profitability syllabus. It’s a strong testament and demonstrates our precise executions. Operating profit for the second quarter increased 29.2% to RMB378 million from RMB253.3 million in the corresponding period in 2014.
Net income for the second quarter increased 47.8% to RMB304.9 million from RMB206.3 million in the corresponding period in 2014. Basic and diluted earnings per share and per ADS for the second quarter were RMB2.72 and RMB2.63 respectively, compared to RMB1.96 and RMB1.83 respectively in the corresponding period of 2014.
Adjusted net income for the second quarter increased 47.9% to RMB324.8 million from RMB219.6 million in the corresponding period in 2014. Non-GAAP basic and diluted EPS for the second quarter were RMB2.89 and RMB2.80 respectively, compared to RMB2.08 and RMB1.95 respectively in the corresponding period of 2014.
Turning to the balance sheet and cash flow information; this is also an area of key strength and sustained positive performance.
As of June 30, 2014, we had cash and cash equivalents and term deposits of RMB3.21 billion, net cash provided by operating activities in the second quarter was RMB194.8 million compared to RMB163 million in the same period last year. Let me now address our near term outlook for the quarter ahead.
For the third quarter of 2015, we currently expect to generate net revenue in the range of RMB850 million or US 137.1 million to RMB884 million or equivalent of US $142.6 million, representing a 55.9% to 62.2% year-over-year increase. It is also worth reiterating what James mentioned in his remarks.
During the second half of this year, we will be making important investments. We need to continue to invest to grow the platform and solidify our leadership.
The majority will still come through sales and marketing line in particular in the areas related to our mobile products and scaling our transaction capabilities in both new and used car with higher investment in headcount. There will be immaterial revenue from market place this year.
We will continue to invest in the market place as we see a large opportunity for e-commerce to kick off. Based on our track record, we are confident that our investment strategy is creating long term value for the company.
Again I must mention that these comments on our outlook reflect our current and preliminary view on the market and operating condition which is subject to change. With that James and I are ready to take your questions. Operator, please open the line for Q&A. Thank you.
[Operator Instructions]. We will pause for a few moment to assemble the queue. Our first question is from the line of Ming Xu from UBS. Your line is open. Please go ahead. .
Basically I have two questions, first one is, you mentioned a lot of investments to be made in the second half. I know it’s for the long term benefit, but could you may be quantify the margin impact. And the second one is, I know there’s a very strong pickup and a very strong growth in dealer ARPU in the second quarter.
So how this is achieved and what further up sight can we expect in the second half. And thirdly on your sales and marketing wins, obviously you have terminated the contract Baidu on Aladdin, so I just want to confirm on that. Will this happen later this year or we will not sign up to Aladdin for the rest of the year. Thanks..
Xu Ming, this is Nicholas. I will start from the question on the margin first; for the whole year I think we are still clocking above 30% there’s no change from what we have been communicating. If you look at the first half, we achieved 35.2% on net margin.
This is a demonstration of how strong we managed the existing business and that’s including normally the existing business but also the market place. As you can see we highlighted that we have done more than 40,000 transactions in the first half, but we will continue to invest in the second half.
The investment comes in a few areas, one is, the new investment will mainly focus on headcount as we shape to be more transaction centric, traffic acquisition especially on the mobile and apps promotion and branding. So I think that’s to address your question on the margin. The second one, I think the second question is on relating to dealer ARPU.
I think it’s the same reason as what we registered in Q1. It’s basically coming from two areas, one is that the price increase that we implemented since January last year, so this year we get the full impact of that, so that’s one of the reason. The other reason is that the premium package right now is about high 30s - making up high 30%.
It’s making up of 30% plus of the total number of dealers. .
Okay, I will take a crack on the third question which is Aladdin. I think we are still in process of having discussion with Baidu about this strategic investment or strategic cooperation between Baidu. So that is the ongoing discussion.
But having said that, we are doing strong in both PC and mobile traffic, as of during 2015, mobile traffic rolled 88.5% [year-over-year], and now PC traffic remained over 8 million DAUs with industry leading traffic. So we have a very strong organic traffic in our channel. It will not make or break our company because of any traffic source.
And currently we evaluate all traffic acquisition channels, and based on the ROI. If spending money to drive traffic is considered appropriate, we will definitely go ahead and do so. If it’s not, then it is not. .
Our next question comes from the line of Ms. Vivian Hao from Deutsche. Your line is open. Please go ahead..
I have two questions, my first question is, there seems to be a sharp moderation in our dealer app segment growth on a year-over-year basis. What is the key reason behind, and also given the less optimum micro trend in auto industry, how is the visibility of our core advertising business in second half.
My second question is regarding your headcount expansion that you mentioned in the prepared remarks. What is the expected headcount increase in second half? Can we get a sense of the incremental spending in sales and marketing and potential impact of that to all markets? Thank you..
I will try to answer your first question, which is about dealer advertising and what is the outlook. We are very cautiously optimistic about our overall market and our business despite the current industry headwinds. Given that we are still very relatively small in the share of wallet, we do not see what will rightly have a hit on us.
In the first half of 2015, dealer advertising revenue grew 78% year-over-year. This business is very solid and with high growth.
Given our high ROI brought while our customers will focus more on further creating value to the automobile ecosystem with better services, such as what we are doing with the auto group-buy with dealers for more than 100 cities across China. And in the shorter one, to cope with changes in the market.
Sometimes we are changing forms of advertising services. For example, we are moving in to more transaction based revenue and campaign based revenue than pure advertising, as it is most directly to help our customers to reach out to buyers.
And despite the current industry headwind, it is favorable for our performance based product to take off where we take credit based on transactions. Eventually I think it will be beneficial to us to crack more share of wallet as we can get better recognition from the dealers.
Because nowadays as you can see, in some of the car makers, they start to shift that the invariable marketing cost has a direct price reduction at the [pencil’s] level.
But we believe this is only temporary phenomenon because China is a very important market for all automakers and we have high confidence that our new products will capture further business growth as the level of vehicle ownership in China is still relatively low compared with the rest of the world.
So in short we believe the outlook is still promising and we are cautiously optimistic about the outlook. .
I think first on the headcount. I think we will continue to invest in headcount in the following areas. Like for example, our dealer business continued to show interest. We continue to increase the number of paying dealers and we believe we will cross the 20,000 paying dealers by the end of this year. So we continue to invest on the dealership account.
And we also see a good promising sign in the used car business and also in the transaction business. So we will continue to invest in headcount on that two areas as well. And then likewise we will invest in the technical team to continue to support the business expansion based on the hiccup.
As far as sales and marketing, as you can see the major area is really behind the, for example the traffic acquisition particularly on mobiles; and also this year we have also increased some of the branding spending in the second half of the year because of the November 11 event which we host every year and also the this year we are celebrating our 10th anniversary.
So this is overall branding exercise. If you look at the percentage of revenue, if you look at Q1, our sales and marketing expenses as a percentage of revenue was 35%. In Q2 because of the growth in the revenue, sales and marketing as a percentage of revenue has dropped to 28.4%. So in the second half it will be somewhere around 30% plus or so.
But overall we will come in with 30% margin for the whole year. Non-GAAP net margin for the whole year. .
Your next question comes from the line of Ms. Amanda Chen of Morgan Stanley. Your line is open. Please go ahead..
My first question regarding your new business; could you please share some updates on your new business especially the cost center consumption (inaudible) and C2C used car transaction business, any operational metrics will be appreciated. Thank you..
Okay. So our shopping assistant service provides service throughout the purchase process. Essentially right now we have the main business in Beijing, but we start to expand to other cities because we think this is a value added service. We should directly link the consumer search to the dealers. So we are going to keep pushing ahead on that one.
So that’s on the (inaudible) sorry, what was your second question; your other question about the new business?.
It’s C2C used car transaction business..
The C2C used car transaction business. In this area we launched larger business in [Chung Junhao] we start to expand to other cities. And it’s still in the very early stage, and probably there’s not much we can talk about.
But we think this is a promising business, because it can leverage our large consumer base which in the process of buying cars in some of the cities with limited [play] we can help ourselves drive off the used car. So that was the reason we think C2C business is really helpful.
Based on the large part of our users and our trading scale we believe that we have a lot of advantage over used car transaction business. .
And the second question is regarding your investment plan on you mentioned in your press release; could you give us more color say on how much you are going to spend if possible and besides the investment in branding, mobile and (inaudible) any other areas you are going to increase investment, and also how long the investment cycle will be and how it will impact margin.
I think on some of the aspects, could you give us more specific number. Thank you. .
I think as I shared just now, we believe that in the first half we came in at 35.2% on GAAP net margin. For the whole year we still are holding to the 30% plus non-GAAP net margin. In the second half, given the momentum in the first half, we see some promising sign on the used car business and transaction business.
We will invest in to that business in terms of headcount and more, that’s what I shared just now. .
I think I will some more light on this areas; aside of the traditional investment in R&D and product development, inevitably when we venture in to the transaction business both in the new car and used car business. We are in a process of building a market place both for new car and used car business.
And when we start to do more transactions related business, we inevitably need a lot more headcount than the past in order to create a consumer value.
So, in terms of the new area, probably it will be new car transaction business, used car transaction business, and both of the new car platform and the used car platform, our used car market place, because we cover more geographic than in the past, so we need more headcount to keep the penetration healthy. .
Yeah, penetration and also to provide better services to serve the customers and the users. .
And the third question is regarding the macro environment. We all know that this year’s auto sales market is not very good. But I think it may be a moment for us to gain market share because, OEM are willing to shift budget to some media with high [O/I]. But if the soft market continues from the ’16, how it will impact all the growth after [term].
Thank you..
So I’ll [cover] that, we can talk the macro trend in the auto industry because it’s difficult for me to pretend not to predict China’s macro economy, just like it’s difficult to predict China’s Asia market performance.
But given the strong O2O trend across our industries, we still see online advertising is quite insulated from the macro headwinds as we continue to win over the offline channels. And also, as we continue to see, we are gaining market share, as our performance is increasing, we are being recognized by being a leader in the industry.
So as you can see our OEM advertising still grows more than 60% in the first half of this year and we see probably firstly the growth will still be reasonably strong in to the second half. And we always believe by bringing higher [ROI] and better conversion rate than other channels to our customers, we are going to win in the end.
So again we tend to think the current trend of China’s auto market is only a temporary phenomenon because of the low penetration of vehicle ownership in China and the Chinese government start to pour a lot of money in to building the infrastructures like the road, all those kinds of things. It will help Chinese consumers in the end to buy more cars. .
Our next question is from the line of Piyush Mubayi from Goldman Sachs. Your line is open. Please go ahead..
I have three questions, first is in the business that you talked about, where you talked about 40,000 units in the first half, could you give us the sense of whether that was dominated by new cars or is it new and used cars, and if so what was the mix there.
The second question is more general, if you could talk about the mobile monetization on the OEM advertising business and I think you gave a number last quarter, 13% or 14%, where are we on that? And the third, and this is really broader question, but wanted to understand from you what you thought is necessary to succeed in the used car market.
Thank you..
I think the first one, the 40,000 is basically is referring to the new car business only. .
And we mainly sold it through our featured sales and the [flat] sales. .
Was there a particular brand?.
This one we have is across multiple brands and multiple car models. So it’s not overly concentrated in a few brands, its well represented..
Second question about the mobile had a [rotating] revenue. The mobile revenue increased 45% quarter-over-quarter and more than doubled year-over-year. So right now the mobile advertising comes to 13% of the automaker advertising service revenue. So that is the mobile advertising.
I think going forward we will enhance our performance based advertising on the mobile platform. So right now that percentage is still very small. We’re basically only sending the opening screen banners. I think adding more performance based advertising we should be able achieve more penetration on the mobile advertising side.
Your third question was, what is the wining factor for used car business? That’s very complicated. I think there are a couple of things, first one, I think inevitably if you have a closer relationship and trust from the China’s consumer side who has the vast trust or best brand name, could be one of the winner in the used car business.
So that’s definitely number one. But secondly, I think that because the used car business right now is very fragmented and the consumer value is very limited at this point.
So it’s really - I think by who can build value among the whole purchasing process, and add some more services or even like extended warranty or services with those can win the market. And we understand the roadmap, but we need to execute and make sure we will be the winner in the used car business in the long run. .
And may I ask another question, not related directly but, you talked about 9.8 million DAUs. I wonder why we look at DAUs and if you could give us the MAU number too. .
We do have MAUs, the MAUs is 10 million? Yeah. So in our 2015 June, our mobile MAUs altogether, so that is the mobile browser plus mobile apps together it is close to 10 million. .
Your next question comes from the line of Nora Zhang from Merrill Lynch. Your line is open. Please go ahead..
Sorry, that was wrong. Sorry this is a 100 million not 10 million. Sorry. The monthly unique visitors for mobile apps and mobile browser is almost 100 million. So it’s not 10 million its 100 million. Our DAUs is more, this is about 10 million. So it’s about 10 times our DAUs. Sorry for that. .
Your next question comes from the line of Nora Zhang from Merrill Lynch. Your line is open. Please go ahead..
Just now you mentioned that Autohome made big progress in group-buy business. Can you give us more color on the monetization and the revenue model of the group-buy business. And how is the margin of this business comparing to the coupon transaction business model. Thank you. .
Right now our group-buy business is initiated from dealer consultant sales force and the monetization, I think the key for our current group-buying business is rather to help the dealers to sell more cars and make more profit, because the second quarter for them was pretty bad, and at this point we do not have a clear target on our monetization or paid rate on the group-buying business.
Rather than we want to build out our market share and the number of transaction facilities through us. And I think that will probably help our dealer advertising business and dealer subscription business somewhat. But to answer your question in short, we do not have target for that. .
I think the view on James question, we have done three session to over three weekends in July and we have generated more than 10,000 transactions from that. And as what James said, the primary focus right now is to first demonstrate our value to the dealers by having very high close rate.
That is the first thing first that we are trying to do, and then we will work on our monetization going forward. .
Because I think from our point of view it probably is not wise to increase our monetization when our customers are having a difficult time. .
Understood.
So just now you talked about 25% on conversion rate, can you explain that, how did you calculate the conversion rate?.
For group-buying business because every single transaction goes through us. So we just use the number of transactions divided by the number of sales that we generate. So that’s 25% give or take..
Your next question comes from the line of Gregory Zhao from Barclays. Your line is open. Please go ahead. Hello Mr. Nathan Snyder, you line is open. Please go ahead. .
Just two question for James and Nicholas. In terms of the e-commerce transaction business, obviously near term we have some financial headwinds just in terms of building out the business more cost associated with it.
But if you look out longer term and you think about that margin profile, would you agree that the margin profile will probably be lower than the pure play advertising business. And then in terms of different e-commerce models, can you talk about longer term your thought process in terms of what that margin profile might be. .
Currently we do not take inventory to review our e-commerce as also our market place. So from that point we don’t think that margin is going to go down. Because when you do e-commerce not only you can earn the commission based on the transactions, but you can also add on some value added services such as car financing and car insurance.
But currently because our transaction volume on the auto e-commerce is still relatively small, it’s difficult to predict the end results of the financing and insurance. Currently, we are trying to gain more attraction from China’s automakers especially the Chinese brand with their SUV products.
Because in this year, even with slow growth or no growth of China’s new car market, the SUV sector still grows about 40% year-over-year. So that’s why we concentrate our effort on vowing that sector. .
Okay, that makes sense. And then a follow-up, in terms of the China Grand Auto as well as the thing on joint ventures or cooperation that we’ve been working on. When do you expect those to ramp up in terms of the timeline and how much revenue or profitability would we expect in the next 6-18 months..
Right now it’s still the early stage. What is important is for the two parties to work together and then we can. That is the most important thing. Let me share with you some of the things that we are working with Ping An and then Grand Auto.
We think that internet financing is a rising industry and accelerated a transition of financing institution and fronted them to launch online portal for financing applications. Autohome will help Ping An to develop the internet class strategy especially in the mobile internet space to increase the Ping An marketing efficiency.
On the other hand, Ping An will provide customized insurance products and financing products that uses in potential car buyers of Autohome. And both on this, we also continue to explore a potential to further leverage each other broad user base for cooperation in the future. Because both Ping An and ourselves have very strong user base.
As for the partnership with China Grand Auto, we are able to - China Grand Auto is an existing customer of Autohome.
With this new partnership we are able to obtain greater share of wallet from them and also we’ll be able to provide marketing support to China Grand Autos financing product and e-commerce platform, and also support them with big data services.
So these are a few initial things that we are working on and we continue to explore and expand in to wider range of other areas in the future..
Your next question comes from the line of Gregory Zhao from Barclays. Your line is open. Please go ahead..
I have three questions, the first one, recently we organized some offline campaigns around the (inaudible) cities, and we see some very good traction there to drive the auto sales. So can you share some color about the revenue contribution from the events and what’s the margin of the business? This is my first question. .
Okay, I’ll take a crack at that. So far already completed about 10,000 cars sold for the last three weekends and there is another couple of weekends. So the total will be eight weekends. We think we can based on the current rate we should be able to achieve more than 20,000 vehicles sold throughout those campaigns.
So currently we do not have revenue target for that business because as I mentioned previously, right now is a difficult time for our customers, we need to help them achieve sales. .
My second question is also about some offline fields. Online offline clearly is like a (inaudible) so do you think we are seeing any competition of such kind of offline directly with models and do you think in the future may be we’ll adopt similar business model to directly offer some offline group-buy services to our users. I have another question..
I will not comment on some of other business model. For the group-buying business its tends to differentiate Autohome’s business with some other business model. So you need to think about that what is the consumer value and what is the customer value for a group-buying business.
If your group-buying business is by squeezing the dealers, let them pay and let them have lower transaction price at the same time also paying you about RMB1,000 per vehicle, and its all same city sales. There is not an apparent customer value over there.
However, Autohome’s (inaudible) or our group-buying services is not by trying to squeeze the dealer to ask them to give up a rocket bottom price. We want to make sure the dealer is going to be profitable offsetting more vehicles. So I think we need to differentiate the customer value from there.
However we always need to balance the customer value and the consumer value. You need to think about what type of online to offline business you really create a value to consumer, whether or not because you have fixed inventory or you have better shopping experience. Those kind of things that will set us apart from peers. .
Your next question comes from the line of Anne Shih from Brean Capital Your line is open. Please go ahead..
I just have two; I understand the investments required for the second half of the year are going to be long term growth driver here. But just thinking about how moving in to transaction based platform with greater headcount and increased services will impact your margin profile, potentially for the longer term.
So could you just share any color or visibility in to 2016? Should we think about the 30% level as the new normalized level or anticipate any improvement in to 2016 year. That’s my first question..
I think margin percentage obviously will be a function of the (inaudible). Right now it’s very difficult for us to predict our 2016 margin because we operate in a fast changing industry, which is internet. In some of the sectors they burnt a US$100 million per month, in other sectors they burn a US$100 million per quarter.
You guys all cover those industry and you know what I am talking about. But having said that, Autohome always want to maintain a healthy profit margin, because a business can generate profit as sustainable business model. We don’t believe any subsidized revenue model which will not bring repeated consumer purchase or consumer behavior change. .
That’s very helpful, thank you. My question is a follow-up on earlier on dealer advertising. Just specifically is that the revenue growth that you are slow from the second quarter from the first quarter. I am just wondering what the trajectory would be for the second half especially given the weakness on the macro side. Thank you..
We said a couple of time about the second quarter revenue. In terms of both OEM advertising and the dealer business, we maintain cautiously optimistic about our revenue growth for mainly two reasons. First one is, we believe in the longer run China’s new car industry is still going to roll for a couple of reasons I have mentioned previously.
Secondly as we believe with the transaction value Autohome has been building and we are going to become a most efficient way for China’s automakers and auto dealers to facilitate their sales. For those above two reasons we are cautiously optimistic about our future. .
Your next question comes from the line of Robert Cowell of 86Research. Your line is open. Please go ahead..
I just have one quick question here about the joint venture with HappiGo.
Do you have any update on the progress of this initiative or further visibility on the timeframe for the launch of the show room?.
On HappiGo right now is off to a good start. We plan to have the (inaudible) or two mobile sales now open by the fourth quarter, should be in time for the national holidays and for the November 11.
So the services that we are going to offer will include vehicle display, test drives, sales of auto and auto accessories and auto delivery and also provide license plate registration for the buyer. So it’s a very good one-stop auto service that we provide to the users.
So the project is well on track and we’ll be opening up the service, the exhibition over in fourth quarter. .
It will be helpful Nicholas, maybe in the fourth quarter we are going have a reverse also for --..
Yeah, that’s right. That’s the plan there. .
So the first stage of our business with HappiGo, actually the Chinese is pretty good, it’s called (inaudible). We were able to leverage Hunan - which is the brand name. The first stage is we opened a 7,000 square meters showroom with different areas to promote an urban usage of sedans and also the countryside usage of SUVs because they have.
That is the first major step for us to get in to the offline service business. So we can understand the pro and cons of running a business. With Hunan [wish’s] help, with HappiGo’s help we think we can do well in that area. .
And also leveraging our strength on online services strength that we have. I think that will be something to look forward to. .
Okay, that concludes our question-and-answer session. I would like to hand the floor back to our management team for any closing or additional remarks. .
I thank everybody for joining us today. We appreciate your support and we look forward to updating you on our third quarter 2015 conference call in a few months’ time. In the meantime please feel free to get in touch with us if you have further questions or comments.
And hopefully you get on our applications or Autohome’s website to check all our transactional services. Also I can broadcast again our (inaudible) which is 400-800-7777. Alright thank you everyone. .
That does conclude our conference for today. Thank you for participating. You may all disconnect..