Ladies and gentlemen, thank you for standing by for Autohome’s Fourth Quarter and Full Year 2018 Earnings Conference Call. [Operator Instructions] 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, Aggie Zhao, Autohome’s IR Manager. Ms.

Zhao, you may begin..

Thank you, operator. Hello, everyone, and welcome to Autohome’s Fourth Quarter and Full Year 2018 Earnings Conference Call. Earlier today, Autohome distributed its earnings press release, and you may find a copy on the company’s website at www.autohome.com.cn. On today’s call, we have Mr. Min Lu, Autohome’s Chairman and Chief Executive Officer; Mr.

Haifeng Shao, Autohome’s President; and Mr. Jun Zou, Autohome’s Chief Financial Officer. After the prepared remarks, Mr. Lu, Mr. Shao and Mr. Zou 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 provision of the U.S.

Private Security 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 expectation. Potential risk and uncertainties include, but are not limited to, those outlined in our public filings with the Securities and Exchange Commission.

Autohome does not undertake any obligation to update any forward-looking statement, except as required under the applicable law. The earnings press release in this call also include 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 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 Chairman and CEO, Mr. Lu..

number one, expanding OEMs wallet share by continued traffic and leads volume growth; number two, increasing more OEMs branding budget by offering branding-related products and activities; and number three, utilizing intelligent marketing solutions in empowering automobile precision sales.

Second, our paying dealers continue to be over 26,000 as of the fourth quarter, with total leads volume of 110 million in 2018, representing an increase of 10% year-over-year. As a next step, we plan to continue to increase new car sales lead from multiple sources.

And we also expect to see an acceleration of used car, used vehicles sales leads in the marketplace and plan to further commercialize our leads generation in this sector. And also, well, considering online cost per leads even much lower than off-line, we still have larger room to grow.

Third, for our data business, which is becoming a core asset, these products are gaining wider market acceptance with positive review. By the end of 2018, 43 OEMs and approximately 9,000 dealers have purchased our data products.

So in 2019, we expect to further increase our data product penetration based on our extensive collaboration with OEMs and the dealers. We’re also planning to launch data products for used vehicles in 2019.

Fourth, for our used car, C2B2C platform, our strategic investment in TTP, [Foreign Language] and the launch of Trusted Alliance are two key milestones. Our partnership with TTP continues as we utilize synergistic resources, enabling TTP’s performance as the leader of the used car vehicle options.

Also, since official launch of Trusted Alliance, we now have qualified about 1,000 dealers – dealer partners as of December 2018. Finally, for our auto financing business, we facilitated about RMB 15.8 billion in loans and insurance in 2018, representing about 78% increase year-over-year.

In addition, our merchant loan products issued a cumulative credit line of approximately RMB 5.8 billion, which was granted to close to 3,200 selected off-line used car dealers. We expect both used vehicles and auto financing business to experience healthy growth in 2019.

To conclude, our investment in data and technology has sustained our growth momentum and supported Autohome’s ecosystem. We have accumulated a massive amount of data which we will integrate with our business units to unlock additional growth potential for our future development.

With that, I will now turn the call over to our CFO, Jun Zou, for a closer look at our fourth quarter and full year 2018 financial results and business outlook..

Thank you, Min. Hi, everyone. As Min has highlighted, we are very excited for another excellent quarter and a very strong 2018. Please note that I will reference RMB only in my discussion today. Net revenue for the fourth quarter was RMB 2.19 billion, representing a 36% year-over-year increase.

Media solutions revenue outperformed the underlying auto sector, increasing at 20% year-over-year to RMB 1.09 billion. Despite the challenging auto market, Autohome continued to be automakers' partner of choice.

Lead generation business increased by 24% year-over-year to RMB 781 million, primarily driven by an increasing ARPU and an expanded dealer client base, both of which are strong evidence that we continue to build confidence among dealers.

Online marketplace and other revenues for the fourth quarter increased by 381% year-over-year to RMB 314 million, largely attributed to auto financing data solution businesses. So we are very pleased with the increasing market demand for these initiatives.

Now our cost of revenue for the fourth quarter increased by 8% year-over-year to RMB 250 million. Gross margin for the fourth quarter was 89% compared with 85.5% in the same period last year. The increase was primarily due to the effective cost control programs we’ve implemented last year. Now for operating expenses.

Sales and marketing in the fourth quarter were RMB 473 million compared to RMB 507 million in fourth last year, mainly because of the increased cost in offline execution and branding expenses. T&D expenses were RMB 296 million compared to RMB 266 million in Q4 2017.

Again, this reflects our commitment to technology advancement and our professional talent. Finally, G&A expenses were RMB 65 million compared to RMB 54 million in Q4 2017. The increase was primarily attributable to an increase in salary and benefits.

Overall, we delivered an operating profit of RMB 899 million, representing an increase of 51% year-over-year. This increase was primarily a result of consistent top line growth, streamlined operational efficiency and effective cost control. Additionally, adjustment income attributable to Autohome Inc. was up 39% year-over-year to RMB 1.08 billion.

Now non-GAAP basic and diluted earnings per share and per ADS for the fourth quarter were RMB 9.12 and RMB 9.13, respectively, compared to RMB 6.62 and RMB 6.52, respectively, in the corresponding period of last year. Now let me turn to a short summary of our 2018 full year results.

We continued to drive growth in revenue, which increased by 35% year-over-year to RMB 7.23 billion, excluding direct sales in 2017. Media services revenue increased by 21% year-over-year to RMB 3.51 billion.

Lead generation services revenue increased by 25% year-over-year to RMB 2.87 billion, Excluding direct sales in 2017, online marketplace and other revenue increased by 429% year-over-year to RMB 853 million. In addition, we delivered an adjusted net income of RMB 3.08 billion, representing 41% year-over-year growth.

This result is primarily because of a strong execution and a prudent cost control. As of December 31, 2018, our balance sheet remain very strong with cash, cash equivalent and short-term investments over RMB 10.06 billion. We generated operating cash flow of RMB 3.01 billion for 2018, representing a 26% year-over-year increase.

Let me now turn to our first quarter 2019 outlook, which reflects our current and preliminary view on market and operating conditions that may be subject to change. At this point, we expect to generate net revenue in the range of RMB 1,565,000,000 to RMB 1,585,000,000, representing a 21.5% to 23.1% year-over-year growth rate.

In summary, despite the relatively soft macro environment and the economic environment in China in 2018, we continued to gain size and scale, while remaining the best-in-class category leader and delivering consistent growth and profitability.

Looking forward, we expect our initiatives, including data financing transaction to become equally material as our core media and lead generation businesses in driving our future development. Thank you. With that, we are ready to take your questions. Operator please open line for Q&A..

Thank you. [Operator Instructions] Your first question is from Wendy from Macquarie, your line is now open Please go ahead..

Thank you management. I will ask questions first in Chinese and translate it into English. [Foreign Language] So my question first is mainly on the macro outlook. So a few months ago, I remember you were expecting a flat auto sales in China and the OEM, well, actually also made their advertising budget based on that kind of underlying assumption.

So what’s your latest view on the overall auto sales in China based on the latest changes in market? And also, given the recent dispute with the dealers, can you give us update on the latest dealers' stop duration as of the end of February? And also, how was the payment duration? Related to that, has the dispute with the dealers affected your negotiation or talk with OEM about 2019 renewal contract? If not, can you completion with OEM about framework contract? Thank you..

we are not in any competitive relationship. We are more as a partner and a collaborator. [Foreign Language] So this year, we’re going to help the dealers to get more leads. [Foreign Language] In the meantime, we are going to maintain high quality of the leads.

[Foreign Language] How to ensure the high quality? I have to say 85% of the leads are from our self-generated traffic. We are not procuring outside our resource or traffic to generate leads.

[Foreign Language] And then we also have a lot of data products to offer to the dealers to help them to improve the efficiency in their telemarketing and their tele-invitation. We want to make their business more efficient.

[Foreign Language] We offer the intelligent marketing solutions, actually a lot of provided feedback to us saying that actually the efficiency have increased by 22%. [Foreign Language] So actually, we learned lessons out of our existing experiences, and we would also learn how to be a good partner and friends with our dealers.

[Foreign Language] The Chinese Spring Festival was just bygone, and we are just starting to resume back to work. So in March, we’re going to continue to talk with the OEMs. [Foreign Language] Overall speaking, no matter the market of this year would be good or bad, Autohome will continue to grow the business.

As you know, we already had very robust growth in the past, so the traditional business, it already have enjoyed a very robust growth. So it’s not easy to maintain high growth anymore. That’s why we have to explore new businesses to make a sustainable growth.

So this year and the next year, you will expect Autohome to launch a lot of our new businesses to pave the solid foundation for our future growth. [Foreign Language] So that’s all for my answer to your questions. Thank you..

[Foreign Language] I just want to clarify. On the dealers number, you just mentioned 22,000. Is it just the number of dealers who have renewed their 2019 contract, but not the total paying dealer rates right now? Because this number looks actually low compared to 26,000 in Q4 and the 24,600 in Q1 last year.

And also, I noticed our OEM number actually record new high at 100 in fourth quarter. What’s the driver behind that and how sustainable is it? Thanks. That’s all my questions..

[Foreign Language] The 26,000 was the year-round number of last year. The 22,000 was just this Spring’s number. It’s not a year-round number. [Foreign Language] As we said, some of the dealers will continue to sign and renew their contract with us along the future six months. [Foreign Language] The OEMs number is just that number.

That won’t change much..

Thank you. Our next question comes from Hillman Chan from Citigroup. Your line is now open. Please….

[Foreign Language] I thank the management for taking my question. So my question is about the new business.

For data product, what is our strategy to raise our penetration among dealers and OEMs in 2019? And regarding the auto loan and insurance business, could you share with us the respective growth outlook and strategy 2019 and how we should think about the profitability for 2019 and in the longer-term? Thank you..

[Foreign Language] Now the second question, which is related to the auto finance, I would refer the President Mr. Shao Haifeng to answer this question. Now I want to to take the first question first. [Foreign Language] Now talking about the data product. Last year was the first year we launched this product and it’s a new start for us.

That’s also true for the OEMs. [Foreign Language] We carried 43 OEMs last year. [Foreign Language] It’s a diversified model, actually working with OEMs. Some were online, some were just using our data report, so we are going to launch more online. [Foreign Language] Now talking about the dealers. Last year, the number was 9,000.

[Foreign Language] And in this year, the number will grow very robustly. Actually, out of these 22,000 dealers, 13,000 of them already signed the contract to procure our data products.

[Foreign Language] Because our data products, as I said, they can directly help them to be more efficient in the telemarketing and in invitation through telephone, through store visit. [Foreign Language] So, not only improving store visits, but also helps these stores to improve with the efficiency and management.

[Foreign Language] Actually, during last year’s conference, we already launched the future product. For example, we do have the AI-based audio helping services, which helped the pop-up parameters display on the screen after the AI identified the keywords out of the tele-conversation.

[Foreign Language] With the pop-up window showing the parameters needed for any car model, this would greatly help the professionalization of the DCC. [Foreign Language] This is just one example out of the many examples of our new innovative offerings.

So, not only this data products, but also the OEM products and also the – lot of new other products on the way. And we are also continually selling our own products. [Foreign Language] Mr.

Shao?.

[Foreign Language] Talking about our auto financing business, we would stick to our previous strategy, which would be like the light asset model business. We would only take commission out of this business model. So, in this way, we don’t invest heavily in the asset side.

[Foreign Language] Auto is two businesses, one is auto financing, another is auto insurance. [Foreign Language] In 2018, our major focus on the auto financing is to provide the loan facilitation services for the OEMs. [Foreign Language] Our partner is Ping An bank and other financial institutions under the Ping An.

[Foreign Language] We actually offer credit to more than 3,000 OEMs and out of them, 2,000 already successfully utilized the funding. [Foreign Language] Well, actually, in terms of the credit side and the funding side, the growth [indiscernible].

We are very confident that within half a year in 2019, we would basically catch up and even be better than one of our competitor. [Foreign Language] And also, for the individuals auto sales business and auto financing business, we act as agents. [Foreign Language] And we actually settle with the financial institutions through the CPR model.

[Foreign Language] Now we are in the exploration phase in terms of trying to charge a higher commission based on the closed-loop transaction. So we are going to offer a new model which can generate a higher commission. [Foreign Language] In 2018, the auto insurance business is more off-line.

We are actually helping the Ping An auto insurance to cover the OEMs and – which they have not covered before. [Foreign Language] Actually, out of that model, our commission rate is quite low. [Foreign Language] Although the business volumes were quite significant.

[Foreign Language] And on the same way, we’re [Foreign Language] Yes, targeting at the individual carbuyers, we’re going to launch the pure online model. [Foreign Language] To better cover the 2C side, we have launched the pilot project in three places, in three cities, offering low price and a low commission.

[Foreign Language] So talking about the financing business. Actually, last year was the first year we started this new business. We tried really hard and poured a lot resources. So I have to say last year, we laid a solid foundation. This year, we think the business will be even more promising. [Foreign Language] That’s all for answering your question.

Thank you..

Thank you [Operator Instructions] Your next question is from Monica from Credit Suisse. Your line is now open. Please go ahead..

[Foreign Language] So I have one question on the traffic growth, which we see slowed down sequentially in this quarter.

So can management elaborate more about what’s the reason behind? Do we see more competition from other platforms? Or are we considering to acquire more traffic from outside Autohome platform? What’s the general traffic growth expectation and spending on branding for this year? Thank you..

[Foreign Language] So thank you for your question. Well, we have always been very focused on how much traffic. [Foreign Language] In terms of the revenue and the profit, actually, in the past 2.5 years, we have doubled the growth. It’s like creating a new Autohome business. [Foreign Language] Talking about the DAU.

Actually, back in 2016, the traffic was about 22 million. And until now, it’s 38 million. It’s less than double. [Foreign Language] So the traffic growth is one of my priority in my work. [Foreign Language] I would like to share with you some of my thoughts. Firstly, we want to focus more on the mobile side. That’s for sure.

[Foreign Language] If you look at the mobile app, actually, we have a lot of updates and renews. Every month, we have two updates. One big one, one small one. [Foreign Language].

In this way, the users would have a very subjective summarized report of any car model. They would immediately understand what’s good and bad about this car model. [Foreign Language] The summary report was very objective.

So in this way, the users or the surfers can actually understand what are the media comments about this car model and what are the car owners', the users' comment about this car model. It’s a one-stop solution. [Foreign Language] Now talking about our used channel. Our DAU is about 1.3 to 1.4 million.

[Foreign Language] We also have the traveler channel which we have over one million visitors. So we do have a bottom line which is for any channel, we have to make sure we have at least one million DAU. [Foreign Language] This is only about the major mobile apps.

Actually, we – in Autohome, our positioning is we help the users who search for cars to use – better use their cars. [Foreign Language] Actually, in China, we have 300 million population which holding the driver’s license. [Foreign Language] So how to drive and use the car is one of the focus of this year.

[Foreign Language] So we have very important two channels related how to use and drive your car. One is called the comment of the year cars. [Foreign Language] We hope that this app can be a necessity for all the drivers. [Foreign Language] The second is the traveler channel.

[Foreign Language] To better promote this travel channel, I myself had already made two travels, one is to Hainan island, another one is to Great Britain to better help launch this channel. [Foreign Language] We help the OEMs to better do the traveling and also the business.

[Foreign Language] We are targeting it to road car drivers who already purchased a car, but they also need a lot of maintenance and services. And some other for those drivers who can happily travel around the world.

[Foreign Language] Although we understand we already have a high DAU traffic, which is not easy to make further growth, however, we will try our best to further grow this number. [Foreign Language] Now actually, we also have some external collaboration in the exchange of some traffic or procurement of some traffic at only some certain times.

But majority of the traffic are self-generated traffic. As you know, the external traffic are getting more and more expensive. But our budget for the traffic expenditure still remains the same, almost the same. [Foreign Language] Talking about our competitors and the other players in this market, their traffic has ups and downs.

But for us, this doesn’t affect us too much..

[Foreign Language] Another comment is for the competitors and other players in the market, their traffic is only about 2 million or 3 million DAUs. But for us, it’s 10 times more, it’s 20 million to 30 million. [Foreign Language] That is all about the mobile side. [Foreign Language] Thank you very much. That’s all of my answers..

Thank you. There are no further questions at this time. I will turn the conference back to the management for closing comments. Please go ahead..

Thank you very much for joining us today. We appreciate your support, and we look forward to updating you on our next quarter’s 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..

Thank you, speakers. Ladies and gentlemen, this concludes our conference for today. Thank you all for your participation. You may all now disconnect..