Autohome Earnings: Revenue and Profit In Line; Rising Cost Base Offset by Nonoperating Income

Autohome ATHM reported in-line third-quarter results. Revenue increased 3% versus a year ago, driven by faster growth in data products and the company’s new retail initiatives. Gross margin narrowed 2 percentage points year over year due to rising content costs as Autohome built out its content ecosystem. User traffic, as measured by mobile daily active users, grew nicely by 10% from last quarter to 69 million, but the increased traffic acquisition during the period also led to 8% growth in marketing expenses from last year. While the operating profit run-rate came in below our full-year forecast, interest income and contribution from equity investments brought net profit back in line with our expectation.

Our 2023 revenue forecast is largely unchanged, with faster online marketplace growth offsetting lower media service revenue, and reduce 2024-25 estimates by 1% each year. While we slightly raise our 2023 net profit forecast by 1% to factor in nonoperating items, we cut 2024-25 net profit estimates by 1%-3% to account for higher content cost and marketing expenses.

Our fair value estimate is unchanged at USD 29.20 per ADS (HKD 56.70 per share). While we like the company for its leading position among auto media online platforms, we believe shares are currently fairly valued. We anticipate rising content and traffic costs, which would continue to depress margins.

Autohome shared that revenue momentum from data products remains strong, expanding in the double digits year over year, with increased dealer customer adoption as evidenced by double-digit growth in per store revenue. In addition, Autohome’s new retail initiatives also recorded initial success in Shanghai and Chengdu and there are currently 13 Autohome Energy Space stores under construction. The company targets having around 20 stores under operation by year-end and to further expand its network coverage to 50 stores by 2024, with a focus on lower-tier cities, to better leverage Autohome’s online traffic.