Autohome: Initiating Coverage on China’s Leading Online Automobile Platform

We initiate Autohome ATHM with a no-moat rating and fair value estimate of USD 29.20 per ADS (HKD 56.70 per share), which falls in Morningstar 3-star territory. Autohome, hosting 62.7 million daily active users, or DAUs, as of June 2023, is the largest online auto platform in China as measured by user traffic. Although we like the firm for its leading position among automobile media platforms, growth for Autohome’s traditional advertising business seems to have peaked in 2020-22, with traffic growth slowing to the teens level and with declining spending from automakers and dealers. Meanwhile, we anticipate rising content and traffic cost will continue to depress return on invested capital. We forecast average net margin declining to 27% in 2023-25, versus 35% in the last five years.

By leveraging its extensive reach to potential car buyers, it has become one of the go-to auto advertising media platforms for automakers and dealers. The firm serves 100 auto brands and over 24,000 paying dealers as of year-end 2022. We believe it has penetrated almost all the auto brands and the vast majority of dealerships in China. However, as the market became more saturated, Autohome’s ability to monetize its large user traffic weakened over the last few years. Average revenue per mobile DAU declined to CNY 128 in 2022, from CNY 246 in 2018.

Coupled with competition from Tencent-backed BitAuto and ByteDance-backed Dongchedi, we expect traffic acquisition cost to stay high and forecast the selling and marketing expense ratio to continue expanding—reaching 42% by 2025 from below 30% prior to 2017. Also, as users increasingly spend more time on social networks and short-video platforms, Autohome stepped up spending on its in-house editorial team and for professionally generated content from key opinion leaders to enhance user engagement. The investment in content offerings inevitably led to content costs soaring 12%-76% year over year in 2021-22, despite the 4%-16% revenue decline.