Autohome Inc. (ATHM) Q4 2015 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by for Autohome's Fourth Quarter And Full Year 2015 Earnings Conference Call. [Operator Instructions]. It is my pleasure to introduce your host Vivian Xu, Autohome's IR Manager. Please go ahead.

Thank you, operator. Hello everyone and welcome to Autohome's fourth quarter and full year 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 have Mr. James Qin, Autohome's Chief Executive 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 US 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 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 Chief Executive Officer, James Qin.

Thank you, Vivian. Hello everyone. First I wish you have a Happy New Year, Happy Chinese New Year and hopefully you will have a prosperous next year in 2016. And thank you again for joining our fourth quarter and full year 2015 conference call. Before we begin on behalf of Autohome we want to say that despite the fact that the full year 2015 was relatively soft macroeconomic environment in China, and given my previous comment that overall macro impact on us is typically small, for the full year of 2015 we delivered over 62% revenue growth year over year, which our CFO Nicholas will present in more detail later. We believe this is because that given the overall market sentiment automaker and dealers were more selective in deploying their media and lead generation resources, which gives us very strong advantages in capturing the online media advertising compared to the traditional media. For the mid to long-term we remain optimistic about the growth outside of the Chinese auto market given the continual growth of the middle income class. We are also confident of our business given our structural alignment of our leading online advertising media platform, our fast-growing lead generation platform and the successfully ramped transaction platform in order to drive Autohome's growth opportunity in the coming years. Now let me briefly talk about the fourth quarter highlights. Again, we had another outstanding quarter where revenue increased by 46.3% year over year to RMB1.1 billion exceeding the top end of our original expectation. Meanwhile, adjusted net income grew 19.8% year over year, and adjusted net income margin reached near 30%. Again, we are excited that our business and our financial performance surpassed [Technical Difficulty] which reaffirms our precise execution of our strategy. As I look back into 2015 the primary achievement for us is the successful transformation of our business from the original media and lead generation platform alone to the current three pillars of media, lead generation and transaction. This significantly solidified our leadership position in enhancing the lifetime value of our customers, of our consumers the seamless [indiscernible] partnership of our suppliers, the ability to close transaction groups and thus strongly reinforce the value proposition of our original media and lead generation platform. This year we are focusing Autohome on three strategic priorities. First, grow our consumer audience, second continue to grow our core advertising and lead generation business, and thirdly significantly grow our emerging transaction marketplace. Now let me discuss the issues in more detail. As I have mentioned before in the media platform model we believe that the advertisers will always follow the audience. Our leading Autohome brands consist of the largest audience in the automobile sector in China both on mobile and PC platform. And there remains still an enormous opportunity to grow even further our audience coverage. For example in the first quarter we continue to experience great progress on the mobile front. In December the combined number of average daily unique visits to our mobile website and mobile applications amounted to approximately 13.8 million on a daily basis, which grew above 79% year over year and 15% quarter over quarter. In addition, mobile advertising revenue grow almost three times compared with the same period last time, accounting for 17% of the automaker advertising services revenue. One of the keys to our strategy of growing consumer audience is creating products and services that empower consumers to make the optimal decision for their automobile purchase. One of our innovations in 2015 was the online radio channel which is primarily generated by us leveraging our extensive knowledge base of the vehicle specifications. Since our initial launch in April 2015 we increased to eight radio programs with cumulative listeners of about 15 million. This brings us our second strategic priority of growing our core advertising and lead generation business, which we anticipate will continue to grow in 2016. One of our key differentiated value propositions to automaker and auto dealers are the higher return of investment capabilities which can be demonstrated with the successful third annual Singles Day done last November of which we processed over 35,000 automobile orders representing an aggregated value of more than RMB5.2 billion which is 40% increase year over year. In addition, our shopping assistant service leveraged the C2B mobile in providing personalize attention, customized knowledge of products and pricing in order to not only precisely match the consumer and suppliers but also to significantly enhance the user experience and the efficiency of the whole purchasing process. Now for our final strategic priority of significantly growing our transaction marketplace, primarily to be driven by our direct B2C sales of new vehicles and the commission fees from facilitating transactions between consumers and auto suppliers. We expect the B2C direct sales model to dominate our transaction platform in 2016 as we plan to work closely with several programs in selecting one to two exclusive automobile models, each to be directly sold on our platform. This will provide us full control and better visibility in planning effective and efficient marketing campaigns and in precisely and regularly matching the target audience with the selected models, leveraging our differentiated and advanced behavior database and analytics capabilities. In addition, compared to the traditional sales channel, we have proactively outreached potential consumers and maximized our auto suppliers exposure to accessing the entire user traffic on our own platform. Therefore, the B2C direct sales model provides us a strong advantage in commanding pricing probability, long-term collaboration with automakers as well as successful closed loop transactions in capturing the life-time value of our consumers plus a much better user-friendly purchasing experience for those consumers. As a strong testament for the physical year of 2015 we were very pleased that Autohome completed about 120,000 new car transactions over our platform, including direct B2C vehicle sales grew by shopping assistant, especially such as flash sales and the Singles Days sales events etcetera while sustaining our industry-leading margin and robust core business growth. For example, one rather significant milestone we achieved with our automaker partner Chery Automobile is that in a single month of December 2015 we successfully sold over 1,000 units of Chery Automobile's 1.T model, a popular mid-sized urban SUV that is being sold directly and exclusively over Autohome's platform. Moving forward we are confident in replicating our transaction success with other major automakers. To conclude, across our organization we are very excited of and are well prepared for 2016. Our teams are collaborating with more automakers and dealers as long-term partners, innovating more offerings for consumer audience in order to comprehensively and effectively link each stage of our consumer's automobile ownership life cycle with the corresponding stage of our auto partner's sales cycle. I want to be clear that we see tremendous synergy in our transaction initiatives with our core media and lead generation platform, because the transactions are making the media and lead generation platform more relevant, more valuable as they are driving the consumers to complete the purchase decision thus creating more opportunities for our partners the automakers and the dealers to acquire new customers and to obtain repeat purchases. So we are confident that these three pillars of media, lead generation and transaction will be instrumental in solidifying our brand equity, market leadership and financial performance in the future. With that, I will now turn the call over to our CFO, Nicholas, for a closer look at our fourth quarter and full year 2015 results and our outlook. Nicholas?

Thank you, James. Hello everyone. As James has already highlighted we are very pleased to report another quarter of strong financial performance. Note that I'll reference RMB only in this discussion but you can find equivalent US dollar numbers in our press release issued earlier today. Net revenue for the fourth quarter increased 46.3% to RMB1.0815 billion from RMB739.1 million in the corresponding period in 2014. This surpassed the high end of our initial guidance, primarily due to robust growth across the book especially in the transaction-related revenue as we are capturing more automakers budget with higher ROI during the relatively weaker auto market. In terms of revenue breakdown automaker advertising service revenue increased 31.5% to RMB442.6 million from RMB336.5 million in the corresponding period of 2014. This robust growth is primarily driven by an increase in average revenues per automaker advertiser as automakers continued to allocate more of their advertising budget to Autohome's online advertising channels. During the quarter the dealer yellow page business, which includes our dealer advertising dealer subscription services grew 58.7% year over year. Separately, dealer subscription revenue increased 34.9% to RMB293.3 million from RMB217.4 million in the corresponding period of 2014 as a result of both increased ARPU and increased number of paying dealers. Specifically our ARPU increased 15.9% year over year as dealers - as we continue to up-sell our premium package with increased rate earlier in the year. In addition the number of paying dealers increased 16.4% year over year to 19,875 compared to 17,080 [indiscernible] in the corresponding period of 2014. Meanwhile dealer advertising services revenue increased by 86.6% to RMB345.6 million from RMB185.2 million in the corresponding period of 2014. This solid growth was mainly driven by transaction business such as direct vehicle sales [indiscernible] from facilitation between consumers and suppliers, special events such as Singles Day events etc. Having said that, I want to point out that given the nature of the early development stage of our transaction value, revenue, the transaction related cost has also increased thus somewhat impacting our gross profit, specifically for the fourth quarter gross profit increased by 31.9% to RMB812.5 million from RMB616.2 million in the corresponding period in 2014. As a result, gross profit margin for the fourth quarter 2015 declined to 75.1% compared to 83.4% in the fourth quarter of 2014. Excluding the transaction portion the gross profit margin for the fourth quarter 2015 is relatively - is the same compared to the fourth quarter of 2014. Now let's take a closer look at our operating expenses by line item. Note that I have mentioned in the past that while we are investing into the emerging transaction business in accordance to our plans we are very cost efficient and prudent with our overall spending. Our sales and marketing expenses in the fourth quarter was RMB329.5 million or 30.5% of revenue relatively stable compared to the corresponding period in 2014, and is primarily due to increased marketing expenses and headcount and related compensation costs. Part of the marketing expenses increases are for our Singles Day event and offline promotions campaign. Product and development expenses was RMB81.3 million or 7.5% of revenue relatively stable compared to the corresponding period in 2014, and in support of our rapid growth. Finally, general and administrative cost was RMB67.2 million or 6.2% of revenue, primarily due to increased salaries and benefits and professional service fees, of which majority are one-time fees. As a result, total operating expenses for the fourth quarter increased 51.7% to RMB478 million from RMB315.1 million in the corresponding period in 2014, representing 44.2% of revenue compared to 42.6% in the corresponding period in 2014. Even we've increased expenditures during the quarter we did deliver industry-leading profitability is a strong testament to our proven execution capabilities of the management team, operating profit increased 11.1% to RMB334.5 million from RMB301.1 million in the corresponding period of 2014. Adjusted net income increased 19.8% RMB322.8 million from RMB269.5 million in the corresponding period in 2014. Basic and diluted earnings per shares and per ADS for the fourth quarter were RMB2.56 and RMB2.50 respectively compared to RMB2.29 and RMB2.19 respectively in the corresponding period of 2014. Let me now turn to a short summary of our 2015 full year results. We continue to drive significant revenue growth of 62.4% to RMB3.464 billion primarily across all business operations for advertising, deal subscription and transactions. In addition, we also achieve an adjusted net income of RMB1.1031 billion representing 36.2% year over year growth and is nearly 32% on non-GAAP net profit margin. This is primarily due to sound business investment and efficient cost control. We plan to continue to invest prudently in the business and position us for longer term growth. As of December 31, 2015 we had cash and cash equivalent restricted cash and term deposits of RMB4.2 billion. Net cash provided by operating activities in 2015 was RMB1.4618 billion an increase of 42.8% year over year compared to RMB1.0237 billion in the same period last year. Let me now address our first quarter 2016 outlook which reflects our current and preliminary view on the market and operating conditions that may be subjected to changes. We currently expect to generate net revenue in the range of RMB1.019 billion or $157.3 million to RMB1.060 billion or $163.6 million representing a 63.6% to 70.1% year over year increase. Before I conclude I would like to take a moment to address some additional near and longer term - and long-term profile for Autohome. As already explained by James, over the past year we have been busy laying the groundwork to enable users to discover, connect and transact all through Autohome, therefore in the near-term as we solidify our transaction business. Given the different business models in the early stage of development we do contemplate a different margin profile relating to the transaction business. To provide the investment community with a more transparent presentation of our business and the progress of our growth initiatives we plan to change our revenue reporting into media services, lead generation and thirdly online marketplace starting the first quarter of 2013. Media services revenues refers to the current advertising services which includes automaker advertising revenue and regional advertising revenue. Lead generation revenue includes dealer subscription revenue, dealer advertising revenue and dealer performance-based revenue such as cost per lead and cost per sales. Online marketplace revenue will include transaction revenue from direct B2C vehicles sales, commission fees from facilitating transactions between consumers, suppliers and other transaction-related revenues such as [indiscernible] including flash sales and coupon etc. In addition as we continue our investment to grow our transaction platform and to extend our leadership position we are closely monitoring these outcomes, review our strategic plans regularly and adjust our execution properly in order to ensure acceptable performance results. Finally, given our plan B2C direct sales model for the transaction business we may gradually carry some necessary automobile inventory on our balance sheet. However, given our differentiated advantage and precisely and repeatedly matching the consumer demand with the targeted automobile selection, we currently do not expect any adverse inventory impact on our business. In summary, during this time of transformation we want to emphasize the ongoing health and continued strength of Autohome as we see positive trends, which are consistent with our historically achievements. Given this past track record of successfully closing many transactions and in deploying various carefully planned investments in sales and marketing, coupled with our advanced data and analytic capabilities we are entering 2016 with a strengthened foundation to support our future growth in capturing the enormous market opportunities. With that, James and I are ready to take your questions.

[Operator Instructions]. We will take the first question from Ming Xu from UBS. Please go ahead.

I have three questions the first one is about the dealer subscription in Q4. I noticed that the advertising results were very strong, but on the other hand the dealer subscription revenue growth seemed to slow down quite significantly from the first three quarters of 2015. So I just wanted to know if there a reason for that? And how should we look at that business line's growth in 2016. And that's the first question. And the second one is about your guidance. So obviously the Q1 2016 guidance includes a larger contribution from the direct sales business which have basically booked the GMVS revenue. So just want to know more color on the guidance. So if we strip out the transaction business how will the traditional business grow in Q1? My third question is about some items on the balance sheet, particularly the movement in inventory and also long-term investment. I know there's some quite significant long-term investment in Q4, so could you maybe elaborate on that, and also on note payable. Thanks.

I'll take the comment on the 2016 Q1 core business growth, and then Nicholas is going to answer the subscription as well as the rest of the balance sheet numbers. I think from our point of view, as we always mention, I think excluding the direct transaction business revenue the core business growth is going to be 30% plus. And traditionally even you look at 2015 probably that number is around 50%. So that is the reason we believe we have a very strong basis to grow in terms of the core business, which is a combination of our automaker advertising and our dealer subscription as well as our dealer advertising business. So those two - those core businesses is going to have a very strong growth even given the soft market conditions. So that's my take on the 2016 first quarter guidance on the core business.

Yes that's right. So basically, yes I think on the Q1 guidance basically we say that the 63.6% to 70% so on the existing business which is what James have mentioned would be above 30% so that's on the answer to the second question. On the long-term investment we have about RMB124 million in the balance sheet for Q4. That's basically a combination of both the - we have two joint ventures one is the Mango joint venture which is RMB49 million. And then the other one is we set up a financial JV that's RMB74 million, so that adds up to the RMB124 million in the long-term investment line. The note payable is that the - as part of the new car changes we have to - that business is a new re-build assuming that's going to be re-built.

I'll talk about the dealer subscription business revenue in - I think the last quarter of 2015 and how to look at it in 2016, I think if you look at our core business basically there are three parts. The automaker advertising, the second part is the dealer subscription, the third part is the dealer advertising. I think we - through the 2015 our understanding of dealer subscription business is that the growth is primarily driven by the combination of ARPU growth as well as the volume growth. And since we are probably looking at 21,000 paying customers nowadays I think probably it's safe to say in 2016 we can increase the volume by say around 5% in 2016. And with the current price increase, because our superior ROI we provide to the dealers we think probably we can increase the average price, blended average price by 20% year over year. So over there then that is the way we look at the dealer subscription business. Then on both the OEM advertising and dealer advertising now I think we have the confidence to say the fundamental drivers of those two advertisings is basically media business people looking for target audience, looking for exposure. And over there the main driver will be very similar. And I'd look to comment on probably in 2015 last quarter some of our direct selling revenue is categorized in the dealer advertising revenue, so there is a different type of revenue mixed together over there. I hope that answered your question.

And then to view on what James has said from 2016 onwards we will break it down to the three lines, as I mentioned in the script media line, the lead gen and then the online market place so there is more visibility because the revenue mix of the transaction business will increase quite a bit from 2016 onwards.

Just a small, just a quick follow up, so in Q4 the dealer ad part, so could you maybe give more color on how much of that is actually coming from direct sales how much of the revenue?

There's about RMB100 million, on Q4 yes RMB100 million.

We will now take the next question from Amanda Chen from Morgan Stanley.

I think I have two questions here, firstly though a quite general question. I think previously you were very conservative and cautious on the ecommerce strategy and now we start to take inventory, which a little bit maybe aggressive to some investors. So could you please give us some color as to why you made such a significant change? Because you saw some challenge in your core business or because you see some huge potential in the transaction business, or you think you have strong advantage compared to the offline peers and also other online peers. That's the first question. Thank you.

Yes, sorry the last part of your question was compared with other online.

Online players and offline players, like offline players.

Online players versus off - offline players meaning like traditional dealers right?

Right, yes.

Yes. I think the way we see things I think our new car transaction platform is going to reinforce our media business as well as our dealer business the lead generation business because it fulfills the whole consumer lifecycle of browsing, selecting and contacting the dealers as well as closing the transactions on the same platform. And the reason we are taking some inventory is we believe by taking the inventory we can further get a better collaboration with the car makers, and also we can get a better insight of how to do the transaction over the internet and also understand the whole supply chain. I think if you believe the online ecommerce is going to revolutionize people are going to buy things then that is the way to go. So that is the fundamental of things. But compared with traditional car dealers I think that in terms of our inventory versus our sales volume and versus our - the total GM we've generated over there, I think that risk is a reasonable risk we need to take.

Right, but in the long-term I think if the transaction business developed very well and over-valued our transaction value increased significantly maybe there will be some conflict between the dealers and our own platform. So if we see such a problem how can we solve it?

That's not the way we see things. Because, for example, we are selling - in December alone we sold more than 10,000 units of Chery's 1.5T and we rely on Chery's offline dealers to work with us to do the order fulfillment. And we actually pay them incentives in order to better - in order to better fulfill our orders. And that is a win-win situation because you have to think the online platform in terms of the matching sales lead and convert them has a natural advantage over the offline business in terms of less human interaction, less rental, less labor cost, better transparency, better efficiency. Basically we use a lot of computer to replace the general human beings. So I think that is a win-win situation. I think going forward, we don't believe we are going to say, do 100% of China's new car sales through Autohome. So that will be a selective amount and with that selective amount, by increasing the whole efficiency of the value chain, we believe there is a very big value Autohome can create and also can share with our valuable customer which are offline dealers.

And the second question is regarding the operating expenses. Actually the gross margin declined significantly this quarter, but the net margin is still quite healthy, mainly because of the operating expenses is - the growth of operating expenses is much slower than 3Q. So I'm not sure if this will impact our traffic growth in 2016 or other operating-wise - will that impact our operating wise negatively in 2016.

Well, I think when we talk about Q4, I can share some thoughts from my point of view. Nicholas is going to comment on the actual financial numbers. I think if you - as Nicholas said, last quarter, 2015 last quarter we have about RMB100 million revenue from selling vehicles as the direct sales, as revenue that basically enlarged the denominator. Mainly from the gross margin point of view, it's going to drop anyway. This is because of the product mix or because of the mix of the denominator. I think that from my point of view probably is the main reason. The rest of it, Nicholas might comment on the other expenses.

So yes, I think Amanda, I think if I'm understanding you correctly, you're saying that for sales and marketing, our OpEx actually came down, so does it impact our traffic and also the line. So I think if you look at the marketing costs for Q3 and Q4, it's actually basically, the absolute dollar is about flat. So we did not cut back on investment. Just as a percentage of revenue it come down because of the higher revenue base, because of the revenue growth.

So if we use in the future, 2016's reporting structure to report the 2015 numbers, probably the core business is kind of very healthy, had a very strong margin, while the new car direct sales business because of the nature of the business, the net margin will be pretty thin. And especially for that line of business we need to invest in the talent recruitment. And if you also think about the increased spending on the used car business side, while the used car business is difficult to generate the meaningful revenue at this point, I think those two part will continue to drive our margin outlook in 2016. But I need to - I think you need to be cautious to really look at Autohome as a blended average because then you miss the whole point. Autohome basically has its core business, it has its own drivers, revenue, margin profile, certain investment. And those two new business, one is new car e-commerce business which has healthy operation margin, meaning the direct revenue minus direct cost is above zero, it's sort of positive. But on that business, we need to invest on technology invest on people. So yes, we are going to invest. And then on the used car business, unfortunately the used car business, the revenue compared with the number of vehicles, used cars we [indiscernible] to sell, probably it's not really comparable, it's almost neglected revenue. And over there most of the investment are on the technology, on the footprint, on the brand name will be negative hit our [indiscernible]. I think you need to look at Autohome as the sum of parts rather than one blended. And I think one of the last thing I want to say is the total, we think the incremental earnings generated by our core business will be sufficient to offset the incremental investment on the two new business lines.

[Operator Instructions]. We will now take the next question from Alvin Jiang from Deutsche Bank.

So I have two questions. My first question is about the expansion of the transaction business because you both mentioned you'll be very selective in this kind of business. But also I guess this is still very promising and the focus of 2016. So how you guys will balance between the top line growth and also the bottom line coming from the transaction service business? And I have a follow up.

Okay, I assume the transaction services business is our new car e-commerce. Okay. So over there, I think the rationale we select top line growth and bottom line profitability. So I don't quite understand the assumption of - so do you assume that if we grow the top line we're going to lose more on the profit side. But as I mentioned our direct revenue minus the direct cost on the new car e-commerce is positive. So that doesn't mean that we have more - that doesn't mean if we have more revenue we have more operating profit. And then the second part is how we should level our investment in order to sustain the growth. I think as I mentioned we mainly investment in technology because as an Internet company we firmly believe by leveraging the technology, the computing capability and the data mining technology we could increase the efficiency of this business and we could create value. And that value can be shared among automaker, auto dealer as a service provider for order fulfillment and Autohome as the transaction platform.

A quick follow-up on this question is can you share with us how the margin of the new car e-commerce business of this year and what's our target for next year on the margin side?

I think the general rule of thumb because I don't - there is two type of revenue we can generate from selling vehicles, in the new car e-commerce business. The first one is what we call a buyout model, which we basically collect the whole GMV as the revenue. The second one is the commission based which we only take the commission as the revenue. In general in the buyout you can see our direct revenue minus direct cost as an operating profit, just temporary call it that, divided by the direct revenue. Usually we think 2% is the normal rate. And on the commission based, if you use the commission generated divided by the direct selling price of that vehicle, usually it will be 2%. That is the normal commission we ask. I think that is the - hopefully I answered your question about the margin profile.

We will now take the next question from Nora Zhang from Merrill Lynch.

I have a question regarding - still regarding the B2C transaction business. You mentioned that the gross margin is going to be about 2% and you need to invest in talents and technology and marketing. So how much do you expect to invest? Just want to have some color about the estimates, how much you expect the business to lose or to - the money to invest. And I have the same question for the used car business.

Yes, I think your question is what is the investment level you want to spend on technology, headcount, brand promotion. Unfortunately, we don't provide that number just now.

I think the overall is what we said just now. I think the incremental profits that we get from the existing business growth is going to be sufficient enough to cover the [Technical Difficulty].

Hello?

Pardon the interruption. The conference will resume shortly.

So I think the - hold on, are you guys still there? Are we online? Can anybody hear us?

Yes, please go ahead.

So I think what we said is that I think the incremental profit that we get from the existing business will be enough to cover the investment that we have in the new business, both the new car e-commerce and the used car.

Would you like to move to the next question?

Yes, next one please.

We will now take the next question from David Jin from Goldman Sachs.

So I have two quick follow-ups. The first one is regarding your margin on the new direct sales. You mentioned 2% just now. Just to make sure, is that operating margin because if we think of, let's say a revenue model like [indiscernible], then you strip out the fulfillment cost, you share with dealers and other costs. Would you give us more details on the revenue model? And I have a follow up. Thank you.

I think the correct thinking is that the directly - the direct cost will associate with the direct selling cost, meaning the call center employees commission and so on and so forth. And in some cases, yes, that 2%, in some cases it does or does not include the value we distribute to the dealers because that really depending on the specific contract we sign with the manufacturers.

And a follow-up is that James, you gave us the color of like you plan to sell, I remember it's 200,000 units in this year. And could you please give us more color on how you think of the mix between the direct sales model and other commission-based sales model and how the mix would evolve over the long term? Thank you very much.

Yes, internally we have because I run that business unit, I'll give you the conservative number. Internally for the direct selling, we're thinking about 30,000 to 40,000 units sold throughout 2016. And that 30,000 to 40,000, the split between commission-based and the buyout-based would be 50/50.

We will now take the next question from Thomas Chong from Citigroup.

I just have a very quick follow-up regarding the GMV for the fourth quarter. Should we expect it to be also a RMB100 million that's the direct sales revenue? And on the other hand, I also want to ask about for 2016, if we expect the transaction business to surpass your core business in terms of revenue contribution. Thanks.

Let's say, well, I'll do a back of envelope analysis. Let's say we're going to sell 40,000 vehicles and half of that will be GMV-based, so that's 20,000. 20,000 times per vehicle, the selling price say is RMB100,000 [indiscernible]. That's still smaller than our core business. But because the other 20,000 will be commission-based, the revenue will be much less than the total buyout based. So in a nutshell - based on a back of envelope analysis, the GMV generated from the new cars e-commerce business will not surpass our core business.

For 2016.

For 2016 yes, that's right.

I think Thomas, I think I heard you asking whether in Q1 the transaction business will be higher than - would be around - whether is it around RMB100 million. So the answer is it's going to be higher than that, yes. Just the business will grow versus Q4. And also reinforce the - like I think in the first question that the answer, the core business will grow in Q1 more than 30% so the rest will be coming from the transaction business.

I think going forwards - I have one more comment. I think going forward, I think if you guys asked us our direct sales business unit basis, we can actually - at least why I want to share with you a lot more because that's the current way Autohome's management view our business. Some of the numbers you have because of the reporting requirement is all blended. So if you ask me every business wise, I can tell you the P&L and the way they think, the way we do the investment and the way we are going to grow the business and also the way we are going to grow our revenue and profit. But if you probably blend everyone together, sometimes I actually lost that sight.

Starting in, from Q1 onwards as we said we will have new reporting lines. That will bring more clarity to it.

We will now take the next question from Evan Zhou from Credit Suisse.

I've got two quick follow-ups. The first one is on your comment on the fact that the incremental profit from our old business will be enough to offset the new, the investment for the new business in 2016. Are we saying that - are we comfortable to say that we will be at least maintain the bottom line amount to be growing, to be up year over year in 2016 versus 2015? So that's number one.

Yes, the answer would be yes - the answer would be yes.

The answer would be yes.

And second is could you give us a - you were talking about hiring talent for the new business. And is there like a ballpark number of headcount that we target to hit? And also finally, regarding the ownership structure that we are having at this point, if you could share any thoughts regarding our kind of outlook regarding that that would be helpful. Thank you.

Basically we're having five business units. You can view that as five independent companies. The first one is our media business, which is mainly the content, professional generated content, user generated content, our advertising platform on both mobile and PC and in some cases, on our WeChat platform. The second part is our lead gen business, which consists of our traditional subscription business, dealer subscription business, traditional dealer advertising business. And increasingly we add another CPS model on it. So they also help dealers to sell their own inventory and we take a commission on doing that. So that's another incremental revenue from that business line. The third business line is the new car e-commerce business and that is - basically has the buyout model and the commission-based model. The fourth one is the used car business unit and the last one is the aftermarket services business unit. So that's the way I view those five things. I'll give you some examples. For example, in the beginning of 2015, the headcount for new car e-commerce business is zero. Last time I remember when I had dinner with them, it's already amounted to 300. So I think if you run those kind of business, there is a minimum critical mass you need to have. In order to reach a certain level of operating efficiency, so you need to have a certain number of employees. But if you look at our used car business unit, the number compared with most of our competitors, most of our peers are really frugal. And at the end of our last year, we have about 400 people on our used car business, but that business already cover 40 cities in China. So those - that is the thing I want to emphasize. I want to emphasize again for the first part of your question. We think, we feel pretty comfortable that the incremental earnings generated by the core business will be sufficient enough to offset the incremental invest we made on the two or three new business lines. The new car e-commerce business, the used car business and the aftermarket services business.

We will now take the next question from Terry Chen from HSBC.

I have a question on the general auto industry. The industry had a great comeback last year in the fourth quarter after the government lowered the tax rate. So I believe you have touched base with most OEM and dealers at the current point. So what I'm curious is about their feedback and also expectation for this year. What's their strategy and how that's going to impact their advertising budget? Thank you.

You mean the government policy to cut the tax rate on certain vehicles prices. I think--

Sorry, I mean the - when you touch base with the OEM and dealers, advertisers regarding the new year's budget and also their general strategies, what's their feedback?

Well, if you look at the January numbers, I think that the new car industry it's at about 5% to 6% growth year over year. And if you look at the numbers they provide last year, they only provided the volume number which is I think at 9% and most of the growth is coming from the last quarter. So I'm cautiously optimistic about this year's new car market. I think it's going to grow around the general sort of GDP growth. However, in light of the increasing competition, most of the carmakers and also the dealers are definitely paying more attention to the online platform because it helps them to be more cost efficient to access their target audience to interact with their potential buyers. And in some cases, like working with us to really close the transaction loop and also leverage their offline footprint, their offline dealer network to do the order fulfillment and give end consumers a better purchasing experience.

We will now take the next question from Anne Shih from Brean Capital.

You outlined three businesses for the Company going forward, the media services, lead gen and marketplace and touched on the growth rate for each earlier and some areas of investment. But can you share some specifically how we should model or think about the margin profiles for each? I'm just trying to arrive at a blended picture for 2016 after the guidance that you've provided in previous years of about 30% plus and 35% plus for the adjusted net. Thank you.

I think for the existing business, I think the margin profile is more or less the same, for the - so you probably can use the same. For the media business and the lead gen business it's about you know higher than 30%, so it's like it's in line with the historical. It's more or less the same as 2015. So that's on the existing, both the media and the lead gen business.

I'll share some thoughts on the new car e-commerce as well as on the used car business. New car e-commerce business as we emphasized a couple of times, there is a positive operating profit from running the new car e-commerce business. And the investment we have is mainly on the technology side and also the headcount side. And we do not need to buying traffic from other vendors because Autohome alone has enough target audience. And by having an exclusive product selling through Autohome's platform will actually enhance our market leadership, our media platform and lead generation platform. So that's on the new car e-commerce business. So for me personally, I don't really feel that business is that risky and I really see there is a huge potential sitting in that business. And especially it seems like not many people are doing similar things because you know in China the competition sometimes could be very negative. However, I'll comment on the used car business. Because of the competition on the used car business, so I think we do not plan for this. It's almost impossible for us to generate a meaningful operating profit from the used car business, meaning that the revenue side, we have a very limited potential for that. And I think then the good side of Autohome, even without generating meaningful revenue from the used car business is compared with most of other used car platform, our advantage is the same as new car e-commerce business, i.e. we have the largest media platform in attracting China's auto buyers and we have the largest lead generation platform to attract both China's largest dealer group as well as China's largest auto buyer group. And we do not need to subsidize on the used car transaction, both as on the consumer side. I think that is the advantage of Autohome running a used car business. Hopefully that may answer your question. I understand it's probably not sufficient enough. I think I really want to give you a number, but even if now I give you a number probably it will not be right. Because again we're running the business in a very dynamic China's market no matter - not only on the macroeconomic side and also on the specific business line as well as the competition.

We will now take the next question from Robert Cowell from 86Research.

I wanted to ask you about the OEM advertising business. It seems that it remained quite resilient in Q4 and I believe that you also mentioned mobile ad revenue was up 3 times year on year. Can you provide some more color on what's driving the rapid growth in mobile advertising? And then also in the long term do you think that a mobile user is as valuable to an advertiser as a PC user and if not why?

Sorry, what's the second part of your question?

Do you think that a mobile user is as valuable to an OEM advertiser as a PC user is?

Okay.

You currently have a big monetization gap.

Yes. The way I see this is in general I think mobile consumers is more attractive to OEM, to carmakers than PC consumers, because as an online platform, we naturally understand mobile consumers on an individual basis much more than on PC platform. This is the era of technology, this is the era of data technology and computing capability I think. So in general the reason our mobile platform generated a significant revenue growth on OEM advertising dollars is on a mobile platform, the competition is even less than on PC platform. Because if you look at the mobile apps and mobile websites which has enough audience and has a good quality of content and has enough user community, on the mobile platform, the selections from the user - from the carmakers' point of view is even fewer than on PC platform. So that's one. Secondly, the type of services and the consumer insight we can provide as a value-added services to carmaker on mobile platform is far over side the PC platform. But I think - so then the second part is going forward, we think every consumers on mobile platform worth more than every consumer on PC platform from the carmakers' point of view.

That will conclude today's question and answer session. I would now like to hand the call back over to management for closing remarks.

All right. Thank you very much for joining us today. We are sorry for the - some of the technical difficulties we encountered tonight. And we appreciate your support and we look forward to updating you on our first quarter 2016 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. So -

Thank you, everyone.

Thank you, everyone. Lastly, before you go, we again wish you a very happy and prosperous new year of the monkey.

Thank you.

Thank you. That will conclude today's conference call. Thank you for your participation, ladies and gentlemen. You may now disconnect.