Ladies and gentlemen, thank you for standing by for Autohome's Third Quarter 2019 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, Anita Chen, Autohome's IR Director. Ms. Chen, you may begin.

Thank you, Operator. Hello, everyone, and welcome to Autohome's Third Quarter 2019 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 CEO; Haifeng Shao, Autohome's President; and Mr. Jun Zou, Autohome's CFO. After the prepared remarks, [indiscernible], 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 based 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 our 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 discussion 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.

Thank you, Anita. Hello, everyone, and thank you for joining us today to discuss our third quarter 2019 results. Domestic new passenger vehicle sales fell for the 15th month as of September, with total sales volumes decreased by 11% year-over-year for the first 9 months of this year, according to CAAM. Automakers have generally been more cautious with their spending. Despite the challenges from the typical operating environment, our top line growth continues to outperform the industry with total revenue increased by 21% year-over-year to RMB6.09 billion for the first 9 months. During the quarter, we maintained a solid growth, while endeavoring to achieve differentiation, diversification and globalization across our business. In September, the number of average DAUs who accessed our mobile websites, primary application and mini-apps increased by 38% year-over-year to 38.8 million. For content, we continue to optimize overall content quality while providing enhanced services and the value to our users. Notably, our road trip channel achieved strong growth momentum, with DAUs reaching over 2 million from 400,000 in less than two years. Automakers also found this channel an attractive opportunity to increase their brand exposure territory with these targeted users. On the data front, Autohome secured vast volumes of car-related data across the industry. Through data analysis, we are deepening our understanding of users as well as the auto industry on the whole. We believe we are well positioned as a unique AI-enabled big data platform, providing end-to-end closed-loop services to automakers and dealers. Our data service cover the entire process for our new car model R&D, intelligent marketing through vehicle transactions and services, reinforcing our commitment to enabling our customers in each step of their business conversion cycle. For data product offerings to the automakers, we recently introduced [indiscernible], a product providing full-scope data support throughout…

Thank you, Min. Hi, everyone. As Min has already highlighted, we are pleased to report another solid quarter. Please note that, as with prior calls, I will reference RMBonly in my discussion today. Net revenue for the third quarter was CNY2.17 billion, 15% higher than the same period last year. For detailed breakdown, media services revenue increased by 3% [Technical Difficulty] by 15% year-over-year to CNY247 million. Gross margin remained stable at 89% in the third quarter. Now for operating expenses. Sales and marketing expenses in the third quarter were CNY956 million compared to CNY677 million in Q3 2018, mainly because of the expenses related to our August 818 Global Super Auto Show and increased execution expenses to support automakers and dealers. P&D expenses were CNY352 million compared to CNY297 million in Q3 2018. The increase was mainly due to an increase in R&D related staff cost. Finally, G&A expenses were CNY109 million compared to CNY100 million in the same period last year. And as a result, we delivered an operating profit of CNY641 million for the third quarter compared to CNY698 million in the corresponding period of last year. Adjusted net income attributable to Autohome was CNY702 million for the third quarter compared to CNY737 million in the corresponding period of last year. Now non-GAAP basic and diluted EPS per share and per ADS for the third quarter were RMB5.92 and RMB5.88 respectively compared to RMB6.26 and RMB6.18 respectively in the corresponding period last year. As of end of third quarter, our balance sheet remained very strong with cash. Cash equivalents and short-term investments of CNY11.18 billion. We generated operating cash flow of CNY393 million in the third quarter of this year. Considering our large cash position and strong cash flow generating capability to improve our shareholders [indiscernible], our Board of Directors approved an annual cash dividend policy. Under the policy, starting from 2020, Autohome will declare and distribute a recurring cash dividend at an amount equivalent to approximately 20% of Autohome's net income in the previous fiscal year. Autohome expects to announce the dividend amount for fiscal year 2019 after the disclosure of our fourth quarter results of 2019. With that, let me now address our fourth quarter 2019 outlook, which reflects our current and preliminary view on the market and operating conditions that may be subject to changes. At this point, we expect to generate revenue in the range of RMB2.255 million to RMB2.330 million, representing a 3.1% to 6.5% year-over-year growth rate. In summary, we are happy with our third quarter 2019 results. With our strong balance sheet and abundant cash on hand, we believe that we are well geared up to make investment in strategic areas which will contribute to our long-term growth. [Technical Difficulty].

Management, please begin.

It appears that our call was disrupted. And so I think -- okay. Let me go back to the -- actually fourth quarter outlook. So with that, let me now address our fourth quarter 2019 outlook, which reflects our current and preliminary view on the market and operating conditions that may be subject to changes. At this point, we expect to generate net revenue in the range of RMB2.255 million to RMB2.330 million, representing a 3.1% to 6.5% year-over-year growth. In summary, we are happy with our third quarter 2019 results. With our strong balance sheet and our balance cash on hand, we believe that we are well positioned to make investments in strategic areas which will contribute to our long-term growth. With that, we're ready to take your questions. Operator, please open the line for Q&A.

Operator, please go ahead.

Shall we start Q&A session now?

Yes, please.

[Operator Instructions]. The first question is from Miranda Zhuang at Bank of America Merrill Lynch

So by far, the Autohome has products to help automakers design the cars, promote their new cars, doing intelligent marketing and also have products to help the automakers with -- by online showroom call center efficiencies. So we're just very curious to know what kind of products will we have in the pipeline in the fourth quarter and next year. And in a mid- to long term, since we have already got so many multiple products serving different kind of areas, how do we think about the opportunities in the SaaS platform, for example, any opportunity to integrate this kind of different products to create a SaaS-type of solutions? My second part of the question about the big data is to get more matrix about this area, for example, what's the retention rate with all repeat purchase rate of the products. Any data on the revenue contribution and ARPU and any data on the target for the revenue contribution next year?

Thank you for the questions. Well, as you know, the data business is one of our key business. Actually, we are expected to achieve great growth in terms of the data business till the end of this year. Currently, if you look at our new business, including the big data business plus the financial services business, it accounts for 19% of our total revenue. As for next year, we believe that our data business would have significant growth next year. In terms of the product offerings, we have those products offered to OEMs as well as products offered to dealers. So if you look at the third quarter, a lot of our business, targeting at the OEMs up from the marketing and sales. For example, it includes launching of the new cars to go to the market as well as intelligent marketing solutions and et cetera. For the next step, we're going to make more extension of product offerings. For example, after launching of the new model of the cars, we are going to add up the lease -- or actually transferring into the real sales. So this will be bundled with the new car launching. This is what the OEM wanted, because when they launch a new car model, they want to transfer the leads into sales. Let me give you another example. In terms of the intelligence-based activities and marketing solutions, we can also transfer the leads into sales. There are many, many other cases, because of the time limit, I have to skip over such cases. We can claim that we are the only one in the world which can promise it's effect-driven marketing and sales in the vertical business sector. Actually, on November 7, we will host the investment day, open day, I would elaborate more…

Our next question is from Hillman Chan at Citigroup.

First is on the [indiscernible] pricing outlook for auto OEMs and also the dealer subscription price hike in 2020. And my second question is on the overseas expansion. Management, any more color on the investment, and if any impact actually on a profitability level and whether we think about M&A as part of the overseas expansion strategy?

In terms of the auto market, we all know that this year the auto market is not very bullish. And also we talked among the peers about next year and people's expectation for next year would also not be too good. We have to put this under the historical scenario because it's seasonal or cyclical, which -- because in the previous years, we just had 2 robust growth. That's why we are in counting with negative growth now. But if you look at the long run, we believe the auto market would continue to be pretty promising. And actually I just read a report, reporting on the first 9 months Chinese economic data, which listed the negative growth billboards for the industries. The auto market was, number one, because it's growth of negative 30%. Number two is media and advertising, it's negative 28%, and Autohome is just the combination of auto and the media industry. Well, this would put us in a tough position to decide what should be the strategy for the [indiscernible] of next year. If you look at the third quarter's performance, in terms of the profit, it has negative growth. After serious consideration, we would love to join hands together with our customers to go through this tough time. So we decided next year's [indiscernible] will not raise up the price. This is the very first time in our history. This is not an easy decisions for Autohome because we understand the market is down, and if we raise up the price, that would be very harsh on the customers. So we decided to stand side-by-side and join hands together with our customers. In this way, maybe the market would worry, "Would Autohome have growth next year?" But for our management, we believe that the R&D…

[Operator Instructions]. Our next question is from Eddy Wang at Morgan Stanley.

We noticed that, Autohome has announced a strategic cooperation with Yongda, one of the biggest auto dealer group in China. My question here is, do you have any plan to expand such cooperation to other dealer group in China and what's the implication of such strategic cooperation on our lead generation business?

Thank you, Eddy, for the question. Well, this year, our strategic collaboration with Yongda is one of the strategic collaboration with the dealers. After the both teams had many rounds of discussion and -- ultimately we have signed an agreement of this strategic collaboration. And through this collaboration, we can leverage our big data to help them to provide them with more fine and lean management and also to achieve more effectiveness in their performance. If you may remember that early this year -- actually in January, some of the dealers is against our raising up the price. Actually, we learned the lessons out of this, and we learned a lot. Well, this year, we strengthened our collaboration with dealers. We offer better content, and we also provide coverage on some of the dealers. I host a talk show program, which is called [indiscernible] sit side on side with Mr. Lu. So this program covered few dealers. As you know, this year in China, the auto market is not very bullish. So that's why the dealers are all under pressure. So under this scenario, although we want to achieve good growth, but we decided to stand side-by-side with our customers to "push" forward the development of this market we are aiming at long term. So that's why we launched the new model with OEMs. Our previous [indiscernible] model do have some drawbacks -- for example, the car dealers, the payment is same, but leads are different. And some of the leads of one OEM or one dealer varies to another. But now, we are more focusing on the brands. For those brands who invested heavily, we would match more resources for them. Even if we don't raise up the price, we can also help the dealers.

[Operator Instructions]. Our next question is from Frank Chen at Macquarie.

I have a quick question on Tencent and Bitauto deal. Tencent is privatizing Bitauto. Do we see any impact on the overall competition landscape of China's auto vertical market?

Thank you for the question. Actually, we do not believe this would have impact on us in the short run. But after the privatization, I believe they would enjoy more freedom than us, because we are still a listed company. As a listed company, we have to release quarterly reports, and we have to be regulated by the market. But the core is not related to this. The core question is how can Autohome further develop and grow our business. As I mentioned many times, on the vertical market, Autohome can go very deep. This is not only due to large traffic. As I mentioned, the in-depth, the big data product targeting at OEM and dealers, we can actually leverage on our intelligent-based solution, and we are the only player in the world which can go deeper as we did, so which means we are in a different horizon. I've been with Autohome for more than 3 years. And in the past 3 years, I witnessed how difficult and the top it is to make this happen for the whole process of transformation I witnessed, and this is really not easy. If our peers want to copy our model, really that's not a easy thing. And what's more, we don't stop here. We are trying our best to explore more and trying to be even more innovative in the future. As I told my team, we should always be innovative. We should always explore. We should always go forward, be a leader. And in this way, we will not easily be copied. In conclusion, no matter who is doing the privatization, for us, we will dedicate to our business and our growth.

Thank you. There are no further questions at this time. I'll turn the conference back to management for closing comments.

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 meanwhile, please feel free to get in touch with us if you have further questions or comments. Thank you.