Ladies and gentlemen, thank you for standing by for Autohome's Fourth Quarter and Full-Year 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 fourth quarter and full-year 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 Chairman and CEO, Mr. Lu; Co-President, Mr. Haifeng Shao; Co-President, Mr. Jingyu Zhang; and CFO, Mr. Jun Zou. After the prepared remarks, Mr. Lu, Mr. Shao, Mr. Zhang 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. Our 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 live and archived webcast of this earnings 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. Thank you for joining us today. 2019 has proven to be a tough year for the auto industry in China at both sales and the profits shrink. Total passenger vehicle sales dropped by 10% a year-over-year according to CAAM. The weakening macro conditions in China have made the auto related sector even more difficult. Despite these challenges, we delivered record total revenues of RMB8.42 billion in 2019, an increase of 16.4% year-over-year. Autohome finished the year profitable and maintained a solid growth momentum. Notably, revenue contribution from new initiatives increased to 18% in 2019 from 12% in 2018. Over the past year, Autohome accelerated its transition towards intelligent auto ecosystem. Through continuously upgrading technology and bringing to the market new product innovations, we are building up data solutions, spending the entire car ownership lifecycle, Autohome's products and offerings are deeply embedded into the industry's value chain and are providing solid value to a broad spectrum of industry participants. In December 2019, the number of average DAUs who accessed our mobile websites, primary application and mini-apps increased by 25% year-over-year to 36.8 million. On the content front, we continue to make progress in enhancing our user experience, attracting advertisers and promoting the positive development of the platforms services. For example, customize the content and IP campaigns, our road trip channel helped to further diversify our content portfolio as DAUs peak over 3 million in December. Total GMV generated from the road trip channel exceeded RMB100 million mark in 2019, setting the stage for a brand new era of monetization from CN for our users. I would next like to highlight our data business, which achieved the rapid breakthroughs in 2019. On the one hand, we consistently introduced new products one after another. And on the other…

Thank you, Min. Hi, everyone. As Min has already highlighted, we are pleased to report a solid Q4 and fiscal year 2019. Please note that with -- as with prior calls, I will reference RMB only in my discussion today. Net revenues for the fourth quarter was $2.33 billion, representing a 6.5% year-over-year increase. For a detailed breakdown, media services revenue reached RMB1.06 billion, and lead generation services revenue were RMB824 million. Online marketplaces and others revenue increased by 42.6% year-over-year to RMB448 million, primarily due to increased contribution from the data business. Now, moving on to the costs, cost of revenue increased by 6% year-over-year to RMB265 million. Gross margins remained stable at 89% in the fourth quarter. Now for operating expenses. Sales and marketing expenses in the fourth quarter were RMB735 million compared to RMB773 million in Q4 of last year. Product development expenses were RMB300 million compared to RMB296 million in Q4 of 2018. Finally, general and administrative expenses were RMB60 million compared to RMB65 million in Q4 2018. Overall, we delivered an operating profit of RMB1.1 billion for the fourth quarter compared to RMB899 million in the corresponding period of 2018. Adjusted net income attributable to Autohome, Inc. was RMB1.15 billion for the fourth quarter compared to RMB1.08 billion in the corresponding period of 2018. Non-GAAP basic and diluted earnings per share and per ADS for the fourth quarter were RMB9.67 and RMB9.62 respectively compared to RMB9.12 and RMB9.03 respectively in the corresponding period of 2018. Let me now turn to a short summary of our 2019 full-year results. We continue to drive growth in revenue, which increased by 16.4% year-over-year to RMB8.42 billion. Media services revenue increased by 4.1% on a year-over-year basis to RMB3.65 billion. Lead generation service revenue increased by 14.1% year-over-year to…

Thank you, management. [Operator Instructions] Thank you. Our first question is Eddy Wang from Morgan Stanley.

Hi, management. My question here is about the cost control side. So if I look at our fourth quarter results, sales and marketing expense is controlled quite well. So as I mentioned that's because of the impact of the coronavirus. It will impact overall the auto sales in China, India, maybe in the mid-term. So if in that case, what kind of cost control method we can still take in China? And how the outlook of our overall -- the margin level in 2020 [ph]? Thank you.

Well, thank you for your question. For this past two years, as you know, the China auto market is not performing very well. And this year, especially after the break -- outbreak of the novel coronavirus epidemic, this has a great impact on the auto market. Well, for Autohome, this is the very first time we encountered such situation. So that's why we take very strict control over the expenses.

Hi, Eddy. Yes, you know that in the last three years, Autohome has always been very focused on controlling cost, optimize cost on our traditional business as well. We still continue to spend on new business investment. And in the fourth quarter, we again, actually optimized our spending in offline activities and offline campaigns. And we also optimized our investment in new businesses. And we also actually optimized our headcount. So, overall, I guess this will be our continued efforts in 2020, a continued effort to deliver a better value to our shareholders, Eddy.

Thank you. Our next question is Miranda Zhuang, BoA.

So thank you for taking my question. So I would like to get your outlook on the recovery of the core business post coronavirus issue. So the first aspect is about the timing. When do you think Autohome's core business will recover to normal? Will it be earlier? At the same time or later than the end of this coronavirus issue? And the second aspect is about the degree of the recovery. So for the loss of advertising on this generation revenue in 1Q due to the impact, how much do you think that can be recovered in 2Q or the rest of the year? Are there any reasons that will prevent us to see a V-shape rebound of the core business in 2020? Thank you.

Well, thank you. Thank you for the question. Thank you for the question. First of all, how long will this, coronavirus epidemic affect the business? It's hard to tell. But definitely Q1 would be impacted, especially in February. If you look at the sales, that the sales numbers should be very low. However, just because of this epidemic, a lot of the general public believe purchasing a private car is really necessary. So that's why people's intention and willingness to purchase cars has been high. We have conducted a survey together with a third-party, which the results tell us 85% of the surveyors told us they want to purchase private car. And recently, President Xi made a speech telling people that the government would like to support the auto business. And also, some of the cities is called on to release or free the restrictive purchasing policies. And the Foshan government had made announcement that if people purchase car, they would receive around RMB2,000 to up to RMB5,000 bonus for purchasing the car. So my judgment is that after the outbreak of this novel coronavirus epidemic, there would be a rebound or bounce back of the business in the auto market. Well, so that's my first point. My second point is as there is old Chinese saying, which says usually it's the ducks who swim in the water understand the springs are coming because the water has become warmer. So we are in the Internet business. And Internet business is like the early bird who can get a sense of how the market evolves. We do see a lot of dealing on the Internet for purchasing cars. So that's why we do have a early sense of the market situation. So to answer your question, Autohome would be the early bird who can sense the warmness of the market before the market or the epidemic concludes. Now my third point is for the automakers their priority is to bump up itself. They need to bring up their sales. Upon this period of time, the branding and other marketing, they are not as important as bumping up the sales, because if they boost up the sales, that would bring benefits to the upper stream as well as the downstream. So I believe some of the automakers before the sales would bump up -- pump up, they would make some investment on the Internet before they can see the sales boost up -- in order to boost up their sales. That's all of my comments.

Extra comments from Mr. Shao Haifeng. So, first of all, not only the dealers, but also the automakers they had more and more realized that online marketing is really important. So that's why we do see a lot of resource for the gathering and the cluster at the top media on the Internet. So the top players would benefit out of the whole situation. Secondly, we do see some budgeting dollars would have moved from offline to online. That will benefit the online media players like Autohome. So I believe that the automakers would make investments on the Internet before they can see the sales go up. And that would help them to boost up their sales.

Our next question is Thomas Chong, Jefferies.

Thank you management for picking my questions and congratulate on a solid set of result. My question is about our new product offerings. Given that OEMs going to make investments to embrace a couple of big trends, can management share what are the new products that we have to watch out in the upcoming two quarters? And any feedback from clients would be great. And secondly, can management comment about our overseas strategies. Any update on that front would be great. Thank you.

Hello. Excuse me. Yes, hi. Thank you for your question. In terms of our new product offering, as you understand, we do have our traditional business, for example, the media advertising business. We do have new business. For example, the data business and finance -- financial product. We also have launched two new products, which is online transaction based and fee -- 2C fee based business. Actually for the online transaction, we already started exploration at the end of last year. End of last year, we already launched our e-commerce platform, which already legalize with this e-commerce platform. For the 2C fee based business model, we have launched our tourism based business. Our target is to make RMB50 million sales. But actually we generated more than RMB100 million -- over RMB100 million sales. That's purely to 2C model. So in terms of the 2C business opportunities, we are going to launch a new membership fee based model as well as some fee based model on the e-commerce platform. So we would have a greater 2C business model as well. And one of our key priority is our data products. I would like to invite Mr. Jingyu to explore more on this.

Now talking about our data product, we do have overall strategy, which is know early -- sense early and move early, we want to be early mover in the data business. For example, in terms of the intelligent new car launch business, we already launched as a virtual, a new car launch online, which the OEMs launch their new car models online. It's all virtual based. And we also have the dealer side product. For example, we want to establish the data driven close cycle for the dealer intelligence business and the lead generation business. We want to enhance the conversion rate on the leads generation business for the dealers.

Okay. Thank you for the question. I would like to elaborate more on our strategy, which is not early, sense early or the move early. Our strategy is to help our OEMs and the dealers to make fully automated intelligence. For example, they would have know early. What does know early mean? It means we were to help our customers to understand the strategy, understand the momentum and understand the market situation. So in this way, they would know early than the market. Now, talking about sense early, often our customers understand on a know early, they know what are the momentum and the problems are and then we will help them to analyze what are the problems, what are the root causes for those problems. For example, if they are lagging behind with their competitors, so what makes them lagging behind? What should they have done to make it up to catch up with the competitor? So we would elaborate more on that. Now talking about move early, actually we have big data to help our customers to understand what are the next, like for example, two to three months momentum. What are -- they’re lagging behind and what should they do better to catch up or even beyond -- go beyond their competitors. That is, we automatically offer them solutions. We would tell them what to do. So that is to move early. We would help them with total solutions to help them to understand what are the problems and how to address those problems. This year we are going to offer abundant and enriched data products. And our overall strategy would be the three early: know early, sense early and move early. We are going to upgrade our data products surrounding this strategy. Thank you for your great questions.

Our next question is Hillman Chan of Citi.

Thank you very much, management, for taking my question and to follow-up more specifically on a data product question previously. Could management share more on the timeline of the launches of data products for the OEMs and dealers as well as more details on the ASP and the potential penetration into our customer base. And wish you all good health. Thank you very much.

Well, thank you for the question. I will let Mr. Jingyu take some of your questions, but I would like to make some comments. In terms of the data products, we do have the old products as well as new offerings. For example, we offer the products covering the OEMs, R&D and marketing to quality control, etcetera. So the pricing strategy is different. It varies from product to product. For some of the products, we have the benchmark price plus extra charge. We also have some other benchmark prices for other products. A lot of our product offerings are only offered by Autohome. So there are no other similar offerings in the market. But no matter what, we want to be close to the market and make our price close to our customers. So that's why all of our product offerings are quite reasonable.

Well -- yes, thank you for the question. Now let's share with you some of our momentum of our data products. Let's take intelligent marketing solutions as example. Till the end of last year, we already have 36 OEMs already participated in this product. And this year we're expecting more OEMs to prescribe our product, because the acceptance rate of such products in the market has been very high. Now let's talk about our Intelligent New Car Launch product. After we upgraded this product, the market has been warmly embracing this product. The acceptance rate among the customers are really high. We believe that Q4, Q3, we would enjoy high penetration rate in the market because this Intelligent New Car Launch product is greatly and straightly linked with the revenue of the OEM. Now talking about the dealer data product, we already have 17,000 dealers. 17,000 dealers who raised our products. So we believe the penetration rate is already high enough. So I believe the future focus would be to widen and expand the dealer solution coverage.

Okay.

Next question is Frank Chen, Macquarie.

I have only one question. My question is, after China recover from coronavirus and everything gets back to order, what's your plan or strategy on your promotion campaign this year, and what's your budget on that? Thank you.

Well, thank you for the question. Actually, we do have plans for the promotion campaign. We already had invested in the promotion campaign with CCTV. We invited Mr. Fan Zhendong, who is a world champion to become our ambassador. And we put marketing dollars on CCTV5, which is a sports channel. Why we peak CCTV5 is because it is a sports channel and the major audience are male audience. And also, our major audience for Autohome, the web is also male. So that's why we work with CCTV5 for two years. However, starting from this year, because Mr. Fan Zhendong is a military athlete and according to the new regulations, military athletes can no longer become commercial ambassadors. So that's why we switched to Madame Zhu Ting, who is a major striker on the Chinese women's volleyball team, national volleyball team. She's also a world champion. Because as you know, this year is Olympic year, there are Olympic games holding this year, we will continue to post commercial advertisement with the Central Television, CCTV. And we put the -- our commercials really very precise and simple because we want to address those audience in the lower tier cities, including Tier 3, Tier 4 and Tier 5 cities. So Autohome, we really have great impact on Tier 1 and Tier 2, the major cities. Now talking about the budget, we believe the three -- next three years the budget would be flat. We believe the current budget can already fulfill our plans. Actually, two years ago, before we launch the TV commercial ads, some of the investors had concerns and they asked us, are we going to spend a lot of dollars on the TV ads, just like used car dealers? Actually, the answer is no. We used to spend some money in procuring traffic from external resources, but we compressed that portion of budget and we moved some of those traffic procurement budgets into the TV commercial budget. So, overall speaking, we doesn't increased our budget. We just reallocated some of the budgeting dollars. Okay. Thank you very much. That's all of my answers.

Our next question is Tina Long, Credit Suisse.

So my question, first one is regarding the cash flow for dealers, especially those small to medium sized dealers. If there is any observation on any risk on the cash flow and also management's assessment on the potential numbers decline in terms of dealers for the full-year. And secondly is on the selling and marketing expense ratio outlook for the full-year. Thank you.

Thank you for your questions. I would invite the CFO, Mr. Zou Jun to address your second question. I will take the first one. Now talking about the dealers, as you know, the dealers would receive a lot of pressure for the stocks because if they have a high stock, they do have the pressure. If you look at the January and February numbers, January and February, the sales are quite weak. So they do have the stock pressure, inventory pressure. We do see the dealers would have the cash flow pressure because if they want to do the inventory, however, if there are no visits to the store, but they still have to pay the rental, and they still have to pay the salary to the workers. So that's why they do have the cash flow problem. We do see the auto makers OEMs as well as us offer some special policy to help those dealers. However, the key is the dealers have to boost up their sales. If their sales number doesn't go up, that would not solve the -- that would not solve their fundamental problem. In terms of the SME dealers, we believe that they are under excessive pressure. So that's why I understand that there should be some dealers maybe get driven out of this market, but I don't know how many of them, and it's hard to make estimation of how many of them. But there are some hope or silver lining out of the darkness. For example, in -- outside of Hubei Province, the new cases, the numbers are decreasing. And also we do see the hopes of seeing the new cases dropping nationwide. So that's our best wishes.

Hi, Tina. Yes, I guess, this year we will spare [ph] no efforts to contain our costs in sales, marketing and other operating expenses. And of course, we'll still invest very prudently on new businesses just to make sure that we'll have future growth opportunities. And we also are determined to actually improve our long-term margin trend to pay back our shareholders in the long-term. Thank you. That’s my answer.

Thank you. This is the end of our question-and-answer session. Now I will turn back the call to the management for closing comments.

Okay. 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.