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Bitauto Holdings Limited (NYSE:BITA)

Q2 2014 Results Earnings Conference Call

August 11, 2014 8:00 AM ET

Executives

Rachael Layfield - Investor Relations, Brunswick Group LLP

William Li - Chairman and CEO

Jing Shao - President, Bitauto

Andy Zhang - Chief Financial Officer

Analysts

Evan Zhou - Credit Suisse

Amanda Chen - Morgan Stanley

Ella Ji - Oppenheimer

Gregory Zhao - Barclays

Na You - ICBC International

Gregory Zhao - Barclays

Wendy Huang - SCB

Operator

Hello. And thank you for standing by for Bitauto’s Second Quarter 2014 Earnings Conference Call. At this time, all participants are in a listen-only mode. After management’s prepared remarks there will be a question-and-answer session. Today’s conference is being recorded. If you have any objections you may disconnect at this time.

I would now like to turn the meeting over to your host for today’s conference Ms. Rachael Layfield. Thank you. And please go ahead.

Rachael Layfield

Thank you. Welcome to Bitauto’s second quarter 2014 earnings conference call. Joining us from the company today are Mr. William Li, Chairman and CEO; Mr. Jing Shao President of Bitauto; and Mr. Andy Zhang, CFO, Bitauto. After their prepared remarks, William, Jing and Andy will be available to answer your questions.

Before we proceed, please note that discussions today will contain forward-looking statements made under the Safe Harbor provisions of the U.S. Private Securities and Litigation Reform Act of 1995. Forward-looking statements are subject to risks and uncertainties, which 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 SEC, including registration statement on Form F-1. Bitauto does not undertake any obligations to update any forward looking statement, except as required under applicable law.

This call will include discussions of certain unaudited non-GAAP financial measures. Please refer to our earnings release, which was issued earlier today for reconciliations of these unaudited non-GAAP measures to the most directly comparable unaudited GAAP measures. As a reminder, this conference is being recorded. In addition, a live and archived webcast of the conference will be available on our website.

I will now turn the call over to William Li, Chairman and CEO of Bitauto, and the interpreter will interpret his remarks for you.

William Li

Hello, everyone. And thank you for joining us for our second quarter 2014 earnings conference call. I am pleased to report that we delivered another quarter of strong top and bottom-line results, with year-over-year revenue growth of 54.5% and a non-GAAP profit growth of 110.3% in the second quarter of 2014. In particular, our bitauto.com Advertising and EP Platform businesses continued to drive positive results with year-over-year revenue growth of 67% and 59.4%, respectively.

In the second quarter of 2014, our EP Platform generated over 14 million general sales leads for our auto dealer customers. We continued our effort in developing pay-for-performance and transaction services and products, including huimaiche.com, our newly-launched C2B website, which has received positive market feedback.

Investing in our mobile product offerings remains a priority and in June, we signed a strategic agreement with Baidu to be the exclusive supplier of auto-related content for the mobile segment of Baidu's Aladdin Platform.

Furthermore, the number of active users of our Bitauto Auto Price app continues to grow and it has already become a significant generator of sales leads for our auto dealer customers.

In our used care business, we recently launched the better version of (indiscernible) a vehicle valuation platform for used cars, which we have jointly developed with Kelley Blue Book under the China Automobile Dealers Association.

Moving forward, we continue to focus on developing our mobile product and service offerings, and to execute on our established three core growth strategies. First, we continue to expand the variety of value-added services on the EP Platform and to drive forward our pay-for-performance and transaction services and products.

Second, we continue our brand building efforts and in particular, to further enhance bitauto.com's brand recognition. On this front, we intend to enhance our advertising efforts via traditional offline platforms starting from the third quarter. Third, we continue to invest in our used car business.

With that, I will invite our CFO, Mr. Andy Zhang to go through our quarter two fiscal year 2014 financial and business result in further detail. Thank you.

Andy Zhang

Thank you, William. Hello, everyone. I am pleased to report that in the second quarter we maintained strong year-over-year growth in revenue of 54.5%. This topline growth demonstrates the ongoing ability of our products and services to meet the evolving need of automakers and auto-dealers.

Furthermore, our continued efforts to improve margins delivered positive results in the second quarter. Our gross margin expanded 80.3% from 75.5%, while our operating margin grew significantly to 25.2% from 15% on the year-over-year basis.

Our ability to maintain positive operating leverage and deliver greater operational efficiencies resulted in significant growth of 159.5% in our operating profit year-over-year.

Combined our core businesses bitauto.com and EP Platform continued to driver at this growth in our operating profit delivering year-over-year growth of 99.6% and 115.9% in operating profit, respectively.

Now let me turn to our financial highlights for the second quarter of 204. Bitauto reported revenue of RMB522.3 million US$84.2 million for the second quarter of 2014, including amortizing and subscription revenue of RMB468.6 million US$75.5 million and agent service revenue of RMB53.7 million US$8.7 million. The increase in revenue was primarily attributable to the growth of bitauto.com Advertising business and the EP Platform business.

Gross profit for the second quarter of 2014 was RMB419.3 million US$67.6 million, representing a 64.3% increase from the corresponding period in 2013.

Operating profit in the second quarter of 2014 was RMB131.8 million US$21.2 million, representing 159.5% increase from the corresponding period in 2013. The increase was primarily due to business scalability and an increase in operation efficiency.

IFRS profit in the second quarter of 2014 was RMB115.9 million US$18.7 million, a 107.6% increase from the corresponding period in 2013. Basic and diluted profit per ADS each representing one ordinary share in the second quarter of 2014 amounted RMB2.79 US$0.45 and RMB2.61 US$0.42, respectively.

Breaking down the each of our business segments, revenue for the bitauto.com Advertising business for the second quarter of 2014 was RMB294.9 million US$47.5 million, representing a 67% from the corresponding periods in 2013.

The increase was attributable to better brand recognition of the bitauto.com website, thanks to its leading position as one of the most effective auto vertical destinations in China, as well as an increase in advertising spending by automaker customers.

Revenue from the EP platform business for the second quarter of 2014 was RMB168.1 million US$27.1 million, representing a 59.4% increase from the corresponding period in 2013.

The increase was attributable to an increase in both the number of pay subscribers and the months of paid subscription. The company recorded 41,909 months of paid subscription for the period.

Revenue from the taoche.com business for the second quarter of 2014 was RMB5.7 million US$0.9 million, representing a 2.7% decrease from the corresponding period in 2013.

Revenue from the digital marketing solutions business for the second quarter of 2014 was RMB53.7 million US$8.7 million, representing a 7% increase from the corresponding period in 2013, which reflects an increase in the number of advertising customers.

As of June 30, 2014, the company had cash and the cash equivalents of RMB1.1 billion US$178.3 million. Cash from operating activities, cash used in investing activities such as capital expenditures and cash from financing activities in the second quarter of 2014 were RMB72.8 million US$11.7 million, RMB39.7 million US$6.4 million and RMB12.2 million US$2 million, respectively.

Gross billings in the second quarter of 2014 was RMB798.7 million US$128.7 million, compared to RMB493 million US$79.5 million in the corresponding period in 2013.

With that, I will turn to guidance for the third quarter of 2014. Bitauto currently expects to generate revenue in the range of RMB550 million US$88.7 million to RMB570 million US$91.9 million in the second -- in the third quarter of 2014, representing a 45.4% to 50.7% year-over-year increase.

Bitauto currently expects non-GAAP profit in the range of RMB125 million US$20.2 million to RMB132 million US$21.3 million in the third quarter of 2014, representing a 60.9% to 69.9% year-over-year increase.

This forecast takes into consideration seasonality factors in Bitauto's business and excludes any impact of foreign currency fluctuation. It reflects management's current and preliminary view, which is subject to change.

Thank you for listening. We are now ready for your questions. Operator?

Question-and-Answer Session

Operator

Thank you, sir. (Operator Instructions) Your first question comes from the line of Evan Zhou from Credit Suisse. Please ask your question.

Evan Zhou - Credit Suisse

Hi. Good, evening, William, Andy and Shao. Congratulations on nice solid quarter and again strong guidance. So, the question was on the performance base sales lead generation initiatives such as huimaiche.com and mentioned that in your prepared remarks that we -- we have positive feedback on the progress and just wondering like if you can provide…

William Li

Hello. Hello.

Operator

Unfortunately, Mr. Evan Zhou’s line has been dropout. For your next question, your next question will comes from the line of Mr. Philip Wan from Morgan Stanley. Please ask your question.

Amanda Chen - Morgan Stanley

Hi. Good evening, William, Jing and Andy. Thank you for taking my question. This is Amanda Chen asking on behalf Philip Wan. First of all, congrats on another very strong quarter. My first question is regarding your used car business. Could you please give some updates on your corporation with Honda and Wuling and we understand that you are first operating offline store opened in Beijing [district] (ph). So how is it going now and what’s your next plan? Thank you.

William Li

Thank you for your question. We launched the joint venture program with Honda and Wuling in second quarter and currently, we are in a preparation state. So we will make appropriate announcement when time comes. In the meantime, we are also exploring opportunities to having similar cooperation with other companies and we will again make announcement when appropriate.

Andy Zhang

One more comment on that is that, I think, the primarily at the 2014 year, not only that we are building these collaborations. The first primary concern for us is to be able to quickly start work with most of the top dealer groups in China and building up relationship with every single one of them within the next few months or half year within next half year or so, making sure that this is not a isolated incident, but more of a strategic approach from our side.

So you should be able to, it’s reasonable to expect to hear from us within the next few months in terms of continued replicating this particular strategy with some of the other top level dealer groups in China. Thank you.

Amanda Chen - Morgan Stanley

Thank you.

Operator

Thank you. Your next question comes from the line of Evan Zhou from Credit Suisse. Please continue. Thank you.

Evan Zhou - Credit Suisse

Hi. Sorry, I was dropped off. So let me repeat my question. My question was, if you can give us some color on the updates on the huimaiche and also how do you guys think about the outlook for second half and next year? How should you think about, how that thing can help us grow our revenue going forward? Thanks.

Andy Zhang

Okay. I think our President Jing will take the question. Allow us to briefly translate first.

Jing Shao

The answer to your question with regard to huimaiche generally speaking we are currently in stage of preparing the market for it or cultivating market for that and to improve our business model. We have launched huimaiche in 15 cities in China and we have all together 20 to 261 activated dealers for the huimaiche.com program. So, generally speaking we are still in a phase of gathering or collecting more data on various fronts. So I think that when it comes to appropriate time we will announce more information.

Andy Zhang

Currently they are quite a few of competitors, who is currently either in this particular sector or some of which already have undertaken activities in this sector. Not limiting to the verticals but some of other types of competitors. Out of this concern this are the currently the operating metrics that we decided to released to the public.

However, the general tone and the reason that we choose to release this numbers is that management remains positive in terms of the outlook of transaction services, basically this seems like it will be served as a part of our EP growth going forward and it will be adopted as one of the business models proceeding.

I understand you probably heard from some other players in the industry releasing the numbers. What we can say is that, first of all, we think it’s earlier to release our numbers and secondly is that, those are probably the number that has been released are only equal to few days of our volume.

So the bottom-line is that we are in the more positive track and also that in terms of the actual transaction services wise, our service is a lot more deeper than just selling coupons like some of my vertical competitors are doing or some of the generally e-commerce players are currently doing.

So, therefore, I’ m not sure if its comparable or not, but the bottom-line is that in terms of the absolute transact numbers that we are facilitating, which going from the initial selection of the leads all the way down to finishing and consummating the transactions, also on top of that, in terms of the ability to collect revenues from some of those transactions, I think we definitely have been outperformed the market up until this point.

But the actual detailed metrics we choose, it was a tough decision, we have been debating all day today whether not to release, but out of the concern of the competition currently, we decided to hold off a more. The bottom-line this will be served as one of my transaction services part of my EP going forward.

And on top of that, just add in, obviously, we have discussed in a past a lot of times that based -- other than the basic marketing services modules that we offer, this year’s expansion will be also in the sales and which is the performance based services plus the transaction based services.

We’ve also did a little bit more on the performance based services as well. I would probably invite my President Jing to give you also a little more color on performance based services as well on top of the transaction services. Jing?

Jing Shao

I’ll talk about one of the performed based services product and the name of the product is (indiscernible) currently we have over 1,300 dealers working with us. And this product is well-received among the dealers and Bitauto is growing its number gradually on a stable base.

Andy Zhang

Okay. So bottom-line is that we were expecting to see EP ARPU growth receiving additional contribution from pay-for-performance, so performance based services modules that we offer to the dealers starting in the third quarter. And this will also be a long-term supportive ARPU growth factor in my EP Platform business overall. So hopefully this answers your question.

Evan Zhou - Credit Suisse

Thanks you.

Andy Zhang

Thank you, Evan.

Evan Zhou - Credit Suisse

Thank you to offer the great color. Thanks.

Operator

Thank you. And next question comes from the line of Ella Ji from Oppenheimer. Please ask your question.

Ella Ji - Oppenheimer

Thank you and congratulation on strong quarter. I wonder if management can breakdown your current traffic by PC and mobile. And we think mobile by mobile web and mobile app? And also relating to that since you now have multiple website, including the huimaiche, so going forward how do you plan to allocate your incoming traffic resources between the different websites. Are there any one that you plan to promote more aggressively versus others? Any color would be helpful?

Andy Zhang

Yeah. Please give us a second for us to translate.

William Li

Yeah. I think, that, one of the things that we care most is how traffic -- traffic from different sources are contributing to our sales lead. And we have some data regarding on the sales leads are the how the sales leads are generated -- being generated through traffic. And you know that some of the customers have placed their order on the website by filing out form and some other customers that choose to place an order through telephones. So it’s a little bit hard for us to track a number of customers doing that through the telephone.

What I can share with you is the number of customers who are operating order on the website and judging from that data by the end of -- at the end of June, mobile generates 58% of the total sales lead. So you asked the question about how much of these traffics from the mobile and whether it is coming from mobile WAP and how much about is coming from mobile apps. I will not choose to share that data with you. But what I can tell you is that we are seeing growth on both ends.

So I did not choose the question about how we can allocate traffic to support various kind of products or website of our company. Different customers have different needs and they want different information. So on our website, Bitauto.com, we have designed a different access points for our customers at different stage so that they can access different information and as huimaiche, it has its own website and we also have our web design promoting program specifically for huimaiche.com. So, I think, that did not (indiscernible) question on how can we better allocate the traffic resources among different websites.

Ella Ji - Oppenheimer

Thank you.

Operator

Thank you. Your next question comes from the line of Gregory Zhao from Barclays. Please ask your question.

Gregory Zhao - Barclays

Hi William. Hi Andy. Thanks for taking my question and congratulation on the strong quarter. I have a very few question as Li and Zhang just mentioned that in Q3 you increased brand-building efforts and improved brand recognition in offline advertising. So how should we expect the impact of such kind of advertising to the margin of Bitauto in Q3. Any thoughts by management also disclose the number of paying dealers over this quarter compared to the same period of last year? Thank you.

Andy Zhang

Okay, this is more of a question for me, I guess, rather than for William. The bottomline is that obviously we have stressed more than once to the public that the way that at BITA when we worked up our marketing budget in term that which includes traffic direction cost and also general front building cost. When we actually drape up this budget at the beginning of the year, it’s really depending on what kind of allocation we want to place from the revenue that we’re looking to forecast to generate during the year.

So it’s not like what the OEMs are doing in the industry. Bottomline is that so far up until this point, I don’t think we have any surprises in terms of -- that we need to all of sudden overspend compared to what we have planned. So in terms of this part, I think this year, we are pretty much on track as we have communicated at the earlier in the year in terms of marketing budget itself.

No surprises there and it’s just that originally some portion of the budget was planned for allocating to PC Aladdin that was now freed out that we can actually spend that on the traditional brand building efforts. For some of you who actually travels quite a bit within a country, probably would have already seen our efforts in the airports across the nation. So that’s part of my offline traditional brand building efforts.

But again to sum it up, I don’t think there is any surprises in terms of my marketing cost will shadow the concern over the margins. So the margin expansion strategy and efforts will continue and you’ve already witness that for the first two quarters of the year. I’m pretty sure you see that in my third quarter guidance as well. So this pretty much speaks for ourselves. Thank you.

Operator

Thank you.

Andy Zhang

Thank you Gregory.

Operator

Thank you. Your next question comes from the line of Philip Wan from Morgan Stanley. Please ask your question.

Amanda Chen - Morgan Stanley

Hi. Thank you for taking my follow-up question. My second question is about used car business. As we understand that you have been investing in the used car business over the past quarters but we noticed that compared to last year, in this quarter, your used care business top line decreased a little bit but gross margin turned positive and operating margin also improved. So how should we read this number, also previously, William, you also mentioned that you’re going to invest more in the used car business in coming quarters. So how should we see the development trend of used car through 2014? Thank you.

Andy Zhang

Again, there is also one question for me. I guess, what we have witnessed recently is that there is a trend in the entire industry that some of the players that currently are looking to start building revenue streams from dealerships or individual brokers. For us, I don’t think obviously we’re within the industry. We’re fully aware of that. I think the trick for us is to really decide what is the good time to turn on the faucet in terms of start charging billing on the consistent basis of the 4800 which we served in the first half of the year in used car dealerships that’s currently being served by us.

I think recently there were number of roadshows where we actually expressed the interest from the management to maybe begin charging the dealerships on a consistent membership basis, starting in 2015. Obviously that’s going to be at how to generate additional revenues from EP platform. But currently, we are only testing that on the very selective basis. So therefore, whether or not it’s good time, when and how much, I can have a much clear idea as to what to answer probably by the fourth quarter when we sit down hope to discuss the same question in November.

But the bottomline is that yes, some time next year, it will be at a general scale, grand scale in terms of all the dealer -- used car dealerships that’s being serviced by us, by my EP platform. We will build on -- in the different sustainable schemes in terms of similar to what we do with the new car dealers. Thank you.

Amanda Chen - Morgan Stanley

Thank you.

Operator

(Operator Instructions) Your next question comes from the line of Na You from ICBC International. Please ask your question.

Na You - ICBC International

Good evening William, Andy, and Jing Shao. Congratulations on the strong quarter. I have a question regarding to your traffic. Just wonder after company patent release of Baidu on Mobile Aladdin project, have the company seen any significant traffic of those from the mobile side. Any operating metrics that you can share with us would be helpful? Thank you.

William Li

As you know that, actually we have been having this co-operations with the Mobile Aladdin Baidu for sometime, we started co-operations in the first half of this year, though in July we basically just continued our corporations to Baidu. As a result of that, traffic generated through this mobile cooperation is going on a noble course.

To get that, you may also be interested in how much traffic has decreased as result of (indiscernible) co-operations with the PC Aladdin. Indeed, we have seen some drop in the traffic generated just from the PC end and the traffic dropped by around 10%. But as you know that for us sales lead is the most important metric for us to judge our performance and getting that in July, our sales lead have continued to grow as a result of increasing traffic or as a result of increasing in the number of those generated through the mobile end and through other sources.

Andy Zhang

And also to just explain further on that is obviously this is just about 10%, that’s the pure PC stats. So overall, traffic wise, it’s less than 6% of impact. Secondly, obviously in terms of our business model wise, again we are very targeted website. So other words, traffic overall wise in the past we have -- we have been fairly targeted in terms of focusing on the actual car purchasers. So therefore as the selections of the traffic sources becomes a lot more resourceful compared to what he used to be in the past.

But I think they had the risk of whether or not you work with one partner at a typical timeframe has really been diminished or diluted because of the additional traffic and especially sales lead sources. So other words that we have been in preparation for that for a quite good time and therefore we actually do see the impact is very limited and we do not see this to be a continuing incident going forward.

So our guess is going to be give or take 10% of what you see on traffic and less than 6% overall traffic. And sales leads wise, we’ll see growth in terms of sales leads coming from other additional sources that we source out. And on top of that, obviously our traditional brand building is also helping us to support the cease of the collaboration with Baidu as well. So just to give u a more complete picture as how we view it and what are some of the angles that we’re looking at. Thank you.

William Li

Thank you.

Na You - ICBC International

Thank you. If I may ask how valuation the product regarding the used car business, company just mentioned that you released used car valuation products in (indiscernible). Could you share about this model for this business and do you have any plan to huge trade this business to your Taoche platform and are there any updates from the government of regulation on used car transaction tags? Thank you.

Andy Zhang

I will give you the update on tax, there is no update. So that’s a quick and easy answer. Obviously, we’re looking for updates within the next 12 to 18 month. That’s what I told you earlier in the earlier. So that situation remains.

Going back to what some of the business models that we’re dealing with (indiscernible),. Currently I think the primary responsibility of the team itself is really at further develop or better develop the technology and the algorithm that’s embedded in (indiscernible) website or embedded in the back end of the product itself, making sure that not only we are the most accurate evaluation too in the country but it has to be within the very good reasonable error margin.

We have already achieved number one in terms of the error rate within the country but that error rate is still fairly large compared to what we’re shooting for probably towards the end of the year. So the primary algorithm and the responsibility for the team is too really to get to where we want to get to by the end of the year from the product and the technology front.

Once we re-stat, certain level or certain threshold what we will do is not only to build a closing loop between the taoche.com but also the car financing contents of our bitauto.com website as well.

We are really looking to build a consumer solution for consumer who actually wants -- who actually currently owns a car, wanting to trading for a second vehicle and while lacking of cash, give him the choices of financing or leasing. So it’s a very complex job even for us in terms of really stream up all the individual pieces of assets to create a linkup or routes between them and to bring value to the consumers and it has to be hassle free at the same time.

So it’s a much bigger project that we’re pursuing. But the bottomline is that this what we’re looking to do, that’s the whole point of us to individually invest in these assets and area hopefully one day we can link all them together to provide really a hassle free and seamless shopping experience for the car buyers. And obviously, the missing piece is we might show as well, so all these four pieces can be really linked up together, which is something that we’re probably looking to do starting 2015. Thank you.

Na You - ICBC International

Thank you.

Operator

Thank you. Your next question comes from the line of Gregory Zhao from Barclays. Please ask your question.

Gregory Zhao - Barclays

Hi Andy. It’s me again. My questions is also for you. And I think -- I want know if you can disclose the number of paying dealers during the quarter and for those newly joined paying dealers so what the change of trending of the average selling price thorough of our EP package? Thanks.

Andy Zhang

Well first of all, for the first half -- I'll give you the fist quarter -- second quarter number first. We had 15400 fee paying dealerships for my EP platform. It’s a little bit more than what we expected at beginning of the year. So for the first half of the entire year, we’re looking at almost 16000 already. So I think that the end of last year my words to the public was that we’re looking to reach in between 15000 to 16000 fee paying members this years.

I guess we pretty much achieve that in the first half of the year. So we’re looking to add a few more in the second half of the year, which is a good news for us. Secondly is that in terms of membership the basic membership level that we’re offering so we only make adjustment once a year. So, other words that we’re not going to be offering any one who joins during the year any thing different than those who actually signed up earlier in the year.

So, other words that we only make adjustments once a year at beginning as well as we have our sales policy set. But the I think what’s fairly promising is that again I think our President Jing had mentioned for huimaiche business we had about 2200 dealers who’s activated and we probably have about -- we have actually a bit more who actually signed up because they are in city that we have not opened access yet. But they are very actively signing up with us in terms of for those cities we have not opened up the huimaiche channel yet.

So that’s in the upwards of 3000 some more but and also second to this will be in future, source of additional revenue coming from these dealerships. And secondly also Jing mentioned in terms on the performance based side effects, we also have somewhere around 1300 of them who actually signed up in July. So other words, that we’re -- its reasonable to expect we’re going to have many more in the second half of the year who are signing up with us on that additional service as well.

So it’s a process of adding new membership from the dealership end, plus offering more services to the dealers and some of the dealers will buy not only the membership basic ones but also the additional value add services. And when I was answering, I forgot, it was maybe [Alice’s] (ph) question in terms of use car business. Obviously this is another potentially in terms for next years of revenue sources which are the dealerships, the use car dealership that we’ll currently services and will be servicing next years. Some point next year we will start billing them as well. So these are the -- what I called more detail updates on the EP platform. Thank you.

Gregory Zhao - Barclays

Thanks. Thanks very much

Operator

Thank you. Your next question comes from the line of Wendy Huang from SCB. Please ask your question

Wendy Huang - SCB

Thank you. I have two follow-up questions on the topics you mentioned earlier. Number one what percentage of traffic sales from Baidu in PC and mobile respectively in second quarter of 2014. And also you mentioned lot of the initiatives about used car business. Can you remind me what kind of macro environment changes or car consumptions behavior changes maybe -- this year is right time to step up investment in used care business and next year that could be the year to ramp up monetization on the use car dealers? Thank you.

Andy Zhang

Well Huang, I’ll the second questions first. Obviously looking at latest CADA, channel automobile dealer association number which that was released in June. Last year China had 8.1 million used car transitions compared to 2012’s 4.8 million. That’s a pretty large increase.

This year 2014, we’re definitely expecting the volume to go more than $10 million, probably reaching a level of between 10 million to 12 million. So in other words, that they in 2009 which was the first year that new car phase volume went over 10 million. So again 2014 is the year for the used car volume to went over 10 million -- to over 10 million. So other words, that is reasonable to expect that this should be a good time to start to do more, basically invest more and also start -- may be able to start generating revenues from.

But the bottom line is that used car industry will still have its long way to grow. In any of the developed countries, trading volumes between new car and used car is normally 25% versus 75%. In China, currently it’s the other way around. So we will take few years before the scale becomes a balance one.

But the bottom line is that yes it’s already up and running. And hopefully we will be riding the way along with the market development. Huang, I’ll passed the second questions which I believe we some answered in the previous answers to other people questions. But I’m going to toss it over to William or Jing again on that. So give me two seconds to translate and they will get back to you.

Yeah, I think that’s we go by with whatever we answered at previous questions in terms of traffic so.

Operator

Thank you, sir. (Operator instructions) Your next question comes from the line of (indiscernible). Please ask your question.

Unidentified Analyst

Hi Andy. Thanks for taking my questions. So I have a question related to your monetization for detailers. And you mentioned you’re going to make more money by offering more service to car dealers. And then back actually related to one conditions which is you generate more leads to them this year as a very effective useful wonders. Now you don’t have Baidu Aladdin PC, the traffic on PC may not increase going forward that will definitely impact the future lead generation on PC. So how do you see that going forward? What is your ability? Will this Aladdin deal impact your future ability of making more money out of dealers so that said one question and I have a follow-up after this?

Andy Zhang

Okay allow us to translate, I’ll get back to you.

William Li

As a matter of fact, I think that the sources for our sales lead being diversified. So, as I mentioned that, we have Bitauto price report, which is also one of a very important source for generating sales lead for us and this important is growing over the time. To have various sources for generating sales lead, for example, mobile and through many other main channels. As per the impact of PC Aladdin as you can see from the figure of July, the impact of that is not very significant on our sales lead. So, over the long run, its certainly is not wise for us rely on just one single source for generating sales lead.

Andy Zhang

And also, I think, we have to come to the basics again. Working with some other partner, generating leads that we can resale, I guess, bottom line that we got I think the actual business of it, which comes back to our way. We do not believe at this moment with that kind of spending on any individual traffic driven or lead driven sources is economically sound decision for us and let alone, we are the most monetizable capable company within the entire industry. So the bottom line for us is that, we don’t want to buy something that we can't sell at a loss, so basically that’s I’ll conclude as that. All right. Thank you. So your second question.

Unidentified Analyst

Yeah. So that’s related to used car business. Today, if we look at used car business sales transaction between people way. Basically, you don’t have rules. You don’t have anything to fall or some people can say, hey, my car is good to drive away, then the buyer second day founds engine dead. So many such of things teach other so many things. So when you guys want to sale used car, basically you’re dealing with millions of consumers and all kind of consumers, no one wants to follow. Even eventually you setup some rules, I believe people will take time to really learn how to follow. So what is the key issue or what you have to do in order to make the used car business successful?

Andy Zhang

Well, that’s a big, big question. I mean, what do I do to make it successful…

Unidentified Analyst

What are you going to do?

Andy Zhang

… while, why don’t I translate, yeah, anything more specific on that?

Unidentified Analyst

For example, in China different region has a different emission rules, right. So some region say (indiscernible) so if you have this amount of emission is now good, that region say, it’s good. So how do you deal with such issue?

Andy Zhang

Okay. I’m trying to understand, that’s the -- that's in terms of that’s how the logistic, how the used car inventories have been floated through within the region, within the country. First of all, I think, bottom-line is that the good chunk of the used cars have been bought within the city, by the same people that resides in the same city, by the people who resides in the same city.

There are those who is following around the country as well. So, I guess, there are a lot of different policies and as well as, taxation that’s really preventing the market to grow. While, unfortunately, for us, but the bottom-line is that the market itself we have already seen the volume start up last year. And with the new car sales being pretty much optimistic for the year up until July more than 11% package of our sales growth, good chunk of those new car sales growth are derived from those current car owners to trading their used car.

So in other words that, do something that either municipal government or central government they just cannot overlooked. And just a matter for those guys to realize some of the policies currently that’s been adopted are the barriers for this industry to grow higher --grow faster and higher. I guess, what we do is that, at the same time, we’re allowing central government and some of the municipal government at the same time that we are the once whose working with the dealership the help them out to grow as well.

So, hopefully that when they grow bigger and stronger than we can become a good number of voices for the government as well. So bottom-line is that, yeah, that’s something that we’ve been dealing with over the past many years, different problems, obstacles shows up, but I don’t want to be too general.

Bottom-line is that understanding what dealer needs, understanding some of the broker what they need, understanding what consumer is looking for and learn how to deal with the government, and obviously, these are all the, what we call the skill sets that needs to be -- that you need to be successful in the business.

Unidentified Analyst

Thank you. That’s all my question.

Operator

Thank you. Your next question comes from the line of Evan Zhou from Credit Suisse. Please ask your question.

Evan Zhou - Credit Suisse

Hi. Thanks for taking my follow-up question. Just a very quick one. Could you maybe comment a little bit on the recent progress on the breaking of the monopoly from the OEMs? And I know this is, probably you have a limit -- very limited impact on all business in near run, but how do you see that in the longer run, say, if dealers incrementally have more flexibility in price scheme, in price coding and also in aftermarket parts and services, how shall we think about this in the longer run? Thank you.

Andy Zhang

Okay. We will translate and get back to you.

William Li

I think that in the long run, of course, we need, I think about aftermarket service, but to start with as we have down, we are trying to provide more CIM related services or products to our dealers and we are also trying out various kind of product to have dealers to provide them with better service. Of course, some of these products haven’t been fully commercialized yet. We are still in the trial stage.

On another front, we are also looking at the opportunity or exploring the possibility of making for example, investment in some companies with specializing providing the DMS and various other services. So that’s strategy going forward.

Evan Zhou - Credit Suisse

Thank you.

Operator

Thank you. (Operator Instructions) Your next question comes from the line of Ella Ji from Oppenheimer. Please ask your question.

Ella Ji - Oppenheimer

Thank you for taking my follow-up question. It’s relating to your account receivable balance on the balance sheet and I noticed that it’s a big uptick sequentially and I understand that your revenue has been growing very strongly as well, but just wondering if you can breakdown the accounts receivables, which segment in business revenues are contributing mostly to those receivables? And also, if you can give us an update in terms of the company’s efforts in collecting the receivables?

Andy Zhang

Well, I guess, we -- everybody who is familiar with us, knows that we have a segment of business called Digital Marketing Services. This is essentially online agency service. So majority of my accounts receivable really came from that particular business.

In the second quarter up until June 30th, I think, sales accounting for 60% of my entire AR balance. So, unfortunately, this particular segment only contributes on a net revenue basis, just little over 10% of my net revenue. But the reason our release was going, the reason I release the note receivables and AR receivables is mainly to explain to public that the majority of the drag is created by this particular segment.

Obviously, if you take this apart on my -- down the overall presentation, is tell people that, that highest piece of the asset on the independent level, what you left is mainly advertising business, my EP business and my taoche business.

When you look at those three businesses, my -- the healthiness of my AR balance is fairly very good, very high. We’re looking at on the annual basis somewhere around four to five turnarounds on AR. So, therefore -- so this is a typical case of running a multi-segment business. In some essence that the Digital Marketing Business is a little bit different than what we operate as a main core business, which is purely internet and dual services, so that was the main question -- that’s the answers to your question.

Ella Ji - Oppenheimer

Thank you, Andy. So if I do a rough calculation if you say 60% and that indicates about $600 million would be receivables relating to your Digital Marketing Solutions. That’s quite a number comparing to your quarterly revenue? Could you just also talk about the receivables for this business line in particular?

Andy Zhang

Well, obviously, on the net revenue side of it, we are only allowed to record net revenues.

:

Right.

Andy Zhang

So, other words, the money that we really earn, not the main money that passes through us on the balance sheet front. So on annual basis as of last year, we have this particular segment generated to almost a billion revenue on the gross level, which entire RMB1 billion all pass through my balance sheet as part of AR, AP and the cash received.

So, but we were only allowed to record the actual fees earned and the rebates earned. So that’s probably about 20% of that number. So in other words, on the P&L side of it, we only record about 20% of the entire gross revenue, but on the balance sheet, the impact is 100%.

So that is the little -- that discrepancies between the two numbers that often creates a little bit cloud for some of the newer viewers of my company. For those who has been following us for years, they understand fully as to exactly what’s going on with that different business segments.

And again, on my non-deal road show presentation, I normally said separate on the balance sheet, especially on the AR front and also DSO, days outstanding front as well. So you probably get a better understanding, everybody gets a better understanding. What we are doing better on the core side, compared to competitors and what we are not in terms as a whole and the reason for that been, so that should be it. Thank you.

Ella Ji - Oppenheimer

Thank you.

Operator

Thank you. Your next question comes from the line of Philip Wan from Morgan Stanley. Please ask your question.

Amanda Chen - Morgan Stanley

Hi. Thank you again for taking my question. My last question is for Jing. I guess, regarding your e-commerce business, we understand that your several different monetization schemes being tested in the market, for example, you and your competitors all trying different models, such as B2B and B2C and coupon and so forth? So, could you please share your thought on these different models, for example, which model your main like fighter and which model consumer mean like fighter, and how should we coordinate the interest of parties and get triple win results? Thank you.

Jing Shao

We would prefer to use word pay-for-transaction instead of e-commerce but whatever the name you would like to use it describe it kind of business models, I want to say that, it indeed the case that you describe, many marketplace participants including many our competitors are trying different kinds of models.

And I believe that for our customer we are trying to buy car. One thing is very important to him or her is that he want some certainty in terms of price of the car and as for us being the provider of tax form for this kind, I think now we need to know, for example, whether a transaction had actually comes through or not.

So we have made some very valuable attempt or efforts and that mean that our efforts have been generally speaking well-received both among dealers and among the customers.

Andy Zhang

Thank you.

Amanda Chen - Morgan Stanley

Thank you.

Operator

Thank you. We are now approaching the end of the conference call. I would now like to turn the call over to Bitauto’s CFO, Andy Zhang for closing remarks.

Andy Zhang

Once again, thank you for joining us today. Please don’t hesitate to contact, if you have any further questions. Thank you for your continued support and we look forward to talking with you in the coming months. Thank you. Operator?

Operator

Thank you, sir. Thank you for participation for today’s conference. This concludes the presentation. You may now disconnect. Good day.

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Source: Bitauto's (BITA) CEO William Li on Q2 2014 Results - Earnings Call Transcript
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