The company posted its first non-GAAP quarterly operating profits since its IPO, but its shares still fell amid broader investor concerns over U.S.-listed Chinese stocks.
Electronic recycling specialist To renew (NYSE: RERE) has just given investors a taste of “lean profit” with its latest financial report showing it made its first quarterly operating profit on an adjusted basis since its IPO last June. But it seems those same investors are more hungry for the real thing.
Shares of the company, whose tech-focused platform sees it collect, test and resell millions of smartphones, PCs and other gadgets, initially rose 9% in pre-market trading but then fell 6%. .4% after sound release latest quarterly financial report last Thursday showing profit milestone. The stock remained weak the following day.
In fact, ATRenew’s decline was relatively modest compared to other big Chinese tech names over the two days. Shares of e-commerce giant JD.com (JD)(9618.HK) fell 23% over the two trading days, while Uber-like DiDi Global (DIDI) lost half its value. And the broader Nasdaq Golden Dragon China index was down around 20%.
But if timing is everything, ATRenew has certainly been the victim of bad timing here. It was because it released its report on the same day that the US securities regulator issued a separate announcement with much wider implications for the nearly 300 Chinese companies now listed in the US. In the announcement, he named five such Chinese companies – which did not include ATRenew – which could be delisted if the US and China fail to agree on a way to share financial data on the group. larger number of Chinese companies listed in the United States.
So it seems like everything is relative and there are things you just can’t control, which is a lesson that all Chinese companies listed in the US have learned recently. But at least for ATRenew, which used to be called AiHuiShou, the main thing is somewhere where it’s squarely focused.
The company reported adjusted net profit of 9.7 million yuan ($1.5 million) in the quarter, excluding costs related to employee share awards and amortization of intangible assets, representing its first profit in any form since its IPO last June. Here it should be noted that the company was profitable on a similar basis in the fourth quarter of 2020 before listing, although it fell back into the red. Perhaps more importantly, founder and CEO Kerry Chen hinted that investors can expect more sustainable earnings in the coming quarters.
“We are confident in maintaining this (profitability) in the future with sufficient capital and a clear strategy, we are on the fast track to a healthy and sustainable growth trajectory,” Chen said on the call. to the results of the company after the publication of the results. Chief Financial Officer Rex Chen was more blunt, saying the company aims “to deliver operating profit through 2022 in non-GAAP measures.”
As if to get the message across, ATRenew revealed that its cash position was virtually unchanged at the end of last year, with 2.4 billion yuan in its coffers compared to 2.5 billion yuan at the end of September. It shows that it’s not the type of money-burning machine that’s far more common among the many Chinese tech companies that have listed in New York and Hong Kong in recent years.
On a net basis, the company is still squarely in the red, posting a net loss of 103.6 million yuan in the fourth quarter, compared with a loss of 82.9 million yuan a year earlier.
Synchronization with the government
Writing on ATRenew, we’ve often pointed out that one of the company’s greatest assets is its synchronization with government priorities as China focuses on cleaning up its polluted environment and reducing its carbon emissions. to achieve carbon neutrality by 2060.
Such government synchronization is key to doing successful business in China, greasing the wheels for everything from receiving new business licenses to securing additional support from the country’s vast network of state-owned enterprises. . Environmental protection has recently found a special place on the government’s agenda, as evidenced by numerous remarks made at the National People’s Congress, the annual meeting of China’s top legislature, which ended earlier. this month.
In this year’s government work report, Premier Li Keqiang underscored China’s commitment to improving the environment and stressed the need to step up waste reduction and boost recycling. “We will improve policies to support environmental protection industries in conserving water and energy and recycling waste and used materials,” Li said, echoing similar goals for products. occasions set by China’s state planner in 2021 for the country’s latest five-year plan.
Going Local with city-level model
In his own store, ATRenew also gave an update on his recent drive to do more business at the city level, which he quickly discovered is much more efficient and profitable than trying to create national markets for its recycled products. He said he has now expanded a pilot program launched in two cities last year to 22 cities across China.
ATRenew launched the model with the aim of gaining faster access to a market with the highest circulation of consumer electronics devices in the world. He believes that operating a full recycling chain – from procurement, inspection to resale – at the city level will lead to faster recycling and sales of used appliances. The company has since been able to increase local penetration to over 50% in select cities, with B2B gross merchandise value (GMV) up over 100% in 12 cities in the last quarter.
The company aims to accelerate this program to cover 50 cities by the end of this year and reach 100 over the next three to four years. As it aggressively grows this part of the business, including a focus on brick-and-mortar stores alongside its traditional online strength, ATRenew aims to triple its gross merchandise volume (GMV) of merchandise passing through its system to over 100 billion yuan by 2025 from 32 billion yuan last year.
As that happens, its revenue growth will likely continue to accelerate. This growth is already quite respectable, rising 48.2% to 2.4 billion yuan in the fourth quarter, according to its latest report. It said it expects to maintain a similar growth rate in the current quarter, expecting revenue to grow 42% to 45% for the three months to March to between 2.15 billion yuan and 2.2 billion yuan.
We’ll end with our usual look at how ATRenew compares to its peers in terms of valuation, although here we should note that these numbers may change on a daily basis due to all the recent volatility in stocks. The company’s price-to-sales (P/S) ratio is relatively low at 0.75. Carvana (CVNA), a US counterpart that performs similar functions for used cars, trades double with a P/S ratio of 1.5, while recycled clothing specialist Rent the Runway (RENT) trades at an even higher P/S of 1.8.
Editor’s note: The summary bullet points for this article were chosen by the Seeking Alpha editors.