RERE - ATRenew: Another Strong Quarter With Strong Revenue Growth

2023-11-27 17:23:40 ET

Summary

• ATRenew Inc. reported strong Q3 '23 financial results with revenue growth of 28.4% YoY.
• The company's multi-category business recycling transactions reached RMB3.5 billion in Q3 '23.
• ATRenew joined Apple's recycling and trade-in business system in mainland China, which should accelerate its future growth.

ATRenew Inc. ( RERE ) is China's largest pre-owned consumer electronics transaction and services platform. RERE stock is now traded at $1.78, down by 51% YTD, as compared to 52-week high of $3.5 and 52-week low of $1.3. Please see my previous articles: ATRenew: Strong Revenue Growth And Improved Profitability In Q2 ; ATRenew Q4 Earnings: Strong Revenue Growth & Positive Profits; ATRenew: Well Positioned For Long-Term Growth In Multi-Category Recycling; ATRenew Stock: Drive Business Scale, Efficiency Through Automation .

RERE reported Q3 '23 financial results, another strong quarter with strong revenue growth and improved profitability.

Revenues : RMB3,256.8 MN, +28.4% YoY, mainly driven by product revenues (refurbished device sales contributed RMB200 MN; Net service revenues also saw a decent increase (RMB332.8 MN, +7.3% YoY) driven by an improved take rate of 5.40%.

A consistently bright spot in RERE's financials for several consecutive quarters is its rapid growth in multicategory business recycling transactions (RMB3.5 billion in Q3'23).

Users & Stores : Accumulated number of registered business users surpassed 534,000, while active users increased by +15.4% YoY. As of Q3'23, RERE had 1,952 Physical stores and 2,000+ self-service kiosks in 273 cities in China. At this scale, being able to further expand its national footprint gives investors confidence in RERE's capability of continuously driving topline growth and profitability.

Non-GAAP Operating Income : RMB73.8 MN, adj. Op Margin 2.3%, as compared to RMB10.8 MN, adj. Op Margin 0.4% in Q3'22. Non-GAAP Op Income increased ~6x YoY, which is quite impressive.

Also, if we look at GAAP Op Losses RMB28.1 MN (-0.9% Op Margin), which was the ~1/4 of prior year Q3'22 Op Loss of RMB110.0 MN (-4.3% Op Margin), this reflects RERE's benefiting from its economies of scale and increasing efforts in automation and cost optimization. RERE is fairly close to a breaking-even point.

In my last quarter's update I talked about a key milestone that AHS was listed as "Apple Trade In" service provider in both Apple Inc. ( AAPL ) online and Apple Stores, the first time since eight years ago Apple added a new Trade In service provider. In Q3'23, RERE officially joined Apple's recycling and trade-in business system in mainland China, serving Apple's official website and offline flagship stores for recycling or trade-ins. RERE has obtained the recycling qualification for mainstream Apple products, and starting in Nov'23, the end-to-end workflow is up and running. For instance, Apple customers can trade in iPhone 13, iPhone 14, and other models at Apple's direct channels, and after Apple completes the front-end fulfillment, these devices will be handed over to RERE for disposal. Adding Apple to RERE's already strong recycle ecosystem will help RERE accelerate its future growth.

Another seed for future growth is RERE's overseas business development. RERE recently collaborated with Swappie, a well-known European platform for recycling and selling used mobile phones, to promote the landing of self-service mobile phone recycling machines in Sweden. According to RERE, the first batch of self-service mobile phone recycling machines has successfully entered ICA stores in multiple cities. While there is minimal impact on RERE's financials today, expanding its global footprint will further strengthen its leading position.

Last but not least, while I still remain positive about RERE's future scale, growth, and profitability, I wanted to reiterate several risks as follows:

First, RERE stock price has been fluctuating a lot in the past 12 months (52-week high of $3.5 and 52-week low of $1.3). For a company with RMB3.3 billion quarterly run rates, 0.16x EV/NTM Sales and 1.13x P/BV suggest considerable room for RERE price to grow, however it may take more time for the market to recognize the value and for investors to build confidence.

Second, in spite of a high-barrier-to-entry pre-owned electronics market, competition is strong. RERE has to continue to differentiate itself through expansion strategies and operation efficiencies, and also move fast to seize new opportunities globally.

Lastly, there could still be uncertainty in China's economic recovery post COVID.

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