RERE - ATRenew: Strong Revenue Growth And Positive Profits In Q4 '22

2023-03-16 21:25:33 ET

Summary

• RERE reported strong revenue growth and positive operating profits on a non-GAAP basis.
• RERE saw sustainable growth through rapidly expanding offline stores (1,920 in FY22, up by 47% YoY).
• RERE's exploration into multi-category recycling provides additional upside.

ATRenew Inc. ( RERE ) is China's largest pre-owned consumer electronics transaction and services platform. RERE stock is now traded at $3.00, up by 87% since I wrote the last article, ATRenew: Continues To Drive Business Scale And Efficiency Through Automation.

RERE reported their Q4-22 and FY22 financial results, maintaining strong revenue growth rates and turning positive Operating profits on a non-GAAP basis, which appeared impressive in the zero-COVID environment in China. The main driver of their revenue growth was RERE's 1P business where the company has full control of its supply and highly predictable performance.

Net Revenue : $432.2MM in Q4-22, +22.4% YoY; $1,430.9MM in FY22, +26.9% YoY.

Operating Loss : $320.5MM in Q4-22 and $380.4MM in FY22 primarily due to impairment losses on goodwill and intangible assets. The impairment losses were due to COVID and selloff of China Concept Stocks that the market cap of RERE was smaller than the valuation of Paipai acquired. As a result, impairment losses were recorded.

Adjusted Operating Income (non-GAAP) : $5MM in Q4-22, and $1.0MM in FY22, as compared to Op Loss in FY21. The company seemed to have managed to improve their fulfillment efficiency. According to the company's earnings call, "our non-GAAP fulfillment expenses as a percentage of revenue decreased from 13.7% in 2020 to 12.9% in 2021 and further dropped to 10.9% in 2022."

RERE's financial performance relies on both topline growth and cost efficiencies, and main drivers are national expansion and automation operation centers, respectively. I would discuss the expansion in following section. For its operation efficiency, that would primarily come from its best-in-class operation center, e.g. Come into ATRenew's Most Advanced Automation Operation Center in Dongguan.

Sustainable growth through rapidly expanding national footprint

As of the end of 2022, RERE offline stores covered 266 cities, up by 10 cities QoQ and up by 24% YoY. In Q4-22 RERE opened 116 stores, which brought total number of stores to 1,920, +47% YoY.

Offline stores remain the core channel for RERE to secure 1P supply, and achieve sustainable growth. RERE's pace of expansion is obviously impressive, which I think also has benefited from its strong value proposition. Offline stores in my opinion are one-stop shops that have greatly simplified the process for customers to sell pre-owned electronics, which otherwise would take multiple steps to clear data, recover the system, fix glitches, and inquire pricing. Very different from selling or buying brand-new and standardized products, offline stores turn out to be the most efficient way for attract, reach, and serve customers.

Also, as the company disclose in their IPO, 98% of mature stores (opened for longer than 3 months) are profitable. This means a properly paced expansion will not be disruptive to RERE's P&L, and proves the offline channel's effectiveness.

Additional upside from multi-category recycling

Another piece of exciting news from RERE was its early success in experimenting multi-category recycling. Besides electronics, RERE has opened 63 stores across 14 cities for recycling business like cameras, bags, watches, gold ornaments, check wine, shoes and clothes, etc. According to the company's earnings call, the multi-category strategy will be expending quickly as well.

It's too early to quantify the upside at this point, but I think the opportunity is going to be massive given its close to 2,000 stores on the field.

Conclusion

RERE as an ESG leader has built a massively strong omnichannel foundation in pre-owned electronics market. RERE's city expansion and automation operation will continue to be the two main levers of growing topline and expanding margins in the future. Its multi-category strategy seems a brilliant way to capitalize on its tangible and intangible assets.

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