By Michael Kim
READ THE FULL RERE RESEARCH REPORT
Pre-market open on 5/20/25, ATRenew (NYSE:RERE) reported 1Q25 earnings outcomes. On a GAAP foundation, RERE reported internet earnings of $5.9 million for 1Q25, or $0.02 per ADS. That stated, excluding non-cash share-based compensation and intangible belongings amortization bills, adjusted EPS got here in at $0.04, or a penny shy of our $0.05 estimate. Relative to our mannequin, extra favorable income and working earnings have been offset by decrease non-GAAP addbacks (share-based compensation and intangible amortization).
Specializing in the highest line, complete income of RMB 4,653 million ($641.3 million) got here in barely above the excessive level of administration’s prior steerage vary and 1.0% above our RMB 4,616 million ($635.8 million) estimate on accelerating gross sales exercise. Complete bills of RMB 4,581 million ($631.2 million) have been proper in step with our RMB 4,589 million ($632.0 million) estimate. Larger success, promoting and advertising and marketing, and different working earnings prices have been offset by decrease merchandise and G&A bills.
After updating our mannequin for 1Q25 actuals, we’re refining our 2025 and 2026 adjusted EPS estimates from $0.27/$0.41 to $0.22/$0.42. Crosscurrents embrace: 1) the 1Q25 EPS miss; 2) regular income progress reflecting accelerating trade-in exercise fueled by authorities subsidy packages (for 2Q25, senior officers anticipate complete revenues to be within the vary of RMB 4,710 million and RMB 4,810 million, or $653 million to $667 million at present FX charges, implying year-over-year progress of 25% to 27%); 3) a barely extra favorable expense outlook largely a perform of decrease merchandise prices; and 4) much less favorable non-operating tendencies.
We’re leaving our 12-month value goal unchanged at $5.00 implying appreciable upside potential from present ranges. We proceed to imagine present ranges nonetheless present buyers with a sexy entry level for RERE, as consciousness and appreciation of the corporate’s enterprise mannequin, progress prospects, aggressive positioning, and valuation disconnect rises.
Following our overview of 1Q25 outcomes, we spotlight the next key takeaways:
1. Rising trade-in exercise driving progress: AHS Recycle is ATRenew’s Shopper-to-Enterprise (C2B) platform that sources pre-owned client electronics from customers seeking to promote or trade-in gadgets via proprietary offline shops or on-line portals, in addition to JD.com. The platform leverages proprietary inspection, grading, pricing, and logistics providers, and subsequently sells merchandise via both the Direct-to-Shopper (DTC) channel or by way of in-house PJT or Paipai B2B marketplaces. Associated internet product revenues in 1Q25 of $588 million have been up 29% from 1Q24 (and 54% excluding lumpy Apple trade-in and worldwide contributions), with a lot of the expansion pushed by on-line gross sales of high-quality pre-owned cellphones sourced by way of trade-in exercise. Going ahead, we anticipate trade-in volumes to proceed to development increased reflecting a number of highly effective drivers. First, authorities subsidies on new cellphones possible improve associated gross sales, in addition to progress within the provide of pre-owned gadgets. To the purpose, 1Q25 new smartphone shipments in China have been up 9% year-over-year, with roughly 300 million new telephones coming to market every year. Subsequent, trade-in volumes via JD.com proceed to develop reflecting accelerating gross sales of recent gadgets and rising consciousness of the recycling program. All that stated, recycling/trade-in program penetration charges stay low, suggesting a protracted runway for incremental progress, as client adoption charges proceed to rise. Lastly, ATRenew maintained 1,886 AHS offline shops as of March 31, 2025, up from 1,428 a 12 months in the past, thereby additional increasing the corporate’s retail footprint.
2. Constructing the model: A key driver to the newer step up in product revenues facilities on ongoing initiatives to boost AHS Recycle’s model. Extra particularly, administration not too long ago launched media campaigns throughout channels/partnerships centered on selling the corporate’s complete suite of providers and aggressive pricing. As well as, AHS Recycle launched environmental initiatives in partnership with different client manufacturers to lift consciousness of recycling and the round financial system extra broadly along with Earth Day. Enhancing consciousness and loyalty of the AHS Recycle model, with a concentrate on trade-in/recycling capabilities and customer support, possible additional stimulates progress in 1P enterprise volumes and associated contributions.
3. Accelerating capital administration; dividend subsequent?: Whereas administration stays centered on reinvesting within the enterprise to additional speed up high line progress, we search for senior officers to more and more return extra capital to shareholders as profitability continues to scale. Throughout 1Q25, administration repurchased 400,000 American Depositary Shares (ADS’s) at a mean value of $3.00 per share translating into $1.2 million. Trying forward, we anticipate senior executives to get extra aggressive on the share repurchases entrance in 2Q25 given downward strain on the inventory in April. Moreover, we anticipate the Board will renew the corporate’s present $50 million authorization (~$23 million remaining) when exhausted.
Stepping again, we might not be shocked if the Board declared a daily quarterly dividend within the not-too-distant future as a method of returning further capital to shareholders in a extra constant method. Our pondering is predicated on steadily rising adjusted internet earnings and extra opportunistic share repurchases. The introduction of a daily quarterly dividend enhances RERE’s yield and opens the inventory as much as a wider investor base, thereby possible representing a significant catalyst for the shares.
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