On March 10, China’s largest used consumer electronics trading platform ATRenew Inc. (NYSE: RERE) released its fourth quarter and full year fiscal 2021 financial results.
Overall, ATRenew has seen robust growth rates over the past year, both in terms of revenue and GMV performance, coupled with a reduced operating loss ratio compared with 2020. The company is expanding the scope of its offline stores, deepening the penetration rate in China’s lower-tier cities while increasing store density in existing markets. Meanwhile, backed by the “city-level service integration” strategy, which aims to build an all-in-one model integrating the company’s B2C, B2B and C2B businesses, the company’s financial performance in Q4 2021 powerfully showcased the potential of this strategy in boosting revenue and enhancing sourcing capabilities. Looking forward, as China’s first ESG-driven company to go public, and in a policy climate favorable to eco-friendly enterprises, ATRenew will continue to fulfil its commitment to promoting a low-carbon lifestyle.
Now, let’s break down the numbers.
For the full fiscal year of 2021, the total revenue of ATRenew Inc. increased by 60.1% to 7.78 billion yuan ($1.23 billion), and the total GMV increased by 65.8% to 32.5 billion yuan, far exceeding the financial performance prior to its IPO.
ATRenew’s revenue is composed of two parts – its 1P business, or product sales, and 3P business, or platform services. In 2021, 6.65 billion – around 85% of its total revenue – came from product sales, representing 56.8% year-on-year growth, with the platform service revenue contributing 1.13 billion yuan, up 83.2%. This growth was driven primarily by improved sourcing capabilities achieved through ATRenew’s expanding offline store networks, and the higher volume of products traded on platforms including PJT Marketplace and Paipai.
For one, in the past year, ATRenew added 576 offline stores across China. By December 31, 2021, the total number of its offline stores had reached 1,308, covering 214 cities across the country. In particular, as Kerry Chen, founder and CEO of ATRenew noted in the earnings conference call, the company has been extending its reach into China’s vast “sinking market” in lower-tier cities, where most of the population reside and the penetration rate of secondhand market had remained low, which indicates a promising market for companies like ATRenew. According to a research report by U.S.-based consultancy Kearney, since 2018, the proportion of used mobile phone purchases in Chinese first- and second-tier cities has fallen from nearly 50% to less than 40%, making consumers in China’s fourth- and fifth-tier cities the main purchasing power, accounting for 41% and growing twice as fast as in higher tier cities.
Furthermore, as a continuation of the company’s plan to open 1,000 offline stores across one hundred cities in China, which ATRenew rolled out in 2019 and achieved in two years, it also launched the “city-level service integration” strategy in 2021, aiming to have those stores generate 100 billion yuan in GMV throughout the next three years.
Specifically, the “city-level service integration” strategy is founded on ATRenew’s three fundamental understandings of the industry, namely its nature of being scenario-driven, supply chain capability-driven, and the huge demand for used electronics in China’s lower-tier cities. Therefore, the strategy seeks to bridge ATRenew’s three major lines of business – B2C, B2B and C2B – by combining its offline stores and online marketplaces, while the ultimate goal is to establish infrastructure facilities for one-stop services.
At the collecting end, AHS Recycle, the company’s C2B trading platform, has established 1,287 stores within more than 200 cities nationwide, securing a strong supply chain. For processing, collected devices are then sent to the seven regional operation centers and 95 warehouses across the country, empowering more than 200,000 merchants on ATRenew’s B2B marketplace, PJT. Finally, at the retail end, Paipai is also making steady progress, opening 21 offline stores in six Chinese cities. The integration of AHS Recycle, PJT Marketplace and Paipai means that ATRenew has established a complete supply chain spanning from collection, processing and quality control, to the retail end, thereby enabling a “C2B+B2B+B2C” integrated goods circulation platform.
According to ATRenew’s latest financial report, so far, a total of 22 cities have trialed the “city-level service integration” strategy, and 18 of them achieved higher GMV growth than the overall average (65.8%). In a set of 12 cities where the strategy was pursued more aggressively, B2B GMV growth exceeded 100%.
It is also worth noting that although ATRenew’s leading source of revenue remains its 1P business, its 3P business via the online marketplace has been growing at a rapid pace. This is largely attributed to a rising GMV and increased commission rate of third-party marketplaces. In 2021, PJT Marketplace and Paipai contributed 2.47 billion yuan, or 76% of 2021’s GMV, yielding an 83.2% growth rate compared with the year before. Moreover, the commission rate of third-party marketplaces rose from 4.1% in 2020 to 4.6% in 2021, and accordingly, the share of marketplace-generated revenue increased from 12.6% in 2020 to 14.5% in 2021. By the end of Q4 2021, that number had risen to an all-time high of 14.8%.
While it is true that the firm’s 3P business is still loss-making for the time being, the robust growth of marketplace-generated GMV in 2021, stronger merchants’ demand and higher transaction frequency observed on online platforms all suggest there is considerable room for future growth.
In addition, on the group level, ATRenew recorded a narrowed full-year loss in 2021, with non-GAAP operating loss ratio reduced to 1.3% compared with 3.0% in 2020, and the adjusted operating loss for the full year 2021 was only 100 million yuan. Furthermore, the fourth quarter of 2021 saw a 0.4% non-GAAP operating profit margin, compared with -1.5% in the previous quarter, which is a strong manifestation of the potential of the company’s various strategic plans.
These plans include, first and foremost, the above-mentioned “city-level service integration” project that has helped raise ATRenew’s penatration rate in a wider market and strengthens its sourcing capabilities. Meanwhile, higher R&D investment – 50.6% more than last year – also contributes to improved cost efficiency. For example, in July 2021, ATRenew’s operations center in Changzhou upgraded its quality-control automation system from the previous “manual plus automation” model to a full-automated system. Coded “Matrix 2.0,” the upgraded system led to an 85% reduction in equipment operators, an 83% reduction in manual support costs, a 20% reduction in quality control costs and an 18% increase in quality control efficiency.
According to the IDC Worldwide Quarterly Mobile Phone Tracker, in 2021, smartphone sales in China totaled 329.3 million units. A user survey jointly conducted by iMobile and Chinese e-commerce giant JD.com further reveals that nearly half of Chinese smartphone owners renew their devices once every two years, and as many as 38% of those surveyed reported to have held on to three or more used devices after being replaced by new ones, leaving them idle in storage. These findings indicate a huge market for secondhand consumer electronics trading platforms like ATRenew to cultivate in the near future. In fact, according to China Insights Consultancy (CIC)’s estimation, by 2025, the size of China’s used 3C – computers, communication and cosumer electronics – transactions will reach 546 million units with GMV expected to reach 967.3 billion yuan.
As an ESG-driven company that operates on the basis of environmental, social and governance concerns, ATRenew positions itself in the crossover of the internet industry, the booming secondhand industry, and aims to become a leading player in the circular economy, which has seen strong advocacy by the Chinese government in recent years.
As CEO Kerry Chen concluded in the earnings call, “Operating an ‘internet + recycle’ business, ATRenew is evolving with the circular economy advocated by Chinese government. In 2022, we aim to serve our customers well, while upholding our position as an important partner in JD.com’s ecosystem. We root deep in supply chain capabilities, continue upgrading automation technologies, and optimize cost structure and margins. With no doubt, city-level service integration strategy stays core to our business and drives organic growth across local markets in China. We are confident in sustained growth without compromising profitability.”
On December 28, 2021, driven by managers’ strong confidence in the company’s solid fundamentals and growth momentum, ATRenew announced a $100 million share repurchase program. As of December 31, 2021, cash and cash equivalents, restricted cash, short-term investments, funds receivable from third-party payment service providers and JD.com on the firm’s balance sheet totaled 2.6 billion yuan.