ATRenew Inc.: Is There a Great Story to Tell?
Over the past decade, there has been a growing appetite among Chinese consumers for secondhand goods, and thus we’ve witnessed the rise of several secondhand goods platforms in the country, shaping and pushing forward the rapid expansion of the circular economy. Amongst those platforms, particularly in the electronics segment, ATRenew Inc. (NYSE: RERE), a leading technology-driven pre-owned consumer electronics transactions and services platform, has caught widespread attention from both the public and investors.
Following its IPO at the New York Stock Exchange in June this year, the decade-old company has just released its better-than-expected financial performance for Q3 2021 on Thursday. During the third quarter, ATRenew’s total net revenues grew by 48.0% to 1.9623 billion yuan ($304.5 million), exceeding the high end of the guidelines; the total gross merchandise volume (GMV) increased by 56.6% to 8.3 billion yuan, surpassing expectations as well.
Let’s break down the numbers.
According to its latest financial report, product revenues continue to be the firm’s main business, which not only grew 45.0 % year-on-year to 1.665 billion yuan, but also saw an increase from the second quarter this year. The increase was primarily attributable to an increase in the sourcing volume and the corresponding sales of pre-owned consumer electronics through PJT Marketplace, Paipai Marketplace and the company’s offline channels.
The other source of income for ATRenew is from its service revenues. Although a relatively small portion, it is accelerating fast. To sum up, net service revenues increased by 67.3% to 297.3 million yuan from 177.7 million yuan in the same period of 2020. The increase was primarily due to an increase in the transaction volume on PJT Marketplace and Paipai Marketplace, and an increase in the average commission rate. This has demonstrated that ATRenew’s value-added services and the consignment model, Paipai Marketplace business is widely acknowledged by merchants and consumers. More importantly, as Rex Chen, the firm’s Chief Financial Officer said, “revenue contribution from services grew 15.2% during the third quarter, diversifying our revenue mix.”
In Q3 2021, total GMV increased by 56.6% to 8.3 billion yuan from 5.3 billion yuan a year earlier. GMV for product sales increased by 58.3% to 1.9 billion yuan from 1.2 billion yuan in the third quarter of 2020, primarily driven by organic growth in AHS stores and strong support from strategic partners including JD Group. GMV for online marketplaces increased by 56.1% to 6.4 billion yuan from 4.1 billion yuan in the third quarter of 2020.
During the same quarter this year, ATRenew’s number of consumer products transacted increased by 23.4% to 7.9 million from 6.4 million in the third quarter of 2020. There might be doubts regarding the slowing growth rate, but given what management personnel said during an earnings conference call, which cut off a considerable amount of low average selling price business (namely Duobaodao) only for user traffic purposes, eased the concern. It turns out that the number of consumer products transacted for the company’s main business – 3C products, still grew at a higher rate of 38.7%, remaining intact.
ATRenew is best-known for its ESG-driven business approach. Over the three quarters ended September 30, 2021, the company facilitated the circulation of 22.1 million secondhand goods, most of which were digital products. Meanwhile, the company protects users’ information security by developing certain technology, reduces carbon emissions and environmental pollution by extending the life cycle of electronic products, and improves the standardization and scale of the secondhand 3C industry by building supply chain capabilities.
Being the first ESG-driven company in China to go public, against the backdrop of China’s recycling economy, the company has clearly pictured its vision and demonstrated business ambition. With respect to its robust scale and revenue growth and macro environment, Kerry Xuefeng Chen, the Founder, Chairman and Chief Executive Officer of ATRenew, commented that the company is “proactively pushing to further the country’s goals for peak carbon emissions, carbon neutrality, and developing a circular economy by promoting standardization of the pre-owned consumer industry and driving the growth of a new type of real economy for compliant recycling and trade-ins of pre-owned consumer electronics.”
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Still, we cannot ignore the fact that the company is still recording net losses. However, there seems to be a solid explanation for this. Let’s take a look at the numbers first. According to the company’s third quarter results of 2021, loss from operations was 150.5 million yuan, compared to 84.7 million yuan in the third quarter of 2020. Adjusted loss from operations was 28.5 million yuan compared to 6.9 million yuan in the third quarter of 2020. It is true that on a year-on-year basis, loss from operations has deepened, but when compared to the previous quarter, both under GAAP and NON-GAAP measures, loss from operations have both significantly narrowed. And the company management commented that for the fiscal year of 2022, they anticipated non-GAAP operating profit, and that they were confident in securing non-GAAP profitability.
In a highly competitive market, the core capability and competitive advantage for ATRenew lies in its all-round development of supply chain capabilities and its decade-long strategy of online and offline business combination, which strengthens its comprehensive abilities and makes it stand out from peers. The city-level service integration the company has rolled out since 2019, which proposed a strategic goal of establishing 1,000 stores across 100 cites, is coming true. As of mid-November, 2021, the total number of offline stores has already exceeded 1,000.
And the company is upgrading this strategic goal for future development. To be specific, ATRenew will launch city-level service integration in 50 cities in 2022. In addition, over the next three to four years, the company will gradually expand its implementation to more than 100 cities and seek to secure scalable GMV growth to exceed 100 billion yuan by 2025.
The city-level service integration is quite advantageous to ATRenew’s business development for several reasons. First, the secondhand mobile phone market has relatively strong geographic characteristics on both the supply and the demand side, and the market penetration rate within most cities in China is relatively low. This brings a big business opportunity for ATRenew to go local. Also, it allows ATRenew to integrate online sales channels and offline display and Paipai selection stores, and bring out ATRenew’s utmost potential in supply chain capabilities. As Kerry Chen pointed out during the earnings conference call, “these resources when rearranged locally, not only improve service agility for local merchants but also reduce cross-regional shipping and processing, which ultimately optimize the inventory turnover.” The strategy is believed to further widen the gap with its competitors from the secondhand economy.
According to China Insights Consultancy, a China-based business consulting agency, by 2025, the scale of the country’s second-hand 3C product transactions will reach 546 million units, and the GMV is expected to be 967.3 billion yuan. In 2020, in the fields of product transactions and product service for secondhand 3C electronics, ATRenew’s number of consumer products transacted and GMV both ranked first in the Chinese market, both of which are higher than the sum of those from second to fifth place in the industry.
In the Chinese economy, especially for the young generations, using secondhand goods and services, including 3C electronics and luxuries, has become increasingly popular over the past decade. This phenomenon is not only due to personal preferences, but also coming from the rising awareness of a recycling economy. In that regard, ATRenew and many other secondhand trading platforms in China are highly likely to see greater prosperity.
