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Business Overview
ATRenew Inc. (“ATRenew”) (NYSE: RERE), founded in 2011, operates a leading technology-driven pre-owned consumer electronics transactions and services platform in China under the brand ATRenew, which stands for “All Things Renew.” RERE owns end-to-end capabilities online and offline, including AHS Recycle (C2B), PJT Marketplace (B2B), and Paipai Marketplace (B2C), and has a total of more than 1,000 stores across over 200 cities in China.
AHS Recycle: a C2B recycle platform that recycles phones from multiple channels, including online, trade-in, and offline AHS stores. PJT Marketplace: a B2B platform that enables merchants to trade pre-owned devices. Paipai Marketplace: a B2C platform that sells premium-quality pre-owned devices under POP and consignment models.
Q4-21 Financials
RERE’s Q4-21 performance proved its monetization capabilities through its rapidly scaling ecosystem with its C2B2C closed-loop supply chain. Q4-21 represented a critical profitability milestone as the first breaking-even quarter (non-GAAP op income of $1.5MM in Q4-21). On a full year basis, RERE op loss was $16.2MM (-1.3% of Revenue) in FY21, vs $22.7MM op loss (-3.0% of Revenue) in FY20. Q4-21 saw a much higher growth rate from RERE’s commission-based service revenue (78.3% YoY vs 43.9% YoY of product revenue). As the mix of service revenue continues to increase, it will further help RERE’s profitability.
RERE reported Revenue: Q4-21 $382MM, +48.2% YoY; FY21 $1,221MM, +60.1% YoY.
GMV: Q4-21 $1.6B, +50.7% YoY; FY21 $5.1B, +65.8% YoY.
Number of consumer products transacted: Q4-21 9.1M, +26.4% YoY; FY21 31.2M, +32.2% YoY.
Operating Loss: Q4-21 -$19.8MM, FY21 -$140.5MM
Non-GAAP operating Income/Loss: Q4-21 +$1.5MM, FY21 -$16.2MM
1. C2B2C business strategy forms a unique supply and demand flywheel to drive RERE’s continuous growth
On the supply side, RERE owns an omni-channel sourcing network, inclusive of website, mobile app, mobile mini programs, AHS stores and kiosks. RERE also partners with JD.com (NASDAQ:JD) through their “one-stop trade-in” services since 2019.
On the demand side, RERE serves a wide range of buyers and offers a wide range of devices through PJT Marketplace and Paipai Marketplace.
RERE’s presence through diverse supply and demand channels enables RERE to scale and also helps RERE build its expertise in inspection, grading and pricing. The C2B2C business strategy will continue to fuel RERE’s long-term growth. In a highly competitive environment with two market leaders (Xianyu, and Zhuanzhuan), RERE’s strategy represents a robust path to earn market shares and solidify its differentiated value.
2. Proprietary technology continues to drive RERE operation efficiency through automation and big data capabilities
RERE’s flywheel requires efficient operation on many fronts, such as inspection, grading, and pricing, etc. As of March 31, 2021, RERE operated 7 centralized operation centers, including a fully automated center in Changzhou and 23 city-level operation stations equipped with proprietary data-driven processing technologies. Big data and artificial intelligence play a crucial role in the day-to-day operation of RERE’s AHS stores. A couple of examples as follow.
RERE Ops center in Changzhou adopted “Matrix 2.0” – multi-system and multi-device automation. The 2nd generation of Matrix was able to reduce labor efforts by 85%, labor costs by 83%, and quality assurance costs by 20%, and improve quality assurance efficiency by 18%.
RERE recently invented Photo Box 3.0, which incorporated AI and was able to inspect up to 30 kinds of defects of cell phone appearances with only 20 seconds. This Photo Box can achieve inspection accuracy of 99% with 90% less inspection time. In H1 2022, RERE will continue to implement automated inspection strategy.
RERE’s breakeven in Q4-21 signaled an early win of driving business scale and operation efficiency. As RERE continues to analyze thousands of phone models, millions of transactions, and millions of purchasing behaviors of consumers and small merchants, RERE will be able to further optimize its operation and leverage big data/AI to maximize consumer surplus by better matching supply and demand.
3. RERE’s city-level expansion will further reinforce its C2B2C strategy and increase its added value as reflected in its take rate
By the end of 2021, RERE has covered 214 cities, with 1,308 stores. Its supply and demand flywheel will continue to accelerate along with its city-level expansion, and its bargaining power will also increase among merchants. According to the latest earnings release, the overall take rate was 4.8%, up by 20 bps sequentially. Specifically, take rate of PJT marketplace was 4.5%, +60 bps YoY with additional charge of inspection and customer service fee; take rate of Paipai was 5.4%, +120 bps YoY due to increase in the take rate of its consignment business. If we look at the entire value chain, there are a variety of value-adding services that RERE can offer, such as maintenance services, and supply chain financing services, etc.
Investment Risks
There are several risks that investors should take into account when making their investment decisions.
First, RERE’s online traffic access mainly relies on partners like JD.com, and its own online traffic acquisition capability appears limited as compared with its competitors like Xianyu and Zhuanzhuan. According to stats in Q1 2021 of MAU of preowned electronics ecommerce APPs, Xianyu MAU was 5.7M, and Zhuanzhuan MAU was 1.5M. In contrast, Aihuishou and Paipai had 0.5M and 0.3M MAU respectively.
Second, RERE’s C2B2C remains a capital-heavy strategy hence RERE will have to balance its expansion velocity and its free cash flow.
Finally, similar to other Chinese companies listed on the US markets (NASDAQ Golden Dragon China Index dropped by 67% TTM), RERE experienced the market bleeding since its IPO in Jun. 2021. While clearly RERE is undervalued, it is hard to predict how long it takes to recover. Business fundamentals will get more exciting, however investor confidence needs a rebuild.
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