On Thursday, BofA Securities adjusted its outlook on Autohome Inc. (NYSE: ATHM), increasing the price target to $33.00 from the previous $30.00, while the firm maintained a Neutral stance on the stock. The revision comes amid expectations of a continued downturn in the company's financial performance, with projections indicating a 7% year-over-year (YoY) decline in third-quarter revenue, a steeper drop than the previously estimated 3%. Adjusted net profit is also anticipated to fall by 17% YoY, revised from an earlier forecast of a 15% decline.
The downward revision in Autohome's financial estimates is primarily attributed to a significant reduction in advertising revenue. Analysts at BofA Securities predict that the decline in ad revenue, which was at 19% in the second quarter, will worsen to 30% in the second half of 2024. This trend is seen as a result of a shrinking internal combustion engine vehicle (ICEV) market in China and ongoing price competition within the automotive sector, issues that are reportedly intensifying.
The analysis also raises concerns about the competitive landscape of advertising from non-automotive sectors. Data from QuestMobile indicated that user engagement across the three major automotive vertical mobile applications—Autohome, Bitauto, and Dongchedi—has diminished during the second and third quarters of 2024. The potential impact of additional policies to stimulate auto consumption, the possibility of easing price wars, and the recovery of automakers' budgets are factors being monitored for their influence on automotive advertising trends.
Looking ahead, BofA Securities is closely observing Autohome's annual renewal of memberships and data products, which is expected to occur from the end of 2024 into early 2025. There is a perceived risk to the company's revenue in 2025, should the consolidation within the auto dealer industry become more pronounced. This forecast reflects the challenges faced by Autohome in a transforming market and the uncertainties regarding future performance.
In other recent news, Autohome Inc. demonstrated a steady rise in its second-quarter and interim 2024 earnings, with total revenues growing by 2.2% year-over-year to reach RMB1.87 billion. The adjusted net income attributable to Autohome was RMB572 million, marking a robust net profit margin of 30.6%. The online marketplace and other businesses played a significant role, accounting for 33.1% of the total revenue. New energy vehicles (NEVs) and data products also experienced substantial growth.
In the same vein, Citi updated its outlook on Autohome Inc., raising the price target to $28.00 from the previous $26.00, while maintaining a Neutral stance. This change comes ahead of the company's third-quarter 2024 earnings report. Citi anticipates Autohome's revenue may fall short of expectations, but earnings are projected to align closely with the consensus.
Furthermore, Autohome is expanding its new retail business and digitalization efforts, including establishing partnerships with Ping An Group. The company is focusing on capacity building and increasing its inventory of high-quality, authenticated vehicles. Autohome's satellite store model for NEVs is expanding to cover more low-tier cities.
InvestingPro Insights
Despite the challenges highlighted in BofA Securities' analysis, InvestingPro data reveals some positive aspects of Autohome's financial position. The company boasts a P/E ratio of 11.63, suggesting it may be undervalued compared to its peers. Additionally, Autohome's gross profit margin stands at an impressive 82.28% for the last twelve months as of Q2 2024, indicating strong profitability in its core operations.
InvestingPro Tips further support this view, noting that Autohome "holds more cash than debt on its balance sheet" and has "impressive gross profit margins." These factors could provide the company with financial flexibility to navigate the challenging market conditions described in the article.
Moreover, Autohome has "maintained dividend payments for 5 consecutive years," which may appeal to income-focused investors despite the projected revenue declines. The current dividend yield is 1.89%, offering a steady income stream.
For investors seeking a more comprehensive analysis, InvestingPro offers 8 additional tips for Autohome, providing a deeper understanding of the company's financial health and market position.
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