By Michael Kim
READ THE FULL RERE RESEARCH REPORT
Pre-market open on 5/20/25, ATRenew (NYSE:RERE) reported 1Q25 earnings results. On a GAAP basis, RERE reported net income of $5.9 million for 1Q25, or $0.02 per ADS. That said, excluding non-cash share-based compensation and intangible assets amortization expenses, adjusted EPS came in at $0.04, or a penny shy of our $0.05 estimate. Relative to our model, more favorable revenue and operating income were offset by lower non-GAAP addbacks (share-based compensation and intangible amortization).
Focusing on the top line, total revenue of RMB 4,653 million ($641.3 million) came in slightly above the high point of management’s prior guidance range and 1.0% above our RMB 4,616 million ($635.8 million) estimate on accelerating sales activity. Total expenses of RMB 4,581 million ($631.2 million) were right in line with our RMB 4,589 million ($632.0 million) estimate. Higher fulfillment, selling and marketing, and other operating income costs were offset by lower merchandise and G&A expenses.
After updating our model for 1Q25 actuals, we are refining our 2025 and 2026 adjusted EPS estimates from $0.27/$0.41 to $0.22/$0.42. Crosscurrents include: 1) the 1Q25 EPS miss; 2) steady revenue growth reflecting accelerating trade-in activity fueled by government subsidy programs (for 2Q25, senior officials anticipate total revenues to be in the range of RMB 4,710 million and RMB 4,810 million, or $653 million to $667 million at current FX rates, implying year-over-year growth of 25% to 27%); 3) a slightly more favorable expense outlook mostly a function of lower merchandise costs; and 4) less favorable non-operating trends.
We are leaving our 12-month price target unchanged at $5.00 implying considerable upside potential from current levels. We continue to believe current levels still provide investors with an attractive entry point for RERE, as awareness and appreciation of the company’s business model, growth prospects, competitive positioning, and valuation disconnect rises.
Following our review of 1Q25 results, we highlight the following key takeaways:
1. Rising trade-in activity driving growth: AHS Recycle is ATRenew’s Consumer-to-Business (C2B) platform that sources pre-owned consumer electronics from consumers looking to sell or trade-in devices through proprietary offline stores or online portals, as well as JD.com. The platform leverages proprietary inspection, grading, pricing, and logistics services, and subsequently sells products through either the Direct-to-Consumer (DTC) channel or via in-house PJT or Paipai B2B marketplaces. Related net product revenues in 1Q25 of $588 million were up 29% from 1Q24 (and 54% excluding lumpy Apple trade-in and international contributions), with much of the growth driven by online sales of high-quality pre-owned mobile phones sourced via trade-in activity. Going forward, we expect trade-in volumes to continue to trend higher reflecting several powerful drivers. First, government subsidies on new mobile phones likely enhance related sales, as well as growth in the supply of pre-owned devices. To the point, 1Q25 new smartphone shipments in China were up 9% year-over-year, with roughly 300 million new phones coming to market each year. Next, trade-in volumes through JD.com continue to grow reflecting accelerating sales of new devices and rising awareness of the recycling program. All that said, recycling/trade-in program penetration rates remain low, suggesting a long runway for incremental growth, as consumer adoption rates continue to rise. Finally, ATRenew maintained 1,886 AHS offline stores as of March 31, 2025, up from 1,428 a year ago, thereby further expanding the company’s retail footprint.
2. Building the brand: A key driver to the more recent step up in product revenues centers on ongoing initiatives to enhance AHS Recycle’s brand. More specifically, management recently launched media campaigns across channels/partnerships focused on promoting the company’s comprehensive suite of services and competitive pricing. In addition, AHS Recycle introduced environmental initiatives in partnership with other consumer brands to raise awareness of recycling and the circular economy more broadly in conjunction with Earth Day. Improving awareness and loyalty of the AHS Recycle brand, with a focus on trade-in/recycling capabilities and customer service, likely further stimulates growth in 1P business volumes and related contributions.
3. Accelerating capital management; dividend next?: While management remains focused on reinvesting in the business to further accelerate top line growth, we look for senior officials to increasingly return excess capital to shareholders as profitability continues to scale. During 1Q25, management repurchased 400,000 American Depositary Shares (ADS’s) at an average price of $3.00 per share translating into $1.2 million. Looking ahead, we expect senior executives to get more aggressive on the share repurchases front in 2Q25 given downward pressure on the stock in April. Furthermore, we anticipate the Board will renew the company’s current $50 million authorization (~$23 million remaining) when exhausted.
Stepping back, we would not be surprised if the Board declared a regular quarterly dividend in the not-too-distant future as a means of returning additional capital to shareholders in a more consistent manner. Our thinking is based on steadily rising adjusted net income and more opportunistic share repurchases. The introduction of a regular quarterly dividend enhances RERE’s yield and opens the stock up to a wider investor base, thereby likely representing a meaningful catalyst for the shares.
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