ATRenew Chases New Growth With Refurbishment, New Apple Partnership

Key Takeaways:

• ATRenew’s revenue rose 28% in the third quarter, as its refurbishment business and its move into non-electronics recycling gained momentum
• The company has begun ramping up its acquisitions of used iPhones, its biggest product area, through its recent partnership with Apple in Mainland China

By Doug Young

Diversification was a major theme in the latest financial results from recycling specialist ATRenew Inc. RERE, which is trying to broaden beyond its early focus on iPhones to expand into rival Android-based products and even other areas like luxury goods. At the same time, the company is trying to broaden its reach in its core area by moving beyond simply buying and reselling secondhand smartphones, to refurbishing them to sell for bigger profits.

Signs that such initiatives were beginning to bear fruit were sprinkled throughout the company’s third-quarter earnings report released last Wednesday just before the Thanksgiving holiday. Investors didn’t seem too thankful, at least not initially, with ATRenew’s shares dropping 5% after the report came out, though they gained most of that back the next trading day.

The company also showed some initial results from its recent partnership with Apple to help the iPhone maker recycle its phones in China, including 30 million yuan ($4.2 million) in sales from the program since its launch at the end of June. That partnership could gain some momentum as more consumers trade in their older models for the latest iPhone 15 smartphones launched in late September, and ATRenew believes the partnership could eventually add more than 1 billion yuan to its top-line revenue.

Truth be told, ATRenew appears to be sitting pretty in China for a number of reasons, even if investors don’t appreciate the company just yet. Its focus on the “circular economy” fits nicely with Beijing’s strong environmental commitments, including going carbon neutral by 2060 and more broadly reducing pollution. Such syncing with government priorities is especially important in China, where good government relations are far more important than in the west.

The other factor that could increasingly play in ATRenew’s favor is China’s slowing economy, which is prompting consumers to rein in their spending, especially for bigger-ticket items like cars and even smartphones. As that happens, a growing number of budget-conscious consumers are likely to consider recycled smartphones and other items as more affordable alternatives to new products.

Those factors are contributing to a steady buildup in ATRenew’s revenue, which rose 28.4% year-on-year to 3.26 billion yuan in the third quarter, slightly beating the company’s previous guidance given three months earlier. It forecast fourth-quarter revenue of between 3.73 billion yuan and 3.83 billion yuan, which would represent similar 27% year-on-year growth at the midpoint of that range.

Within its third-quarter revenue, product sales rose by 31.4% to 2.92 billion yuan, accounting for nearly 90% of the total. Revenue from services rose by a far slower 7.3% to 333 million yuan, as the company places greater focus on the product side of its business.

A big growth area within the product side came in the refurbishment business that we mentioned earlier. Sales of refurbished products generally carry higher margins, since companies like ATRenew can charge considerably higher prices for phones that they recondition compared with ones they simply resell largely in the same condition as when they were received.

The company said that sales of refurbished products more than doubled year-on-year to 200 million yuan in the third quarter, as that part of the business keeps growing.

“We are confident in executing our strategy to realize higher profitability from our compliant refurbished business, our involvement in Apple’s official recycling and trading programs, expansion of our multi-category recycling and the efficiency enhancement from automation technology,” said ATRenew founder and Chairman Chen Xuefeng, who also uses the English name Kerry, on the company’s investor call after the results release.

Non-Electronics Business

Electronics are the largest part of ATRenew’s growing refurbishment business, but another emerging area is lower-tech consumer products like luxury goods, gold and even vintage liquors. ATRenew has been building up that part of the business this year, seeking to leverage its brand as a recycling specialist into other areas.

As that business grows, the company said that gross merchandise value (GMV) for such goods, which it calls its “multi-category business,” reached 350 million yuan in the third quarter, growing sharply from 200 million yuan in the previous quarter. Chen noted that such products are gaining popularity among its broader community of users, showing how it is leveraging its name into new areas. The company previously said such multi-category products were available at 231 of its stores at the end of June, and indicated it was expanding that to more of its national network of about 2,000 offline stores.

As part of its effort to diversify beyond iPhones, the company announced that it was authorized in July to start refurbishing products from Huawei, which is undergoing a resurgence after finding ways to skirt U.S. sanctions and produce its high-performance smartphones using domestic technology.

Chen said that ATRenew is also exploring refurbishment opportunities with other Android-based products, though he didn’t provide more specifics. Recycling Android phones would provide a huge new opportunity for the company, since Apple only controlled about 16% of China’s smartphone market in the third quarter, according to IDC, even though iPhones account for about 60% of ATRenew’s product revenue.

In addition to its diversification, ATRenew has been taking steps to become more efficient. Those include automating more of its inspection processes for used phones, doing more recycling at the city level and cutting out costly middlemen by dealing directly with buyers and sellers of the products it recycles.

Reflecting that greater efficiency, the company said its non-GAAP fulfillment expenses fell to 8.7% of total revenue in the third quarter from 10.7% a year earlier. The company reported a record 73.8 million yuan in non-GAAP income from operations, up sharply from 10.8 million yuan a year earlier. It continued to be profitable on a non-GAAP basis, though its bottom-line remained in the red with a 44.2 million yuan loss for the period on GAAP basis.

ATRenew’s stock has lost about half of its value this year, amid broader weakness for U.S.-listed Chinese stocks, mostly on concerns about the Chinese economy and U.S.-China tensions. At that level the stock trades at a relatively low price-to-sales (P/S) ratio of 0.27, which is in between the 0.12 for clothing recycler Rent the Runway RENT and the 0.40 for The RealReal REAL, a seller of secondhand luxury goods. Used car specialist Carvana CVNA trades higher at 0.49 following a big run-up in its stock this year after years of neglect. Now the other recyclers, including ATRenew, are probably hoping investors make a similar discovery of their stocks as well.