Trade-in 'Chic' Helps Boost ATRenew To First Operating Profit

Key Takeaways:

• ATRenew’s revenue rose 24.4% in the third quarter, and it predicted similar growth in the fourth quarter following strong results from its ‘Double 11’ promotions with JD.com
• The company is getting a boost from the growing popularity of trade-in promotions, which China is encouraging to encourage recycling and boost consumption

By Doug Young

Trading in second-hand goods was traditionally a sign of thrift, practiced by people on tight budgets. But in China’s growing climate of consumer caution, such buying is becoming a new sort of chic, especially trade-ins that allow people to exchange their used goods for credit towards other purchases.

Such buying is becoming an increasingly important growth engine for recycling specialist ATRenew Inc. RERE, whose latest quarterly report released Wednesday continued to show strong double-digit revenue growth, even as many other consumer segments report sharp slowdowns.

And in a world where consumer buying increasingly takes place online, ATRenew is also discovering the importance of traditional brick-and-mortar stores, especially for second-hand goods where people may want to more closely inspect what they’re buying. As a result, the company announced plans to speed up its opening of such stores, going against a tide that more often sees merchants shutter their brick-and-mortar shops and go virtual.

Such moves are mostly refinements of ATRenew’s business model, as it gains scale and expertise that it’s using to move beyond its original electronics focus to other areas like used luxury goods, gold and vintage liquors. As that happens and it hones its focus to its most profitable businesses, the company also notched a significant milestone by reporting its first-ever quarterly operating profit – one of its last major profitability metrics to turn positive.

More investors are taking note as the company’s story gains visibility, reflected by ATRenew’s current shareholders that include the likes of Tiger Global, Morgan Stanley and UBS, which all hold 1% or more of its stock. More investors piled in after the report’s release, sparking a nearly 14% rally for ATRenew’s shares the day the results came out. Year to date the stock is up 46%, far outpacing an 18% gain for the broader iShares MSCI China ETF.

The growing popularity of trade-ins has become a major new theme for ATRenew, driven by recent government programs providing subsidies to people who exchange their old goods for new purchases. Such subsidies so far apply to big-ticket items like household appliances and are part of Beijing’s efforts to stimulate the economy through greater consumption.

The government has yet to offer such trade-in subsidies for smartphones that are ATRenew’s core business, though many suspect such a move could come as Beijing continues to launch more stimulus programs. The growing popularity of trade-ins helps ATRenew by boosting its supply of products, a critical factor behind its ability to keep growing.

“We believe, firstly, trade-ins are becoming a trendy option among consumers, thus outpacing and driving the growth of the industry,” ATRenew Chairman Kerry Chen said on the company’s earnings call. “We believe that the adoption of trade-ins is still in its early stages. Alongside platforms and brands, we need to continue educating users to help more consumers experience this cost-effective purchasing approach.”

Friend In JD.com

The growing popularity of trade-ins was most evident in ATRenew’s partnership with e-commerce giant JD.com JD, which is also one of the company’s major stakeholders. In May, ATRenew and JD.com announced a new multiyear partnership aimed at further integrating their resources, as JD steps up its own efforts to encourage more recycling in sync with government priorities.

Following that step, ATRenew said the value of goods collected via JD.com through regular recycling and trade-in services jumped by more than 40% year-over-year in the third quarter. Within that figure, the value of goods collected through trade-in services doubled.

The momentum continued into the current quarter, when the total value of products ATRenew recycled through JD.com jumped by 77% year-on-year during the recent “Double 11” online shopping festival that ran this year from Oct. 14 to Nov. 11. The company said the value of products it collected from trade-ins through the JD.com partnership during the festival soared 246% during the period, which will be reflected in its fourth-quarter results.

Alongside the JD.com partnership, ATRenew’s other key alliance is with Apple for iPhone recycling that is its biggest product line. ATRenew said the Apple partnership achieved “healthy growth” and improving gross margins in the latest quarter. It didn’t give specific figures but the business was expected to generate 1 billion yuan in revenue in 2024.

ATRenew also unveiled a new partnership with French cosmetics giant L’Oreal that encourages consumers to trade in empty cosmetics containers for physical L’Oreal-branded gifts.

The company also disclosed that it will step up expansion of its network of AHS recycling stores, which are becoming increasingly important in raising its brand awareness as it expands beyond electronics into other categories. Such stores totaled 1,637 at the end of September.

“We will continue to enhance our AHS stores’ service capabilities and user experience to reinforce the top-of-mind brand awareness of AHS Recycle,” said Chen. “As a result, we anticipate accelerating our store opening in the next two to three years.”

ATRenew’s transaction value for its “multicategory” business, which it launched last year, totaled 950 million yuan in the third quarter, up from 900 million yuan in the second quarter and a 270% increase year-on-year. It disclosed that gold has become its biggest “multicategory” product, accounting for 77% of the business, followed by luxury goods at 18%. But it also noted that those two categories are roughly equal in terms of revenue contribution to the company.

All of those initiatives helped ATRenew boost its revenue to 4.05 billion yuan in the third quarter from 3.26 billion yuan a year earlier. The company forecast similar growth in the fourth quarter, predicting the figure would rise to between 4.74 billion yuan and 4.84 billion yuan, representing about 23% growth at the midpoint.

Within the latest revenue figure, ATRenew noted its sales directly to consumers through its AHS website and AHS stores quadrupled year-on-year during the quarter, reflecting one of its efforts to boost its offerings of value-for-money used products for consumers directly.

Those and other efforts helped the company boost its gross margin to 20.0% in the latest quarter from 19.8% a year earlier. That paved the way for the company to report its first positive income from operations of 24.9 million yuan. Its net income was also positive at 17.9 million yuan, representing only its second time reporting a positive figure for that metric.

This article is from an unpaid external contributor. It does not represent Benzinga's reporting and has not been edited for content or accuracy.