The company generated EPS of $0.87, ahead of the $0.81 consensus, with revenue up 25% yr/yr to $240.2 mln, also beating the $234 mln expectation. For Q2, it guided for revenue of $339-$343.5 mln vs. the $335 mln forecast.
Click here to access its earnings press release.
The company has been on a nice roll, topping analysts' revenue and earnings expectations in every quarter since 1Q17. Although its top-line growth rates have decelerated sharply from the high double-digit figures it routinely posted in its first few years following its 2013 IPO, it has still managed to achieve solid growth recently. Its growth comes in the face of some stiff headwinds stemming from the slowing Chinese economy, the ongoing trade disputes, and the precipitous drop in the auto sector there.
To put the decline in context, vehicle sales in China slipped by 5.2% in March to 2.52 mln units, following a 13.8% dive in February. It marked the ninth straight decrease, but one silver lining is that March was the smallest yr/yr decline in the past seven months.
The fact that ATHM has been able to consistently outperform expectations and maintain solid growth through these difficult conditions is a testament to the quality and effectiveness of its platform, and it also explains why the stock has soared by more than 40% this year.
This run in the stock also created the potential for a "sell-the-news" type of reaction in the stock following its earnings, which is what we are seeing play out today.
The bigger factor impacting the stock is related to the negative turn of events revolving around a trade agreement with China. We don't need to rehash all the particulars in this comment, but the possibility of higher tariffs imposed on China would be a negative for its economy, including the economically sensitive auto industry.
The economic slowdown has hurt ATHM's business as consumer confidence has eroded and as the number of auto dealers has declined. However, as the business environment has become more challenging, auto dealers have turned to services like ATHM to help push sales. According to ATHM, dealers have been eliminating marketing initiatives with lower returns on capital in favor of its platform which has an expanding mobile presence.
An increasing portion of the Chinese population is using mobile to purchase items, including vehicles. Additionally, online costs per lead are still significantly lower than off-line modes, providing ATHM will steady pricing power, leading to higher average revenue per customer.
Lastly, ATHM has been investing heavily in its data analytics and AI capabilities, helping to put the right vehicle in front of the right potential buyer. The effectiveness of its platform has helped it gain market share in the auto dealer arena.
Key Takeaways: Despite the difficult conditions, ATHM kept its winning streak alive vs. consensus estimates and delivered strong growth. The company continues to take wallet share at auto dealers as the shift towards digital commerce progresses. Built on a massive amount of data underlying its platform, ATHM has become a more effective means of advertising than other sites and off-line sources.
So far, these positives have offset the economic pressures in China. However, with trade concerns flaring up again this week, with the prospects of even stronger tariffs, ATHM may have to face fiercer headwinds soon. That factor, combined with the stock's substantial run higher, are causing the weakness we see today in the stock.