By Michael Kim

NYSE:RERE

READ THE FULL RERE RESEARCH REPORT

Pre-market open on 3/11/25, ATRenew (NYSE:RERE) reported 4Q24 earnings results. On a GAAP basis, RERE reported net income of $10.6 million for 4Q24, or $0.04 per ADS. That said, excluding non-cash share-based compensation and intangible assets amortization expenses, adjusted EPS came in at $0.07, or in line with our estimate. Relative to our model, more favorable revenue and operating income were offset by slightly lower non-GAAP addbacks (intangible amortization).

After updating our model for 4Q24 actuals, we are edging down our 2025 adjusted EPS estimate from $0.33 to $0.27. Crosscurrents include: 1) a steeper revenue growth trajectory reflecting a real-time step up in trade-in activity fueled by government subsidy programs; 2) slightly more conservative margin assumptions, with management taking a more proactive approach in building out fulfillment and marketing capabilities to better align with accelerating demand; and 3) a shift from income tax benefits to payments given the inflection from pre-tax losses to income. Moreover, we are introducing a 2026 adjusted EPS forecast of $0.41 representing 51% year-over-year growth. As a result of our explicit 2026 forecasts, we are raising our price target by $1.00 to $5.00 implying considerable upside potential from current levels.

We highlight the following key takeaways:

1. Real-time step up in trade-in activity driving accelerating top line growth: Focusing on 1Q25, senior officials anticipate total revenues to be in the range of RMB 4,550 million and RMB 4,650 million ($627 million to $640 million at current FX rates), implying year-over-year growth of 25% to 27% (despite the recent downsizing of select overseas businesses). Looking ahead, our model calls for revenue growth to accelerate to 27% in 2025 primarily reflecting a step up in trade-in activity (particularly given ongoing growth in the supply of new smartphone shipments in China) and consumer demand for high-quality preowned products. Much of the recent growth in smartphone recycling business can be linked to the introduction of government initiatives (15% subsidy for new devices) in late January, with AHS well positioned to capitalize on industry tailwinds reflecting the company’s front-end fulfillment, pricing, and services capabilities, as well as RERE’s partnership with JD.com. In fact, recycling volumes were up meaningfully in January and February, with related growth of 70%+ year-over-year during the Lunar New Year holiday.

2. Reinvesting in the business to meet rising demand: In order to meet building demand trends, management plans to continue to expand the company’s footprint, branding initiatives, and fulfillment capabilities. On the call, senior officials highlighted plans to open 800 new stores in 2025 (40%+ year-over-year growth), with a longer-term goal of 5,000 stores (1,861 locations as of 12/31/24) over the next three years. From a financial perspective, the retail business accounted for 29% of total product revenues in 4Q24, up from 17% in 1Q23, with management targeting 50% contribution over time. Turning to marketing, management remains focused on to further building the AHS Recycle brand via new social media content/channels to build mindshare across target markets and drive rising offline/online traffic. Finally, we look for a step up in expenses related to broadening fulfillment/servicing capabilities and related headcount.

3. Setting the stage for margin expansion: RERE’s adjusted operating income margin expanded by 60 basis points year-over-year to 2.5% for 2024. Going forward, we assume margins hold steady this year, as management remains committed to increasingly reinvesting in the business to capitalize on accelerating growth. That said, our model calls for material margin expansion looking out to 2026, as revenue growth momentum continues to build and expense inflation moderates, we believe. To be sure, senior officials remain focused on realizing further economies of scale and operational efficiencies. More specifically, plans are underway to increasingly leverage Artificial Intelligence (AI) across the company to enhance customer service, inspections, and pricing algorithms, thereby driving a step up in profitability.

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