ATRenew capitalizes on government incentives to achieve solid growth in its core business

The recycling specialist’s revenue rose 27.5% in the first quarter, representing its fastest growth in more than a year

Key Takeaways:

• ATRenew reported its fastest quarterly revenue growth in more than a year during the first quarter, as it also reported its second-highest quarterly net profit
• The company opened 25 new stores during the first quarter, with plans for 800 new stores this year as it significantly expands its brick-and-mortar retail network

By Doug Young

New business from a national trade-in program to boost consumer spending, combined with transaction value growth for its diversified products, helped to lift recycling specialist ATRenew Inc. (RERE.US) to its strongest quarterly growth in more than a year during the first quarter. The company also recorded its second-highest quarterly profit during the period as it continued to sell more of its recycled smartphones and electronics directly to consumers.

ATRenew started out as a mostly pass-through middleman between people selling their used smartphones and third-party merchants who specialized in used phone sales. But over time it has increased its own direct sales to consumers, a business that carries higher margins. It has also stepped up its refurbishing capabilities, which helps to boost margins by allowing it to charge higher prices for its reconditioned products.

To raise its profile and more easily sell directly to consumers, the company has been aggressively building out a national retail store network where people can personally inspect products before buying them. It’s also deepening a partnership with e-commerce giant JD.com (JD.US; 9618.HK), which has also helped to boost ATRenew’s direct-to-consumer sales. Last but not least, the company has also been raising its profile as a consumer brand by spending more heavily on marketing, including promotions over popular social media platforms like Douyin and RedNote.

In the latest quarter, ATRenew got an added lift from booming transaction value for its recycled gold products, one of several new categories it has rolled out in the past two years to diversify beyond electronics. The company also got a boost in January from Beijing’s inclusion of smartphones in a national program designed to stimulate consumption by offering consumers subsidies when they trade in their old products for new ones.

The confluence of those factors helped ATRenew to record 27.5% revenue growth in the first quarter, with the figure rising to 4.65 billion yuan ($641 million) from 3.65 billion yuan a year earlier, according to its latest results announced on Tuesday last week. That was the fastest growth since the fourth quarter of 2023, when the figure rose 29.9%.

The company pointed out that last year’s first-quarter revenue was inflated partly by business from its new iPhone recycling partnership with Apple (AAPL.US), which launched in the second half of 2023. It has been tweaking that partnership to operate it on a sustainably profitable and mutually beneficial basis, resulting in a 67% year-on-year revenue drop from that program in this year’s first quarter. Excluding that effect, the company estimated that revenue from product sales, which account for more than 90% of its total, would have risen over 50%.

The company’s direct-to-consumer product sales were particularly strong, rising 73.5% during the quarter year-on-year. The recycled gold category was also a standout performer, helping ATRenew’s “multi-category business,” consisting mostly of non-electronics, to triple year-on-year during the quarter, both in revenue and transaction value terms.

“Our core businesses achieved faster-than-expected growth in the first quarter of this year,” said ATRenew Chairman Chen Xuefeng, who also uses the English name Kerry. “We seized growth opportunities arising from national subsidies by providing best-in-class trade-in experience.”

Improving margins

As it tweaked the iPhone trade-in program, sold more directly to consumers and took other efficiency-boosting steps, ATRenew’s gross profit margin for its product sales rose by more than 4 percentage points to 15.2% in the first quarter from 10.9% a year earlier. That helped the company to report a net profit of 42.8 million yuan for the quarter, its second highest quarterly profit on record and only its fourth profit on that basis.

It’s also worth noting that the company’s non-GAAP operating income reached 110 million yuan for the quarter, up 39.5% year-on-year, as it recorded a non-GAAP operating margin of 2.4%, indicating healthy progress in becoming more profitable.

ATRenew’s stock fell 6% on Tuesday last week after the announcement, giving back some of the gains from a rally over the last month. The stock has gone through a series of ups-and-downs over the past year, taking it as high as $3.70 and as low as $2, with shares now trading roughly in the middle of that range. That seems to indicate investors are trying to make up their minds about the company as it refines its recycling model to become more profitable.

The stock currently trades at a price-to-sales ratio of 0.27, placing it in between the lower 0.08 for used clothing seller Rent the Runway (RENT.US) and the higher 0.96 for The RealReal (REAL.US).

While ATRenew has kept most of its costs under control, one area where it’s spending more generously is on sales and marketing, which rose 30.4% in the first quarter on its efforts to raise its brand awareness and bring in new customers. In addition to the social media spending, the company also recently launched an environmental protection initiative called REVIVE aimed at boosting its collaboration with other brands.

ATRenew’s fulfillment costs are also rising quickly, jumping 38.1% during the quarter, as it expanded its fulfillment team by 360 people over the last year to more than 1,000 people by the end of March.

Much of the rise in fulfillment costs came from the company’s rapid store expansion, which it first unveiled earlier this year and sees as a way to boost its brand awareness, as well as its direct sales to consumers. The company had 1,886 stores in its network by the end of March, up by 458 from a year earlier. But we should also note that the latest figure was up by just 25 from the end of last year, probably due to seasonal impact of China New Year in the quarter. That also means ATRenew has to continue its rapid store rollouts in order to meet its target of opening 800 new stores this year.

ATRenew also unveiled a new concept it is rolling out in the southern boomtown of Shenzhen, where it launched its first warehouse-style Paijiting store catering to merchants during the quarter. ATRenew said the 1,200-square-meter store displays nearly 10,000 second-hand phones that have undergone professional inspections, allowing buyers to “reduce inventory costs and minimize logistics delays.”

In another initiative aimed at its merchant clients, ATRenew also announced it began piloting a new form of compact authentication warehouse within its self-operated stores during the quarter, also aimed at streamlining the quality inspection process.

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