ATRenew pumps up revenue, profits on leaner recycling

The company’s revenue grew 32% in the second quarter, its fastest rate in two years, as it stepped up an aggressive expansion of its offline store network

Key Takeaways:

• ATRenew’s revenue grew at its fastest pace in two years and its profit approached a record high in the second quarter
• The recycling company’s stock now trades at a three-and-a-half-year high, following a 57% rally since the start of the year

By Doug Young

When it comes to recycled goods, there’s nothing like being able to touch and feel what you’re buying.

That’s one of the key lessons that ATRenew Inc. (RERE.US) has learned in the 14 years since its inception, and is a central focus as it works to build a name as China’s top recycling brand. The company showed it was making strides in that direction last week by reporting its fastest revenue growth in two years during the second quarter, as it also posted a fourth consecutive quarter of GAAP operational profitability.

ATRenew also unveiled a major new program to return its growing profits to shareholders, which companies typically do as both share buybacks and by paying dividends. ATRenew has engaged in share buybacks for a while now. But the new program’s unveiling – including its ambitious goal of returning no less than 60% of the company’s adjusted net profits to shareholders – hints that it could also offer dividends in the not-too-distant future.

While e-commerce works well for new products coming straight from the manufacturer, consumers are more cautious about buying second-hand goods. ATRenew has tackled that issue by putting its name and reputation behind the products it sells, including smartphones, PCs and a growing number of other recycled goods like luxury items, gold and vintage liquors.

But it has also come to realize that no matter how much reassurance they receive, people like to personally inspect second-hand goods before making a purchase. To facilitate that, the company has been rapidly building up a network of offline stores, as well as assembling a team of fulfillment workers, now numbering 1,160, who can come to show customers products on in-person visits.

“At the current stage and during the next two years, we are focusing on two core strategy priorities,” said founder and Chairman Chen Xuefeng, who also uses the English name Kerry. “First, we are maximizing our recycling and fulfillment capabilities, including in-store and to-door capabilities, to make safe, convenient and competitively priced recycling and services more accessible.”

Secondly, Chen said, the company is positioning its AHS Recycle as “China’s leading recycling brand,” as it increasingly moves beyond its original focus on smartphones into some of the other areas we’ve mentioned.

The “touch and feel” campaign comes as ATRenew has spent recent years honing its other capabilities to operate its core recycling business more efficiently. Some of those include bypassing middlemen to sell more products directly to consumers, which carries higher margins; refurbishing products, which also carries higher margins than simply reselling used goods in existing condition; and doing more business at the city, rather than national, level to reduce operating costs.

After years of being overlooked, ATRenew’s shares are starting to get noticed by investors. Major owners of the company’s stock include big names like Acadian Asset Management, UBS, Morgan Stanley, Invesco and T. Rowe Price, many of which hold the stock in their various emerging market funds. ATRenew’s shares are up 57% this year, including a 23% rise in the last month, to trade at their highest level in three and a half years.

Symbolically, the recent rally has also transformed the company to a tech “unicorn,” as its market value recently topped the $1 billion mark.

Revenue growth at two-year high

Its growing recycling prowess has helped ATRenew maintain strong double-digit revenue growth in the last few years, even as many of its consumer-facing peers have struggled amid increasing caution by Chinese consumers. As that happened, the company has become squarely profitable over the last two years.

Its revenue grew 32.2% year-on-year to 4.99 billion yuan ($696 million) in the second quarter, marking the fastest increase in two years. Within that figure, product revenue, which accounts for the big majority of the total, rose by a bigger 34% to 4.56 billion yuan from 3.4 billion yuan a year earlier. Officials noted that revenue from the higher-margin business of selling products directly to consumers grew by a far faster 63.7% during the quarter. That lifted that part of the business to 34.4% of product revenue in the latest quarter from 28.2% a year earlier.

Revenue from services, the company’s other main component, grew 15.4% to 433 million yuan from 375 million yuan a year earlier. CFO Rex Chen pointed out that services related to the company’s non-electronic “multi-category” products, launched in 2022, now account for nearly 15% of all service revenues.

As it handled its recycling operation more efficiently, the company’s gross margin for product sales rose to 13.2% in the latest quarter from 12.1% a year earlier. It also reported a fourth consecutive quarter of positive GAAP income from operations, which reached 91.1 million yuan during the three month period. On the bottom line, it posted GAAP net income of 72.3 million for the quarter, reversing a 10.7 million yuan loss a year earlier.

ATRenew added 206 stores to its network during the quarter, bringing its total to 2,092 by the end of June. That marked a sharp acceleration from the 25 stores it opened in the slower first quarter, and means the company needs to open another 569 stores in the second half of the year to meet its previously stated goal of adding 800 stores in 2025.

While the offline stores allow customers to personally inspect the products they buy, such outlets also have the effect of boosting ATRenew’s brand. In related efforts, the company has conducted promotions on the popular RedNote and Douyin social media sites, and is also forging more partnerships with other consumer brands.

Finally, ATRenew unveiled a new three-year shareholder return plan passed by its board on Aug. 18, which would see 60% or more of its adjusted net income each year returned through share buybacks and potential dividends. The company’s adjusted net income totaled about 100 million yuan in the second quarter, which would translate to about $56 million on an annualized basis. ATRenew already purchased about $5.2 million worth of its shares in the first half of the year under current buyback plans, meaning there’s still quite a lot left for more buybacks and potential dividends in the rest of the year.

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