ATRenew in new tie-up with Apple

The company said its inclusion in the iPhone maker’s recycling program could eventually add as much as 1.5 billion yuan annually to its top-line revenue

Key Takeaways:

  • ATRenew’s revenue grew 38% in the second quarter, while its non-GAAP operating margin reached a record high of 1.8% on improving efficiencies
  • The company forecast its revenue growth will slow in the current quarter to about 26%, as Chinese consumers await new Apple and Huawei smartphones likely to launch in mid-September


By Doug Young

It was all about Apple in the latest quarterly report from ATRenew Inc. (RERE.US), which makes its living by recycling used smartphones and a growing stable of other second-hand products.

Not the fruity apple, mind you, but rather Apple Inc. (AAPL.US), the world’s most valuable company. The headline news was a new recycling partnership between the two companies, which will undoubtedly play well to the environmental crowd. But the bigger headline for investors was the partnership’s potential revenue benefit to ATRenew, which we’ll get to shortly.

ATRenew, which is trying to make its name synonymous with recycling in China, discussed the new partnership as its latest quarterly results showed the company’s strongest revenue growth in more than a year with China’s return to business-as-usual following the end of its strict Covid control measures at the end of last year. Its latest quarter was helped by a low base from a year earlier, when activity came to a standstill in ATRenew’s hometown of Shanghai as China’s commercial capital was locked down for the entire months of April and May.

But the upbeat report came with just a hint of clouds on the horizon, as ATRenew forecast its revenue growth would start to slow after peaking in the second quarter.

We’ll start with the headline news of the new partnership with Apple, China’s fourth largest smartphone brand last year with about 48 million iPhones sold, according to IDC. That’s important because ATRenew currently gets the bulk of its money from recycling smartphones, and the majority of its smartphone business comes from iPhones.

It’s trying to diversify its recycling efforts into other areas, both in electronics and other consumers goods, and we’ll return to that topic shortly.

The Apple partnership officially kicked off on June 30, when ATRenew became Apple’s second third-party recycling partner in China. Under the tie-up, ATRenew will provide recycling supply chain services to Apple China’s official website and 45 flagship Apple stores, founder and Chairman Chen Xuefeng, who also uses the name Kerry, said on ATRenew’s conference call after the release of its results last Wednesday. He added that ATRenew has also been authorized to bid for and distribute “as-is” iPhones, which usually indicates used devices bought in private-party sales.  

“These two collaborations with Apple can further enhance our access to high-quality supplies and allow us to service mainstream customers in key scenarios,” he said. “The breakthrough in collaboration … signifies a major milestone apart from our strategic partnership with e-commerce players.”

Chen added he expects the partnership to gain momentum with the release of Apple’s newest iPhone model this fall, typically in September, which usually prompts fans to trade in their old models for new ones with the latest bells and whistles. As the partnership gains traction, he added, ATRenew expects it could eventually add between 1 billion yuan ($138 million) and 1.5 billion yuan in annual revenue for the company – equal to as much as 15% of its current total.

Growing profitability

ATRenew’s revenue growth rates have varied since its New York listing in 2021, but its improving profitability has been steadier. The company’s revenue grew 38.1% in the second quarter to 2.96 billion yuan, slightly beating its own forecast given three months earlier and representing its best growth rate since the first quarter of 2022.

Within the bigger total, the company’s product revenue – which accounts for nearly 90% of the total – grew by a stronger 42%, benefitting from expanding business over the company’s various online and offline channels, including its partnership with e-commerce giant (JD.US: 9618.HK) and its own network of 1,944 brick-and-mortar stores. That stronger product revenue growth was offset by a slower 12% gain in services revenue, which accounted for the rest of its total.

ATRenew said the strong growth has peaked, at least for now, and would start to moderate in the current quarter. It forecast it would record 3.15 billion yuan to 3.25 billion yuan in revenue for the three months to September, which would represent 26% year-on-year growth at the midpoint.

As it focuses on boosting its revenue, the company has also been taking steady steps to operate more efficiently through efforts like automating more of its inspection processes for used phones, and doing more recycling at the city level. It has also been trying to do more business directly with consumers, cutting out costly middlemen from the process of buying and selling recycled products.

As those efforts bear fruit, ATRenew was able to lower its non-GAAP fulfillment expenses by 2.2% in the quarter, even in the face of the strong revenue growth, and boosted its non-GAAP operating margin to a record 1.8%, compared with a margin of negative 2% a year earlier.

The company still lost money on an operating level, though its latest operating loss of 61 million yuan narrowed sharply from the 168 million yuan loss a year earlier. It has become generally profitable on an adjusted basis, which excludes costs related to employee stock compensation, amortization and impairment. It continued that trend in the latest quarter with a 36.4 million yuan adjusted profit, reversing a year-ago loss. But it still lost money on a net basis, with its net loss narrowing to 64.8 million yuan from a 125 million yuan loss a year earlier.

Outside its core smartphone recycling business, ATRenew said it is also making steady progress with its year-old campaign to extend its recycling efforts into other areas like vintage liquor, designer bags and gold. It said its multiple-category recycling services are now available at 231 of its stores, and added that gross merchandise volume (GMV) for its new categories, excluding photography and video equipment, exceeded 200 million yuan during second quarter.

Despite the relatively upbeat report, ATRenew’s shares fell 1.7% the day of the announcement, perhaps as investors worried over the slowing revenue growth. The entire global recycling sector appears to be out of investor favor at the moment, with ATRenew’s price-to-sales (P/S) ratio currently at a lowly 0.36. But that’s quite in line with other global peers like used car seller Carvana (CVNA.US), which also trades at 0.36, as well as luxury goods recycler The RealReal and clothing recycler Rent the Runway (RENT.US), which trade at multiples of 0.40 and 0.29, respectively.

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