Q2 2022 ATRenew Inc Earnings Call
Good morning and good evening ladies and gentlemen. Thank you for standing by and welcome to AT Renew, Inc. Second quarter 2022 earnings conference call.
At this time, all participants are in the listen-only mode.
We will be hosting a question and answer session after management's prepared remarks.
Please note today's event is being recorded.
I would now like to turn the call over to the first speaker today, Mr. Jeremy Ji, Director of Corporate Development and Investor Relations of the company. Please go ahead, sir.
Thank you. Hello everyone and welcome to AT&T News second quarter 2002 earnings conference call. Speaking first today is Kerry Chen, our founder chairman and CEO and he will be followed by Rex Chen, our CFO . After that we'll open the call to questions from analysts.
Our second quarter 2022 financial results were released earlier today. The earnings release and investor slides accompanying this call are available at our IR website at ir.acnew.com.
There will also be a transcript following this call for your convenience.
For today's agenda, Kerry will share his thoughts of the quarterly performance and business strategy, followed by Rex who will address the financial highlights. Both Kerry and Rex will join the Q&A session.
Let me cover safe harbor statement.
Some of the information you will hear during our discussion today will consist of forward-looking statements. And I refer you to our safe harbor statements in the earnings press release.
Any forward-looking statements that management makes on this call are based on assumptions as of today. And that AT Renew does not take any obligations to upgrade our assumptions on these statements.
Also, this call includes discussions of certain non-GAAP financial measures. Please refer to our earnings release, which contains a reconciliation of non-GAAP measures to GAAP measures.
Finally, please note that, as Eliza stated, all figures mentioned during this conference call are in RMB and all comparisons are on a year-over-year basis.
And now I turn the call over to Kerry for business and strategy updates.
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Hello everyone, and thank you for joining us on our second quarter 2022 earnings conference call.
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Thank you very much. We will now take questions from the audience. If you have any questions, please ask them in the Q&A. If you have any questions, please ask them in the Q&A. We will now take questions from the audience. Please ask them in the Q&A.
During the second quarter, we faced unprecedented challenges to our operations in the most complex external environment since the pandemic first occurred at the beginning of 2020. First of all, let's take a look at our business segments at the city level. The core 1P recycling business locations, including Shanghai and Beijing, were adversely impacted by the pandemic, especially in Shanghai as the city undertook COVID control measures for two consecutive months.
Our physical stores had to suspend the operation or implement strict COVID prevention measures, which put consumers off.
The control measures also resulted in interruptions in door-to-door recycling and logistics.
Our merchant users also had operational difficulties caused by the pandemic and the relatively weak consumer confidence in electronic products.
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Our employees at the Shanghai headquarters started to work from home from March 15 to June 1.
During this period, we proactively fulfilled our social responsibilities by ensuring our employees were supplied with daily necessities and were able to work effectively. We also took care of the mental health of our employees. As people's daily lives in Shanghai returned to normal in June and June 18th grand promotion kicked off, our 1P business got on a fast track of recovery.
By successfully overcoming the multiple adversities we faced during the second quarter, we have demonstrated the overall resilience of the circular economy.
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As a result, our total net revenues increased by 14.9% year-on-year to $2.15 billion in the second quarter of 2022, exceeding the high end of our revenue gap guidance.
The quarter-over-quarter decline in revenue was mainly attributable to the impact of the pandemic.
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We are happy to have you here. We hope you will continue to be part of the E-P-E-O-O-O-O-O-O-O-O-O-O-O-O-O-O-O-O-O-O-O-O-O-O-O-O-O-O-O-O-O-O-O-O-O-O-O-O-O-O-O-O Thank you for your attention.
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Now let's take a more detailed look at our 1P recycling business.
In April and May, the COVID control measures in Shanghai and Beijing resulted in a temporary suspension of one-third of our self-operated AHS stores, dragging the growth of our 1P business to a low point.
However, on recycling, our 1P business rapidly recovered to the same level as last year at the beginning of June . During the first 10 days in June , GME for pre-owned devices recycled by AHI's Recycle in Shanghai increased by 11% compared to the same period of 2021. On distribution, we continued to lean into the retailing of our self-sourced premium products on the pipeline marketplace, where the GME for the 1P2C segment increased by 32%.
year over year despite a challenging environment in the second quarter.
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In terms of our platform business, multiple aspects of the business including recycling activities of our merchant users, shipment to our operation facilities.
pick up and ship out activities of goods at our operation centers, safety inspection and logistics phase challenges brought about by the COVID resurgence. In the second quarter, we managed to achieve an increase in the overall take rate through a continued effort in keeping our merchant users happy and providing differentiated transaction support.
We adjusted the rules for charging logistic fees from PJT Market users.
and optimize our platform regulations and inventory management for PyPy Marketplace.
As a result, the overall take rate of our marketplaces grew slightly to 4.54% in the second quarter, representing an increase of high basis points year over year and 39 basis points sequentially.
By the end of the second quarter, the number of registered merchants exceeded 330,000, representing a year-over-year growth rate of 41%.
We believe our merchant users will eventually navigate the short-term challenges provided COVID and that they have the long-term potential for scale expansion, which will in turn enable us to grow our monetization capabilities.
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Turning to our expenses. We reacted swiftly to the quarter's challenges and managed our operating expenses prudently.
However, I would like to clarify that we continue our investments in core capabilities.
including 1P multi-cadre recycling and automated inspection technology.
In the second quarter, we had some losses due to the pandemic. However, our non-GAAT operating margin has narrowed to negative 2% from negative 2.7% in the same period last year, and our non-GAAT margin has narrowed to negative 0.6% from negative 3.2% in the same period last year.
We also improved our capital management. At the end of the second quarter, our total cash reserve was 2.59 billion RMB, an increase of 170 million compared to the end of 2021, even when we spent 31.5 million US dollars to buy back our shares in the first half of 2022.
Off-note, cash inflow from operating activities was approximately 280 million, representing a second consecutive quarter with positive operating cash flow.
The improvement in monetization capabilities and operating cash flow will safeguard our sustainable development while solidifying our competitive advantages in an evolving market condition.
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Although the macro challenges continue, as the scale of the print-owned consumer electronics market continues to expand against the backdrop of a stable circular economy policy outlook.
Consumer demand for recycling services and consumer electronic product purchases will continue to increase.
As you can tell from our previous earnings conference calls, HE Renew keeps a clear and consistent strategic roadmap, which we believe is quite stable. In the second half of this year, we are committed to investing in the following pivotal areas.
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First, we will continue implementing our city-level service integration strategy, solidifying our business foundations and increase the penetration rate.
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This quarter, we further upgraded our front-end organizational structure, dividing the domestic market into four – northern, southern, eastern, and central markets. Furthermore, we connected some of the pilot cities with the surrounding lower-tier cities, strategically forming 43-city clusters.
We also launched our regional manager system, promoting outstanding employees from both C2E and B2B business lines, thus realizing a leap forward in talent management capacity.
We bond the title and reward of regional managers with the business performance, GMV, revenue, and growth rate of each cluster.
We also improved our talent selection process as well as our training and remuneration system.
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Looking back at the consolidated GME for C2V and B2V offerings in the second quarter of 2022,
33 out of the 43 city clusters grew faster on a year-over-year basis compared with the national average. And 23 city clusters successfully outpaced the national average expansion speed of the recycling penetration rate compared with the first quarter of 2022.
These results strengthen our confidence in advancing and executing our city-level service integration strategy.
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Second, we will upgrade the AHS Recycle brand and accelerate our pace of category expansion in terms of recycling.
I wish all of you a wonderful day. Thank you for your support. Thank you for your support.
Thank you for your attention.
And I look forward to seeing you again in the next video.
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AHS Recycle is a high quality brand that is scarce in the recycling industry. The brand is quite capable of expanding its service scope. Many users often ask whether they can recycle luxury goods or home appliances, etc., at our AHS stores.
In the second and the third quarter, we selected over 30 stores in Shanghai and Beijing as pilot stores, most of which are located in the subcenters of the cities. We upgrade the store's branding and train the store staff. Then these stores offer even premium recycling services and open up for high-value products such as luxury goods, photographic equipment and gold.
Taking luxury goods as an example, consumers can now make appointments online for an in-store consultation where our staff will take pictures of the product conditions for merchant bidding at the backend.
If the consumer is satisfied with the final bid price, which will be our recycling price, the product will be sent to a quality inspection center through Intra City Instant Delivery for authenticity and quality evaluation.
Once the product is verified authentic.
the consumer will get a great amount of cash back instantly. If it's a counterfeit, we will return it to the consumer.
When shopping malls in Shanghai reopened in June , the number of luxury goods pilot cities stores jumped to over 20, and the recycling orders increased rapidly.
From June to August , the total monthly recycling value of luxury goods in Shanghai continued to grow at 50% sequentially. In addition, six of our pilot stores in Beijing and Tianjin collaborated with industry leading partners to launch a photographic equipment recycling business, increasing the monthly transaction value by 300,000 RMB per store.
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Now, we are even confident in category expansion after testing the water. On one hand, we see the underserved need for categories other than electronics during a period of flattening economies growth and when consumers become poor then buyers.
On the other hand, AHS Recycled the brand name is a valuable asset while not limiting the product category to mobile phones and our nationwide AHS stores are premium consumer touchpoints.
Through recycling more categories, we broaden our business horizon and improve both user retention and repurchases, further elevating the brand value of AHRQ's recycle.
We understand that there are many retail channels where good brands are scarce.
Relying on our solid capabilities, we are confident in building AHS Recycle into the most popular brand.
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Third, as compliant refurbishment capacity ramps up, we expect further widening of the profit margin of the value chain.
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If you have any questions, please feel free to contact me. If you have any questions, please feel free to contact me.
In April , the People's Procurator of Shenzhen published a Criminal Compliance Guidance for Intellectual Property Rights in the Electronics Refurbishment Industry.
Under the compliant refurbishment guidelines, we provide more high-quality products to consumers through our value-added refurbishment services, further improving our margins.
During the first half of 2022, we have performed value-added refurbishment services on around 70,000 devices.
As we expand our capabilities and grantees sources of supply that are suitable for refurbishment, we expect to have a more exciting ramp up in capacity starting in the second half of this year.
We expect 75,000 orders, which will generate a GMV of 130 million RMB in the third quarter, each increasing by over 80% compared with the second quarter.
We expect a 15% growth margin, the same as we anticipated during the previous earnings call. Overall, the operating margin of the refurbishment business is expected to be around 4-5%.
This is it. If you have any questions or comments, please email us at selfie.com. We leave for another hour.
Fourth, we will continuously deploy automation to prepare our operational capacity for post-pandemic recycling volume and consumption recovery.
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The automation upgrade of our Dongguan Operation Center got delayed. By the end of June , our Dongguan Operation Center completed the construction of its conveyor system, which was later connected to the storage system in late July , realizing a 50% efficiency improvement.
As an update, we now expect to land the Matrix 2.0 system by the end of the third quarter, thus completing our second automated operation center in China.
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Overall, we learned to stay nimble and positive from the transition rate challenges.
We keep being operationally vigilant and keep advancing our core capabilities.
We aim at more robust and risk-resistant unit economies in the long run along with the developing circular economies.
We are committed to getting ourselves well prepared.
Looking at the second half of the year, we will strive to accelerate the recovery of our business.
In particular, the growth rates of self-operated recycling and direct retail.
Our 1P business maintains profitability and healthy growth in face of the unfaith work pandemic and downward consumption trend.
meet uncertainties in the future quarters. We will focus on the solid development of our one piece self-operated business.
The iPhone 14 lineup will be launched at an earlier date in September . We will prepare ourselves well for a recovering business from frontline recycling and trading to quality inspection and processing as well as backup operation.
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See you next time.
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So last but not least, this summer has been a sculpture across the globe, especially in North America, Europe , and Asia. Shanghai has repeatedly declared red alerts on extreme heat of over 40 degrees Celsius, and many parts of China have also seen record high temperatures.
Global warming and droughts are increasingly severe and pressing.
In June this year, AT Renew published its 2021 Environmental, Social and Governance Report. In this annual ESG report, AT Renew adopted a life cycle analysis of print-on mobile phones and leveraged a circular footprint formula for the first time to disclose its contribution of 464,000 metric tons of greenhouse gas emission reduction.
through the reuse of pre-owned mobile phones in 2021.
This is equivalent to the annual carbon sink of 2.3 million moles of city forest. On average, recycling and reusing a smartphone contributes 30.4 kilograms of GHG emission reduction.
Our environmental performance is even more exciting compared with the economic value we created.
Even if the business fluctuates and our stocks are undervalued in the short term, we will remain steadfast.
Because we know that we are doing the right thing and doing something that contributes to the environment.
Our value accumulates over time.
Thank you.
With that, I will hand the call over to Rex, our CFO , to go over the financials.
Thanks, Kerry, and hello, everyone. We are pleased to report that our second quarter revenue exceeded our previous guidance despite the macroeconomic headwinds and the dynamic operating environment caused by the COVID recurrences. I will start by sharing some of our financial highlights before we go into a more detailed look at the numbers. Please note that all amounts are in RMB and our comparisons are on a year-over-year basis, unless otherwise stated.
In the second quarter of 2002, our core teams in Shanghai headquarter and Beijing navigated a challenging operating environment mainly caused by COVID resurgence, but they managed to surpass our top-line guidance provided last quarter. So the net revenues increased by 14.9% year-on-year to over RMP2.1 billion.
We would like to extend a heartfelt thank you to our dedicated employees who stayed strong and quickly adapted to such dynamics.
In terms of total GMV, it grows by 10.3% to RMP 8.6 billion, driven by the growth in both the sales GMV and online marketplace GMV, which grow 15.8% and 8.5% respectively.
Starting June , as shopping malls in Shanghai's global and logistics capacity normalized, we saw a recovery in the chain and sourcing rebound during the June 18th shopping festival primarily supported by our loyal customers.
In this quarter, the commission rate of our third party marketplaces was 4.5% and 4.5%
4% at the group level remained stable compared with the same period last year, while it reasonably increased by 39 base points sequentially. This increase in the overall marketplace take rate was primarily due to an optimized operational strategy of charging logistics fees from merchants' based on the established trust in user thickness.
Gross margin at the group level was 22.9% in second quarter. Gross margin for our 1P business was 10.8%.
In the second quarter, in response to regional operation interruption, in particular in Shanghai, we are in the national harbor for our profitable wind turbines.
We implemented the chart cost control measures. These helped us narrow our losses into both gap and GAAP measures compared with the same period last year. I will elaborate on this later. Now let's take a detailed look at the financials. In the second quarter, total revenues increased by 14.9% to RMB 2,145.7%. Net product revenues increased by 15.6% to RMB 1,000.
854.1 million. Oil and net service revenues increased by 10.3% to RMP200, 91.6 million.
Growth in net product revenues was primarily driven by an increase in the sourcing volume and the corresponding sales of pre-owned consumer electronics through PyPI Marketplace and the confidence over sea channels.
Grossing service revenues was primarily driven by the increase in transaction volume and monetization capability of Pajita Marketplace.
Besides the adverse impacts from COVID control measures in Shanghai and Shenzhen, I also want to bring to your attention that we have procured parts and components in the second quarter of 2022 as we started rolling out our compliant refurbishment business.
This innovative business led to higher sales of inventory and we expect this business to optimize our profit profile in the future.
Next, turning to our operating expenses to provide greater clarity on the trends in our actual operating-based expenses. We will also discuss our NEGAP operating expenses, which better reflect how the management views our results of operations. So the considerations of NEGAP and GAAP results are available in our earning releases and the corresponding form 6K finished with SEC.
Operating costs and expenses decreased by 2.2% to RMB 2,327.4 million. The gap of operating expenses which exclude share-based compensation expenses and amortization of intangible assets resulting from business acquisitions increased by 14.5% to RMB 2,201.5 million.
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increased by 18.5% to RMP 1653.8 million. This was in line with the growth of the 1P sales revenues. Fulfillment expenses decreased by 0.1% to RMP 275.2 million.
excluding share-based compensation expenses, which we will refer to as S.
SBC from Qiaong, Nangap fulfillment expenses increased by 14.9% to RMB 200, $67.7 million. Under Nan GAAP measures , the increases were primarily due to first the increases in operation center and self-operated store related expenses, which were in line with the increasing sales of preowned consumer electronics and the addition of 103 self-operated AHA stores compared with the second quarter of 2021.
And second, an increase in personnel cost in connection with the company's growing business. So the gap fulfillment expenses as a percentage of total revenue remained flat at 12.5% compared with the same period last year.
Selling and marketing expenses decreased by 7.2% to RMP200 at 3.4 million, excluding SBCE expenses and amortization of intangible assets.
NANGAAP selling and marketing expenses decreased by 7.3% to RMB198.1 million. Under NANGAAP measures, the decreases were primarily due to the decrease in sales promotion and coupon expenses as a cost control approach during the resurgence of the COVID-19 variants. Among the cost reductions, we saved RMB33 million on pipette promotion expenses, which were mainly due to our shift in the strategy focus from the consignment model to 1P2C direct through rotating.
So in the gap selling and the marketing expenses as a percentage of total revenues decreased to 9.2% from 11.4% in the second quarter of 2021.
GNA expenses decreased by 85.4% to RMB 45.2 million. Excluding SPC expenses, NANGAAP GNA expenses increased by 2.1% to RMB 28.8 million, primarily due to an increase in office-related expenses which was in line with the company's growing business. So NANGAAP GNA expenses as a percentage of total revenues remained flat at 1.3% compared with 1.5% in the same period last year.
Technology and content expenses decreased by 27.1% to RMB 59.7 million, excluding SBC expenses and amortization of intangible assets. NAGAP technology and content expenses increased by 7.6% to RMB 53 million. Under NA GAAP measures , the increase was primary due to the increases in operation center and automated inspection system upgrade related expenses in connection with the company's growing finesse.
The gap in technology and content expenses as a percentage of total revenues remained flat at 2.5% compared with 2.8% in same period last year.
As a result, our NANCAQA operating loss was RMB 42.3 million in the second quarter of 2022. NANCAQA operating margin was negative 2% compared with negative 2.7% in the same period last year.
And once again, we have a cash inflow from operating activities during this quarter, which totaled $280 million. As of June 30, 2022, cash and cash equivalents, short-term investments and funds receivable from third-party payment service providers totaled RMB $2.6 billion. The sufficient cash on hand paves the way for sustainable growth in the future.
Hello, Lukas. We announced our $100 million share repurchase program on December 28, 2021. Out of the management's strong confidence in the confidence sorted fundamentals and growth momentum.
During the second quarter 2022, we have repurchased nearly 2.9 million EDSS in the open market for a total cash consideration of 9 million US dollars.
Now turning to Outlook, for the third quarter of 2022, the company currently expects its total revenues to be between $2,500 million and $2,550 million.
The highly transmissible Omicron variant might impose adverse impacts on the operation of our stores and facilities, as well as the transaction activities of merchants in 2022.
Thus, this forecast already reflects the company's current and preliminary views on the market and operational conditions which are subject to change.
This concludes our prepared remarks for today. Operator, we are now ready to take questions.
We will now begin the question and answer session.
To ask a question, you may press star, rather than wanting to tell us on keypad.
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When asking the question, please state your question in Chinese first, then repeat your question in English for the convenience of everyone on the call.
We will now pause momentarily to assemble our roster.
Our first question will come from Bonnie Liu with China Renaissance. You may now go ahead.
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Given the lower than expected new phone production this year, could you please talk about the potential impacts of early iPhone 14 release on your 3Q earnings? Thanks.
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This year, Apple's iPhone 14 series is expected to be launched on September 7th, which is one week earlier than iPhone 13 lineup debut last year. It's basically within our expectations.
From experience, such an earlier launch could bring in an increase in 1P revenue of 30 million RMB in the third quarter.
This year, we are well prepared ahead of a peak period of trading business.
On one hand, the one-stop trading order process has been upgraded and incorporated into the main interfaces of JD's mobile app.
At the new product launch, users can place orders through a streamlined process as the stability of the recycling and trading order system is more stable and user-friendly. On the other hand, through themed campaigns, Interwine, A+, membership, which is JD's self-operated Apple product store membership, with recycling services, we lock in the recycling and trading orders of JD users.
This reduces the loss of trading orders as buyers tend to separate recycling orders with new device orders when a blockbuster iPhone runs out of stock.
Our stores are also prepared for peak season fulfillment. There are over 1,600 physical AHS stores across 241 cities in China and nearly 600 self-operated stores.
The frontline teams are rather experienced at handling peak seasons after many grand promotions and shopping festivals. In general, we handle the storage system well and fulfill the orders in a timely manner.
On retail business, we anticipate the new product launch could have a short-term impact on the price and demand of second-hand devices in the pipeline marketplace.
We look far ahead for our campaigns and closely monitor our inventory. In fact, in the second quarter, we have reevaluated and liquidated the small amount of backlog of PyPy. We keep a controllable inventory turnover of our 1P2C business.
Thank you.
Our next question will come from Ronald Kuhn with Goldman Sachs. You may now go ahead.
Hey, this is XF1, Jeremy, Rex. I'm a student at the JMB Center in Hong Kong. I'm a student at the JMB Center in Hong Kong. I'm a student at the JMB Center in Hong Kong. I'm a student at the JMB Center in Hong Kong.
Thank you management. I have two questions. One is, we've seen that GMV growth has slowed, so we want to know how are we seeing the overall industry.
the impact from COVID and the weak mobile phone demand due to product cycle and how should we think about the second hand 3C market and the impact to our company. Second is about the gross margin declines. Want to hear, want to know whether it's due to some of the promotions, subsidies or is it a mix in the 1P3P business structure? Thank you.
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Thank you for the questions. Before the second quarter, the year-on-year growth momentum of our GMB and total revenue stayed strong at the level of over 40% for a long period of time.
During the second quarter, we faced temporary pressures from the pandemic and mobile phone consumption slowdown. As we mentioned during the last quarter's earnings call, the COVID control measures disrupted our business operation of 200 self-operated AHS stores in big cities including Shanghai, Beijing, Tianjin, Xi'an and Shenzhen, as well as the logistics services and order fulfillment.
Take Shanghai as an example. The store performance in April and May was largely impacted by COVID. Beginning in early June , the operation started back to normal in Shanghai.
We believe that the impact of the pandemic is transitory in the long term when compared with the other consumer industries that face greater challenges from macro environmental challenges.
We believe the secondhand electronics transaction service industry is a huge yet underserved market.
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Since the beginning of this year, the domestic market for new electronic devices has faced pressure. This has been especially true in those cities that experienced declining sales as a result of COVID resurgence and control measures.
However, in the long run, we remain optimistic about the outlook for recycling and purchasing for your own consumer electronics.
Here are a couple of reasons.
First, Apple is the main brand in our service coverage, accounting for over 40% of our GMV.
Apple maintains a top-tier market position. Its market share in China's high-end smartphone market continues to increase. As has been widely publicized, the iPhone 14 lineup is due to be launched in September , so we have a positive attitude towards our recycling and trading business.
In addition, our conversation regarding respecting innovative partnerships with Apple continues.
Second, as Android brands face greater growth pressure this year, we continue to strengthen our collaboration with JD.com and other major Android brands.
launching effective marketing campaigns based on our trading solutions, thereby providing consumers with more convenient, safe, and value for money trading services and improving new device sales for brand partners.
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In the face of micro uncertainties, our total GMV increased by 28% year-on-year to 18 billion RMB in the first half of 2022 from 14 billion RMB in the same period of 2021.
The total number of transactions was 16.2 million, increased by 14.4% year-on-year. This indicates that the circular economy business is relatively stable compared with the downward new phone shipments in the second quarter.
In the first half of 2022, GMV's total product sales total 4.4 billion RMB, representing an increase of 32.4% year-over-year, which was faster than the overall GMV growth.
Through some optimizations, such as improved efficiency of self-operated stores and more direct retailing of premium self-sourced products through PyPi, our 1D business will be able to achieve a stronger growth momentum.
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I'll let you see it. So I will take another question.
So overall, gross margin at the group level for a second quarter was 22.9%.
at the kind of 2 points, 37 percentage points on year-over-year basis. This was primarily due to a decrease in WMPB's gross margin, which was caused by first an increased number of promotional campaigns on commerce platforms, and a second adverse impact from COVID-19 occurrence.
In detail, the gross margin for our wanting business this quarter was 10.8%. The decline in gross margin was due to the following reasons. Firstly, due to the pandemic's recurrence in the second quarter, we did not have sufficient self-sourced supplies to meet consumer demand. As a result, we increased the proportion of goods sourced from industry partners in preparation for the commerce shopping festivals in June .
Sourcing from third parties lowered our gross margin. However, this was only a temporary tactic and we increased the proportion of our sales source price as our offline stores returned to normal operations after June . In addition, the gross margin for the second quarter was low, also due to the marketing and sales campaigns including our 618 shopping festivals, which we would distribute corresponding coupons.
We expect that the impact of the pandemic will gradually fade away and that we will see a growth in gay bias refurbishments and our link to c assumedly
The gross margin for our own business in the second half of 2022 is forecast to be between 13.5% to 14%.
So overall take a rate of our 3P business in the second quarter increase it to 4.54% from 4.15% in first quarter.
So we anticipate.
increase of both the platform to create by adding more value-added services on top of the current platforms, such as value-added compliance with health services and supply chain financing. Thank you. Okay, Maniko. Again, if you have a question, please press star 1. Our next question will come from Joyce Jude with Bank of America.
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I will translate the question. We have seen Apple show if you actually launched their electric products, recycle services recently. I just want to understand like what's the progress of like you know expansion into other categories or like you know non-electronic categories.
What's the business rationale behind and how we should look at those kind of category expansion impacts on our company's revenue and profits. Thank you.
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In the second quarter, leveraging the tiered AHS store system, we selected the number of pilot stores in Beijing and Shanghai's sub-center areas. In addition to our existing consumer electronics recycling, we tapped into print-on luxury bags, watches, photography, video equipment, and gold recycling services.
Customers can get a price code through AHS mobile app, official website, and WeChat mini program. The recycling process for these pre-owned categories is similar to that of consumer electronics. Consumers get preliminary pricing shortly afterwards answering a couple of questions regarding the model and conditions of their products. They can then make a reservation or work into one of our offline source so our staff can check product conditions and confirm the recycling price.
Then the product will be sent to the local inspection center within an hour through instant delivery. After all, quality inspection experts confirm the authenticity of the product. The recycling process is complete and customers receive their payment if the product is authentic. The whole process is simple and user friendly as we provide face-to-face interaction at our physical stores. Based on that, we can further extend our multi-category recycling offerings to users of JD.com.
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Whereas traditionally there are many pain points for luxury goods recycling, the confinement merchants tend to cut prices as the market lacks transparency. Consumers have trust issues when recycling by mail. The door-to-door recycling model has higher labor costs. AG Renew innovatively offers the two-store recycling plus two-station inspection model. It allows consumers to get a price estimate online, go to a nearby physical store for condition check, and get authenticity verification at the local inspection station.
We provide a more user-friendly customer experience. Over 85 percent of the consumers who accepted our recycling price were willing to try this model.
I hope you enjoyed the video. If you did, please like and subscribe. If you have any questions, please leave them in the comments. I will answer them in the next video. Thank you for watching.
The Chinese government is a very important company and we are very proud to be part of this project. Thank you.
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We believe that there are two factors that contribute to the core competency and the competitive mode of our multi-category recycling business. The first is the brand of AHS Recycle which has been cultivating customers over the past 11 years so that it is now a widely recognized brand among Chinese consumers.
AHS Recycle becomes consumers go to destination. When analyzing our June trial operation data, we noticed that 57% of the users who recycled their camera equipment, and 41% of those who placed luxury product recycling orders online have historical consumer electronics recycling orders proving the strong consumer mind share and our ability to cross sell. The second factor is our nationwide network of over 1,600 offline AHS stores.
This network is a valuable infrastructure for us to reach, serve, and build trust with consumers.
From a financial point of view, luxury goods recycling is an emerging business. And its market size may be slightly smaller than that of mobile phone recycling, but the value chain is even opaque, yet more profitable than mobile phones while the existing solutions are relatively poor. Multi-category recycling mainly brings about an increase in repurchases and an increase in average revenue per user. We have an idea that we could convert mobile phone recycling orders from luxury product users and vice versa.
This idea has been verified through our pilot program at more than 30 AHS stores. 41% of those who recycled luxury products have previously sold their consumer electronics to us. These consumers have stronger perceptions towards AHS Recycling and are more willing to trust us for higher value bags than what is recycling.
In terms of repurchases, 11% of first-time luxury-respecting service users sell their idle consumer electronic devices to us within 30 days.
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As the repurchase rate increases, the efficiency of advertising is also expected to improve. Traditionally, we rarely advertise AHS Recycle as a consumer electronics recycling brand as electronic product is a low frequency category and a relatively local two-store business.
Today, based on the wider store coverage and more transactions brought by luxury goods and other categories, we can re-evaluate the ROI of advertising. We can try to amplify our brand awareness as long as our profit covers marketing expenses.
In general, we believe the key to developing our multi-category recycling business is to leverage the trust we have filled with consumers and AHS recycled service capabilities as well as the nationwide store network. There are many choices when consumers drop online and offline, but quite few trustworthy multi-category recycling service providers. We are excited about the innovative course of what our business is taking, and we look forward to enhancing our brand's reputation as the most trusted and recognized one in the industry. Thank you.
Thank you. As there are no further questions at this time, I'd like to hand the conference back over to our management for closing remarks.
Thank you. Thank you all again for joining us. A replay of today's call will be available on our website shortly, followed by a transcript when ready. If you have any additional questions, please feel free to contact us at irr.com. Have a good day.
This conference is now concluded. Thank you for attending today's presentation. You may now disconnect. Please enter your Elite Entry Number followed by the pound key. Welcome to Chorus Call. Please enter your Elite Entry Number followed by the pound key. Your Elite Entry Number has been confirmed. You will now be joined to the conference. Please note that an operator will pick up your line to collect your information privately. Hi, it's Rachel Smith. And your company? Ayira. And could you spell that for me? Thanks. Hi, I'm sorry. Can you hear me? Yes, I'm hearing you now. Thank you. Can you please repeat? Could you spell the company name? Oh, sure. It's A-I-C-R-E. Thank you very much. I'll join you back in the call and you'll hear the whole music until the call begins. Thank you. You are now rejoining the main conference.