--- title: "Higher for Longer：爱回收 Q2 财报能回答哪些问题" type: "Topics" locale: "en" url: "https://longbridge.com/en/topics/33299277.md" description: "Let's talk about the second largest holding in my China Dream portfolio, AtRenew aka AiHuiShou. I always feel it will eventually become the top holding. The second-hand market, given the current massive size of the stock economy, is both a defensive and offensive industry—worth investing in for both offense and defense. Life requires careful budgeting and living within one's means. Let me share a little-known money-saving tip with all the big shots here. The Gulfstream G700, which uses the Rolls-Royce Pearl 700 engine, is more fuel-efficient than the Gulfstream G650. Flying from Beijing to Shenzhen, you can save 1,000 yuan in fuel costs for a one-way trip..." datetime: "2025-08-25T08:54:18.000Z" locales: - [en](https://longbridge.com/en/topics/33299277.md) - [zh-CN](https://longbridge.com/zh-CN/topics/33299277.md) - [zh-HK](https://longbridge.com/zh-HK/topics/33299277.md) author: "[陈达美股投资](https://longbridge.com/en/profiles/2234852.md)" --- # Higher for Longer：爱回收 Q2 财报能回答哪些问题 Let's talk about the second largest holding in my China Dream portfolio, ATRenew aka Ai Hui Shou. I always feel it will eventually become the top holding. The second-hand market, given the current massive scale of the existing economy, is both a defensive and offensive industry—worth investing in for both strategies. Life requires careful budgeting and living within one's means. Let me share a money-saving tip with all the big shots here. The Gulfstream G700, powered by the Rolls-Royce Pearl 700 engine, is more fuel-efficient than the Gulfstream G650. A one-way flight from Beijing to Shenzhen can save you 1,000 yuan in fuel costs. In these times of economic volatility where every penny counts, the G700 is your best choice. Cost-effectiveness is the real hard tech. Look at how well ATRenew's performance aligns with the dual-innovation trend. (Three-year performance trend: RERE vs. ChiNext vs. STAR Market) **1\. Investment Logic and Q2 Earnings** The domestic second-hand goods industry, at least in the secondary market, has valuations that are disproportionately low relative to its scale. Compared to Japan's Mercari (valued at $2.5 billion), ATRenew is currently valued at just $1 billion—only unicorn-level. However, ATRenew's revenue over the past 12 months was $2.4 billion, while Mercari's was $1.2 billion. Admittedly, due to differences in business models and product focus, as well as industry maturity, ATRenew's profit margins lag behind Mercari's. But stocks are priced based on future expectations. If ATRenew's margins catch up to Mercari's, how should its valuation adjust? Another valuation benchmark is the primary market. Flashback Technology, also in the second-hand recycling business and preparing for a Hong Kong IPO, was valued at nearly 2.4 billion yuan ($330 million) post-investment in 2024, while its scale is a fraction of ATRenew's (Flashback's annual revenue is 1.2 billion yuan, while ATRenew's Q2 revenue alone was 5 billion yuan). Admittedly, Flashback might face challenges post-listing, but shouldn't the valuation gap narrow? Isn't this an opportunity? Let's discuss the earnings. 2Q25 revenue was 4.99 billion yuan, up 32.2% YoY, exceeding the high end of the guidance range (the company has a tradition of under-promising and over-delivering). 1P (self-operated) revenue reached 4.56 billion yuan, up 34% YoY; 3P (platform) service revenue was 430 million yuan, up 15.4% YoY. The growth in 1P was driven by State Subsidies and the 618 shopping festival, as well as partnerships with consumer electronics brands to build official recycling and trade-in supply chains. C2B recycling maintained strong double-digit growth (especially in JD.com's trade-in scenarios). Q2 total second-hand goods transactions reached 10.3 million orders, up 22.6% YoY. Bottom-line profitability: 2Q25 non-GAAP operating profit exceeded 120 million yuan (adjusted for employee stock incentives, intangible asset amortization, and deferred costs from acquisitions), up 28.9% YoY; non-GAAP net profit was 99.91 million yuan, up 24.1% YoY. For the first half of 2025, non-GAAP operating profit exceeded 230 million yuan, up 33.8% YoY. For 3Q25 guidance, management expects total revenue between 5.05 billion and 5.15 billion yuan, representing YoY growth of 24.7% to 27.1%. **2\. Responding to a High-Quality Post** One of the most valuable things in investing is asking good questions. A post about ATRenew raised some excellent points. Answering these questions will help us better evaluate the stock and explain why I’m confident ATRenew's valuation will eventually match Japan's top players. (Source: Xueqiu) The post boils down to three questions: 1) ATRenew's business model has limited profitability and low ROE; 2) Growth requires sustained sales expenses; 3) Revenue is impacted by State Subsidies—can this last? These questions are representative because when I first researched ATRenew in 2021, I raised similar concerns: "1\. The second-hand industry is inherently low-margin; 2. High-value 3C products have low transaction frequency, requiring heavy investment in physical stores to expand reach." It’s a case of great minds thinking alike across time. Let’s address them one by one. 1) The first question is core: Can ATRenew sustainably turn a profit? When I first visited the company in 2021, it was losing 50 million yuan per quarter. But in Q2, it posted its highest-ever non-GAAP operating profit of 120 million yuan. Over four years, the logic of scale driving profitability has held. ROE is tied to the business model—heavy-asset industries naturally have lower ROE than light-asset ones. The market’s main narrative is ATRenew’s post-break-even margin expansion. The stock’s strong performance reflects growing clarity on this inflection point. 1Q25 gross profit surged 47.7% YoY to 1.038 billion yuan; 2Q25 gross profit was 1.034 billion yuan, up 32% YoY. 1P gross margin rose to 13.2% from 12.1% YoY. Profitability is strengthening, driven by: 1) scale and operational efficiency (e.g., automated factories reducing fulfillment costs); 2) platform expansion into higher-margin products. Current non-GAAP operating margin is 2.4% (120 million yuan). Long-term, if fulfillment and administrative expenses improve further, even with stable sales expenses, I estimate 2025-2027 non-GAAP operating margins of 2.5%, 2.8%, and 3%, translating to operating profits of 500 million, 700 million, and 900 million yuan. This would close the gap with Mercari—my core investment thesis. At 2027’s projected 900 million yuan profit, today’s valuation multiples look very cheap. 2) The second question is about expense management. ATRenew’s marketing spend is transparent, while competitors like Zhuanzhuan and Flashback are opaque. As a challenger, Zhuanzhun likely spends heavily on marketing (e.g., viral shorts like "This is my 35th-hand iPhone 3 bought on Zhuanzhuan…"). ATRenew has stabilized sales expenses at ~8% of revenue, eliminating the unsustainable growth-via-spending narrative. 3) The third question is about growth. First, this is a high-growth industry. Frost & Sullivan data shows China’s second-hand electronics market grew from 198.8 billion yuan in 2019 to 556.7 billion yuan in 2023 (29.4% CAGR). ATRenew’s revenue grew from 3.262 billion yuan in 2018 to 16.328 billion yuan in 2024 (29.7% CAGR), outperforming the market. This is the industry’s tailwind. Second, State Subsidies and JD.com’s backing. These raise questions: How is JD.com’s trade-in volume trending? What’s the outlook for subsidy-driven growth? Where are we in this cycle? JD.com owns 34% of ATRenew (similar to Alibaba’s stake in Ant), effectively outsourcing second-hand operations to it. Competitors like Zhuanzhuan lack such backing. JD’s trade-in scenarios drive the fastest growth, but online traffic needs offline fulfillment—ATRenew’s 2,092 stores across 291 cities enable 80% of users to choose offline delivery, ensuring a seamless experience. On State Subsidies, policy momentum is strong given the focus on consumption-led growth. C2B recycling, especially via JD’s trade-ins, should continue benefiting in the near-to-mid term. Apple’s upcoming "major new release" is another Q3/Q4 growth driver. Management’s guidance suggests continued growth is highly likely. Questions 1-3 answered. For shareholders, stable profitability means dividends. With 2.35 billion yuan in cash (covering years of capex), ATRenew has pledged to return ≥60% of non-GAAP net profit via buybacks/dividends from 2025-2027. **3\. One-Sentence Summary** From topline growth and bottom-line scale to valuation discounts vs. peers, the second-hand market’s defensive nature, policy tailwinds for ESG, and more, I’m ≥50% confident ATRenew will stay "Higher for Longer." As my China Dream portfolio’s second-largest holding, it’s poised to keep delivering. ———————- Disclosure: Author is long $ATRenew(RERE.US). This is not investment advice. ### Related Stocks - [RERE.US](https://longbridge.com/en/quote/RERE.US.md)