By Michael Kim
NYSE:RERE
READ THE FULL RERE RESEARCH REPORT
Pre-market open on 8/20/25, ATRenew reported 2Q25 earnings results. On a GAAP basis, RERE reported net income of $10.1 million for 2Q25, or $0.04 per ADS. That said, excluding non-cash share-based compensation and intangible assets amortization expenses, adjusted EPS came in at $0.06, or a penny above our $0.05 estimate. Relative to our model, the bottom-line beat was mostly a function of higher-than-expected revenue and operating income.
Focusing on the top line, total revenue of RMB 4,992 million ($696.8 million) came in above the high point of management’s prior guidance range (RMB 4,710 million to RMB 4,810 million) and 4% above our RMB 4,795 million ($669.3 million) estimate on accelerating online sales of pre-owned consumer electronics. Total expenses of RMB 4,900 million ($684.1 million) were higher than our RMB 4,718 million ($658.5 million) estimate. Despite lower fulfillment, selling & marketing, and G&A expenses, higher than anticipated merchandise costs (mostly a function of the step up in sales during the quarter) drove the unfavorable variance.
After updating our model for 2Q25 actuals, we are fine-tuning our 2025 and 2026 adjusted EPS estimates from $0.22/$0.42 to $0.23/$0.37. Crosscurrents include: 1) the 2Q25 EPS beat; 2) higher revenue growth reflecting accelerating trade-in activity fueled by government subsidy programs (for 3Q25, senior officials anticipate total revenues to be in the range of RMB 5,050 million and RMB 5,150 million, or $703 million to $717 million at current FX rates, implying year-over-year growth of 25% to 27%); 3) a slightly more conservative margin outlook, as management remains focused on reinvesting in the business to enhance sustainable growth; and 4) a modestly higher share count, with capital return more skewed toward dividends as opposed to buybacks.
As a result of incorporating a lower discount rate in our DCF model, we are raising our price target from $5.00 to $7.00 implying considerable upside potential from current levels. Our thinking is based on RERE’s lower risk profile in light of building scale and diversification reflecting ongoing initiatives to further broaden the company’s product, distribution, and geographic footprints. Despite the recent runup in the shares, we continue to believe current levels still provide investors with an attractive entry point for RERE, as awareness and appreciation of the company’s business model, growth prospects, competitive positioning, and valuation disconnect rises.
Following our review of 2Q25 results, we highlight the following key takeaways:
- Expanding retail footprint/fulfillment capabilities: During the quarter, RERE opened 206 new locations bringing the company’s nationwide network of AHS stores to 2,092 as of June 30, 2025. Looking ahead, management remains committed to further expanding the retail footprint, as well as the underlying product mix, to enhance supply chain/recycling capabilities. Stepping back, recycling penetration rates for pre-owned consumer electronics in China remain in the single-digit range compared to over 30% across most other developed nations suggesting considerable growth assuming more comparable percentages. From a fulfillment perspective, ongoing upgrades to RERE’s door-to-door capabilities continue to drive reduced transaction times, improving customer experiences, enhanced AHS Recycle brand loyalty, and rising revenue contributions. Indeed, 1PtoC retail revenue grew 64% on a year-over-year basis and represented nearly 35% of total net product revenue in 2Q25.
- Trade-in tailwinds: Continuing the more recent trend, much of the revenue growth in 2Q25 related to accelerating online sales of high-quality pre-owned mobile phones sourced via trade-in activity. To be sure, the government’s focus on stimulating domestic spending and related subsidies on new mobile phones continue to spur recycling and trade-in business more broadly. Related growth remains strong, and beyond a more favorable macro backdrop, RERE maintains durable competitive advantages including the company’s differentiated trade-in capabilities/services, particularly as it relates to key strategic programs with JD.com and Apple. Importantly, Apple provides brand-funded incentives for trade-ins, as new iPhone prices typically exceed national subsidy limits. Finally, senior officials remain focused on partnering with other consumer electronics brands and e-commerce platforms to drive broader recycling/trade-in activity.
- Accelerating capital management: During 2Q25, management repurchased 1.6 million American Depositary Shares (ADS’s) at an average price of $2.50 per share translating into $4.0 million. As expected, the Board recently authorized a new $50 million share repurchase authorization expiring 6/30/26. Looking ahead, the Board recently approved a three-year shareholder return plan, with a commitment to allocate at least 60% of annual adjusted net income to dividends and/or share repurchases. The Board maintains discretion as it relates to the amount, underlying mix, and timing of shareholder returns. Put another way, if the stock continues to appreciate, we would expect dividends to account for a greater percentage of the $34 million allocation this year (60% of our adjusted net income estimate of $56.5 million for 2025). As discussed in prior research, we anticipated a more consistent/predictable capital return approach given the company’s steadily rising adjusted net income and more opportunistic share repurchases.
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