ATHM 汽车之家

Operator

Ladies and gentlemen, thank you for standing by for the Autohome’s Third Quarter 2016 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. As a reminder, this conference call is being recorded. If you have any objections, you may disconnect at this time. It is now my pleasure to introduce your host Vivian Xu, Autohome’s IR Manager. Ms Xu, you may begin.

Vivian Xu

Thank you, Operator. Hello, everyone and welcome to Autohome’s third quarter 2016 earnings conference call. Earlier today, Autohome distributed its earnings press release, and you may find a copy on the Company’s website atwww.autohome.com.cn. On today’s call, we have Mr. Yan Kang, Autohome’s President and Mr. Julian Jiun Lang Wang, Autohome’s Chief Financial Officer. After the prepared remarks, Mr. Kang and Mr. Wang will be available to answer your questions. Before we begin, please note that the discussion today will contain forward-looking statements made under the Safe Harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from our current expectations. Potential risks and uncertainties include, but are not limited to, those outlined in our public filings with the Securities and Exchange Commission. Autohome does not undertake any obligation to update any forward-looking statements except as required under applicable law. The earnings press release in this call also includes discussions of certain unaudited non-GAAP financial measures. The press release contains a reconciliation of the non-GAAP measures to the most directly comparable GAAP measures as available on Autohome’s IR website. As a reminder, this conference is being recorded. In addition, a webcast of this conference call will also be available on Autohome’s IR website. I will now turn the call over to Autohome’s President, Mr. Kang.

Yan Kang

Thank you, Vivian. Good morning and good evening, everyone. Before we get into the details of our operating and financial results, I would like to share with you a few exciting developments in the Autohome business over the last three months. In our last call, I mentioned that we were in the process of reviewing our strategy to better navigate the rapid-changing market dynamics and the evolving digital paradigms in China’s automotive market. On October the 17th, we have formally announced our new figure strategy, which in a short form can be described as a “4+1” strategy. Now, allow me to explain what mean by our 4+1 strategy. The 4 represents the four key market segments in our future consumer centric automotive ecosystem. They are auto-media, auto-ecommerce, auto-finance, and auto-lifestyle. Now, allow me to elaborate in a bit more detail. Media: Autohome has always been known as the most influencer and professional digital auto-media in China. We provide rich and objective content for China’s automotive consumers, attracting more than 25 million daily unique visitors. Our online forum attracts more than 8 million active daily users that engage on average discussions in 2,200 sub-forums. This represents over 81% in all forum market in China’s auto market. Our PGC business, which is a newly launched open content platform continues to attract the best bloggers and KOLs that has now made Autohome the largest auto PGC platform in China with 88 active contributors generating the best content for our readers. We’re continuing to lead and widening our distance from competitors in media. The media business will always be Autohome’s core asset. Auto-ecommerce: We started our transactional service 10 years ago, first, via our dealer yellow page businesses to generate sales leads for auto distributors. We later on expanded our transactional business a few years ago into platform ecommerce that allows OEMs and leaders to sell cars online. We’ve also experimented in the last year on our self operated ecommerce business where we take inventories and sell directly to consumers. At the same time, we also engage in used car ecommerce where we help dealers to visit our inventories online. In the future, we’ll continue to expand our business in new car ecommerce, as well as used car ecommerce and our focus will be on leveraging Autohome’s unique strength in user traffic and deep consumer data analytics to enable operated efficiency in the online space as compared with the old offline model by OEMs and dealers today. Auto finance: In my view, auto finance is a hugely under-excavated gold mine in today’s online automotive market. Research shows that by 2015, more than 35% of China’s auto buyers have financing need when buying their vehicle. That represents a CAGR of roughly 25% annually, which also forms newly acquired financial capabilities and Ping An being our lead shareholder, we’re uniquely positioned to best services the unmet auto-related financial needs of Chinese consumers. Auto lifestyle: As Chinese consumer matures, car is no longer just an expensive piece of equipment that takes people from A to B, but more and more becoming an integrate part of our consumers’ everyday life or what we call auto-lifestyle. While our ecommerce business focuses mostly on satisfying consumers’ need when making a purchase decision, our auto-lifestyle offerings serve our consumers’ needs throughout their car ownership. Finally, the one in our 4+1 strategy represents the engine that will transform Autohome from a content-led vertical media business to automotive eco-platform based on data and technology. In our last quarter’s earnings call, I told you that we’re upgrading our technology and big data capability to allow customized content and commercial offerings based on consumer profiles and we’re on track in our efforts along those endeavors. In addition to setting a clear three-year strategy for Autohome, our collaboration with Ping An is also bearing fruits. In our last call, we mentioned that we have embarked on 17 join projects with various BUs [ph] of Ping An Group to explore collaborative synergies with Autohome. Today, many of those initiatives are already showing encouraging results. I cannot think of a better example that manifests our 4+1 strategy and the synergies with Ping An our recent November 11th Singles Day car buying festival where we amalgamated the online strength of Autohome together with Ping An’s extensive offline service network in a closely synchronized campaign. The 20-day campaign that started on October 23rd and reached its pinnacle on the day of November 11th has attracted the participation of close to 100 automotive brands and more than 12,000 dealers in China. Up until this morning, we have processed over 145,000 automotive orders, which is 170% increase as compared with the Singles Day campaign last year. That represents an aggregate value of more than RMB 21.6 billion. This is a strong testament of our joint achievement including media advertising, offline support, financing products where you can truly see our ecosystem at work. We’re very pleased of the results and the overwhelming feedbacks we had from satisfied consumers on their improved experience, and we are very confident we’re in the right path for sustained future growth in ecommerce. Now that our future strategy is clear, we will be in full speed executing along those defined paths. But at the same time, we must also make some adjustments including some tough measures to ensure our business structure and organization, are best fitted to the specific direction. In our last call, many of you have expressed concerns of our holding of 10,000 Hyundai Elantra in inventory as part of our self-operated ecommerce business. This was unfortunately the historical legacy inventory we had to carry over from the previous executive team, and we have to admit, it has created some challenges in our business. To rectify, we have undertaken a one-time inventory write-down in the amount of RMB 34 million in the third quarter to clear the above inventory. In the future, our new car ecommerce will focus on the online platform that optimizes the matching and the clearing process between the consumers and the OEM and dealer customers. Given our unique strengths in consumer traffic and insight, we’re very confident that our transaction platform will become the undisputed leader in China, as demonstrated already in the November 11th Singles Day campaign. Finally, to streamline the organization in our transactional business, we have also undertaken a serious review of our headcounts in the business lines that are undergoing some strategic transformation. I want to emphasize that part of my role as President of Autohome is to recruit, retain and motivate the best talent that fits with the strategic directions we have described. And on behalf of Autohome management, I’m very pleased that we have now a solid leadership team with stable personnel and we would like to stand [ph] all of Autohome’s hardworking employees for contributing to our continued success. Now, here comes the part many of you are waiting for. For the third quarter results, I’m very pleased to report that revenue increased over 64% year-over-year to close to RMB 1.5 billion that exceeds the top end of our original expectation. Our core media and leads generation business continued to show solid growth of 24% for the third quarter. Adjusted net income attributable to Autohome Inc. grew more than 13% year-over-year to RMB 292 million, that represents an adjusted net income margin of 20%. In addition, the combined number of average daily unique visitors for our mobile websites and mobile applications have exceeded 18 million as of September, that’s 52% year-over-year increase. Our mobile advertising revenue grew 87% compared to the same period last year, accounting for 32% of our media service revenue. Again, this demonstrates our clear dominance, increasing branding, broad portfolio and the growth momentum within our industry to offer consumer the best way to connect to desired information in cars. With that, I’ll now turn the call over to our CFO, Julian, for a closer description at our third quarter financial results and business outlook. Julian?

Julian Jiun Lang Wang

Thank you, Yan. Hi, everyone. As Yan has already highlighted, we are very pleased to report another strong quarter. Note that I’ll reference RMB only in the following discussion. Net revenue for the third quarter is up 64% year-on-year to RMB 1,475 million; this surpassed the high end of our guidance. In terms of revenue breakdown, media revenue is up 22% year-on-year to RMB 577 million, representing 39% of total revenue. This strong growth is driven by our increase of shares in automakers’ marketing budget and is a proof that we are automakers’ choice of honor when it comes to online media platform. In third quarter, lead-gen revenue is up 27% year-on-year to RMB 503 million, representing 34% of total. This increase was primarily attributable to an ARPU increase of 13.5%. Lastly, online marketplace revenue contributed RMB 394 million, representing 27% of total revenue. This new business is mainly driven by direct vehicle sales, which accounted for 97% of online marketplace revenues. And as Yan said earlier, we will be deemphasizing this direct sales model and you should expect to see much less revenue contribution from this business going into next year. Moving on to cost of revenue, which is up 266% year-on-year to RMB 585 million, bulk of which is the cost of vehicles we sold directly. This resulted in our blended gross margin down to 60% in the third quarter including the impact of a one-time inventory write-down of RMB 34 million. Excluding ecommerce business, however, the gross margin of our existing business reached 83.8% for the third quarter of this year versus 84.4% in second quarter this year. Now, let’s take a closer look at our operating expenses. Sales and marketing expense in the third quarter was RMB 384 million, up 14% year-on-year, much lower than our revenue growth rate of 64% and is also lower than our core business growth rate of 24%. Product and development expense was RMB 149 million, up 102% year-on-year; this represents our strong commitment to investing in technology and talent in accordance with our strategic direction. Finally, G&A expense was RMB 63 million, up 42% year-on-year and representing only 4% of our revenues. As a result, total operating expense for the third quarter this year is up 31% to RMB 595 million, representing 40% of net revenues, down from 50% level last year. Now, with lower operating expenses as a percentage of revenues, we again delivered very strong profitability. Operating profit increased 3% year-on-year to RMB 295 million. Adjusted net income attributable to Autohome Inc. is up 13% year-on-year to RMB 292 million. Non-GAAP basic and diluted earnings per share and per ADS for the third quarter were RMB 2.54 and RMB 2.52 respectively compared to RMB 2.29 and RMB 2.23 respectively in the corresponding period last year. As of end of third quarter, our balance sheet remained very strong with cash, cash equivalent, restricted cash and term deposit more than RMB 5 billion and we are generating cash flow of RMB 387 million in the third quarter of this year versus RMB 296 million third quarter last year. Before I move onto guidance, I would like to comment on a few important things. First, as Yan mentioned earlier, we will be deemphasizing the direct sales model for our new car business. This means, you should be expecting a lot lower revenues from this business side going into next year, after we sell of current inventory in this and next quarter. Secondly, as we finalized our strategic directions, we are also streamlining our team. These two factors combined, we shall be seeing a team and a cost structure leaner than before and much better tailored to our new strategy. Let me now address our fourth quarter 2016 outlook, which reflects our current and preliminary view on the market and operating conditions that may be subject to changes. I would like to caution investors that given the business model changes we are making on our direct sales business, the related revenue may be somewhat volatile. At this point, we expect to generate net revenue in the range of RMB 2,039 million to RMB 2,121 million or in U.S. dollar term between $305.8 million and $318.1 million, representing 88.5% to 96.1% year-on-year growth. In summary, we are very proud of what the team has collectively achieved during the transition period and we are [Technical Difficulty] about what we could achieve in the quarters to come. We will continue to invest in technology and content, and we are committed to serving users and customers in the way no one else could. On that note, we are ready to take questions. Operator, please open the floor.

Operator

Thank you. We will now begin the question-and-answer session. [Operator Instructions]

Terry Chen

Hello, can you hear me well?

Operator

Yes.

Terry Chen

Yes, this is Terry. Thanks management for taking my questions. I have one question on your strategy. So, looking retrospectively, three months ago, we were talking about fine tuning the B2C model by lowering the inventory turnover days and enhancing the profitability. So, I am just curious what triggered such a drastic change in strategy in the last three months. And looking into the future, how would a new 4+1 strategy impact our revenue growth and margin? Thank you.

Yan Kang

Well, I want to say we’ve changed dramatically on our strategy on ecommerce. Actually what we described is pretty consistent to what we have shared with you three months ago. Now, when I said, in ecommerce we have to make sure that our model represents a more efficient inventory position and more efficient delivery, we really mean that we want to make sure that our ecommerce represents better productivity compared with what the dealers and what OEMs have already at offline business. Now, to achieve that, we believe the best way for us is to leverage a few core assets we have, which is our consumer traffic, which is our deep understanding of their behavior and how do we use the big data and the results from the analytics of those data to guide our OEMs and dealers to better facilitate the offline transaction. That purpose has never changed. With is different is now instead of taking inventory and sell the vehicles ourselves, our position is more focused on making sure and enable our partners which is OEM and leaders are more efficient. So, that I think is the only change. Now, we realize that the offline operation is probably not what Autohome core asset likes. And what we want to make sure we only focus area where we can add most value and we wanted to work in closer coverage and with our OEM dealer partners to achieve that better efficiency that we have described in the last quarter’s call. Now, with your second part of the question, I guess the 4+1 strategy, how does that impact our revenue and margins. Now, previously many of you have expressed skepticism about our media and lead generation business being plateaued, as they have mature business model and they have -- we have the leadership position for many years. Our view is that there will continue to be robust growth from those businesses, and that is exactly made possible by the 4+1 strategy we have described. We are significantly upgrading our media technology platform to allow customized content and customized commercial offerings to our customers. And we are also making sure that our ad business is more integrated with our offline support. So, within Autohome, we are synchronized solution provider rather than discrete product providers to our customers in the future. All of this will help to generate better value for our OEM and dealer customers. And that will in turn help us to grow our revenue even in the already sort of mature business lines in media and lead generation. Now with regard to margin, now, we have to describe that our number of forces at work that we will impact on margin. On the one hand, we’re withdrawing from the more asset healthy [ph] inventory taking direct vehicle sales model which is good news for our margin. On the other hand, we are also investing very aggressively in technology in new forms of business in closer synchronization between the various BUs [ph] of Autohome as well as some external partners including Ping An. All of those initiatives will take some efforts and investment to materialize. And a lot of the results will probably be more manifested in the years to come rather than in the year that expenses are being spent. So, the combined forces of the investment and also some savings in getting out of the asset heavy, this will be impacting the future margins and the final results, I guess we will see, when we have more detailed forecasting on those measures going forward.

Terry Chen

Just one quick follow-up, I think auto finance is part of your 4+1 strategy. Does that mean that we are finally entering the auto financing industry? Could you share more color on initiative there, especially on the cooperation with Ping An? Thank you.

Yan Kang

Well, whether we do it or not, consumers are already thinking financing needs online and offline. So, I guess, a better description as to how do we leverage the capability we have acquired with Ping An’s injection to better satisfy consumers’ need. So, to that end, I think we’ve made quite some significant improvement from those results. For example, we have in auto loans -- we started our auto loan business in September, which is the total amount of loan we have issued already over 10 million. That’s way higher than what we have before. On auto insurance, in the short two months, we already grew the commission on the -- I’m sorry, not commission, the insurance volume to 2.5, close to RMB 4 million in the last few months. That’s also from almost nothing at some character a few months ago. So, a lot of those businesses are starting to take shape. What we, I want to emphasize is that we’re not taking auto finance product for sake of taking auto finance, but we’re doing that to make sure that auto products are being offered to our consumers at the right moments of their purchase decisions in the right form of their products. So it’s not so much that Autohome is becoming a platform vendor or vendor of auto finance products, but how do we use auto finance market to make sure that the consumers financing needs are being satisfied better and experiences of auto purchase are being enhanced throughout our efforts.

Operator

[Operator Instructions] We’ll now take our next question from Amanda Chen from Morgan Stanley. Please go ahead. Your line is open.

Amanda Chen

Hi. Good evening, management. Thank you for taking my question. My first question is regarding the Ping An, again. So, I think Ping An has been supporting Autohome’s development in every respect. We are just wondering when shall we see any substantial outcome in terms of revenue or profit or any other operating metrics. That’s my first question. Thank you.

Yan Kang

Okay. Actually, as I mentioned in our call earlier, a lot of the efforts are already showing early signs of results. For example, like I mentioned in auto financing, in insurance, sales, in online, offline synchronization for example in the November 11th car selling festival, demands are already Ping An’s auto insurance business involved, life insurance business is involved, Ping An’s leasing business is involved, auto financing business is also involved in the campaign. They’ve also collaborators [ph] of the offered close to RMB 120 million of Red Packets for consumers to attract sales. So, those such that we had in our Double 11 sales, which is now as count 145,000 vehicle transaction completed with the GMV of close to RMB 21.6 billion that is not a usual [ph] that you can accomplish without all the synchronization and all the support from the online home and also the Ping An resources. So, we can already see that being shown in the recent Double 11 car festival level. Now that being said, a lot of the changes will take in the form of metamorphosis. So, a lot of things are going on under the water, now we are using Ping An’s help to tremendously enhance our internal capability in customizing our financial profit to consumers and making sure we offer the best loyalty program to our consumers. Ping An by the way also have the largest consumer loyalty program in China as well, we are leveraging that capability. We are also leveraging a lot of the big data capability that Ping An has to offer. Again, but if any time we’re building of our significantly as well to make sure that we create engine that drives the one technology and data engine that we have described in the 4+1 strategy.

Amanda Chen

Got it. Thank you. My second question is very quick one. So, regarding your lead generation business, we noticed that the monthly ARPU seems decelerated in Q3 again. Any reason behind and also how should we see the growth trend in 2017 and also what’s advertise revenue trend in 2017 as well? Thank you.

Julian Jiun Lang Wang

Amanda, this is Julian. If you look at the lead generation business, we are still looking at a price up regularly and on annual basis. So, if you look at the lead generation business revenue growth in third quarter, it may not be as high as we had expected. However, going forward, we do see a very, very healthy growth outlook in this business. So, in summary, I think the core operations that we have been operating including lead gen and the media business, we are looking at somewhere around 25% to 30% year-on-year growth going forward.

Operator

We will now take our next question from Ming Xu from UBS. Please go ahead. Your line is open.

Ming Xu

So, I just have two questions. The first is a follow-up question on the inventory write-down. So, you mentioned that you booked RMB 30 million inventory write-down in Q3. So, I just wanted to confirm the number, have you -- firstly, have you sold all the inventory? And secondly, will there be any sales in Q4? And thirdly, will there be further write-down in Q4 regarding these Hyundai cars? That’s my first question.

Julian Jiun Lang Wang

Okay. The RMB 34 million inventory write-down figure we booked for third quarter this year, that was on the inventory value side. But the transaction is -- will be booked in fourth quarter. That means we will be selling most of the inventory of Hyundai Elantra model in fourth quarter. But by the end of third quarter, because we already have a contract on hand which is going to be executed in fourth quarter, our auditor believes, it’s only prudent to take down the value of our inventory in third quarter to better reflect the intrinsic value of our balance sheet in third quarter. And that’s why we took a hit in third quarter but most of the sales will be executed in fourth quarter. And at this point, we are not expecting further inventory write-down in fourth quarter. And we are in the process of securing the sales contract for the Hyundai Elantra model in the next two weeks.

Ming Xu

Okay, thank you. And my second question is on the expectation -- is on the margin and revenue side of the advertising business. Mr. Kang, you just mentioned -- discussed a lot about the 4+1 initiative. So, I just want to be more -- specifically on the advertising business. So, given the more personalized, customized content offering and also the more diverse ad offering and as well as the self media platform you’re operating. So, what’s the expectation of all these on both your revenues and margin -- of revenue growth and margin of the advertising business in 2017? Thanks.

Yan Kang

On the revenue side, there are number of engines that will drive -- continue to drive our media growth in 2017. One is of course our traditional ad for OEM. That will continue to grow and exceed as we take share from our competitors. But that will be fortified and accelerated by our technology support. For example, with more intelligence and consumer placing and consumer profiling, we will be able to increase our mobile advertising inventory by a significant percent next year. Now, that will represent a better revenue opportunities with OEM customers with more targeted and more precise targeting of audience and also better value. So that’s one. Now, the second growth will come from our getting into non-car advertising sales. Now, previously all our revenue advertising coming from automotive OEMs but remember, we represent a vertical that attracts over 22 million of active users everyday and those 22 million active users are high quality middle-class consumers in China and that means more than buying a car. So to that end, we’re also starting our non-automotive advertising business. However, those will be close adjacencies to our auto business to support that but we are not going to sell house online but we are going to get into sort of online location or outdoor businesses and so on so forth so that are complementary to our automotive theme. So that again is going to be an additional stream of revenue that will be new to us in the next year. Certainly, we are also being much more open in our media platform, in that with our strength and deep understanding of automotive customers, we are going to from alliance and the partnership with other media that complements our media resources that can equally serve the needs of our automotive OEMs. So, with record advertising alliance scheme, we are also going to have additional revenue. But that’s going to be a new model for us. So, we’re still prudent as to -- for the number behind it but that’s going to be additional source of our revenue going forward. So, in a nutshell, we are rather confident that those new engines going to continue to drive the growth of our media business. Now, on the other hand, I also wanted to emphasize that the core of our media business growth is coming from our traffic growth, which is in some way a result of our enhanced and enriched content. From that we are also making some very big improvement. For example, we are going to significantly increase our PGC platform to accommodate more talent in the market to allow them to finding their home in the auto home ecosystem to make sure that good content are being sort of commercialized in the best way and also being offered to a wide group of audience. So, those will be win-win collaborators we are going to forward in content sharing and contribution with a much bigger group of external content providers and we will continue to do that. So, we are going to increase our stickiness and sort of content wish list of content. We are going to continue to drive traffic. We are going to form alliance with other complementary media platforms. We are going to continue deepening our commercialization business through a better customized, more target advertisement through our OEM customers. So, with all those efforts, we believe that the growth target that Julian described 20% to 30%, even for our mature media business is quiet achievable next year.

Operator

We will now take our next question from Nora Zhang from Merrill Lynch. Please go ahead. Your line is open.

Nora Zhang

Good evening, management. Thank you for taking my question. I have a question regarding the auto insurance business. Could you help us understand how big is the addressable market for Autohome and what kind of competitive advantages we have comparing to offline channels and other online insurance distributors?

Yan Kang

First, we have to stay we are not an online insurance distributor. That is not who we are. And a purpose for us is not to sell any one’s insurance products through Autohome, the purpose is more to integrate that our consumer demands, and weave that seamlessly into the consumer’s auto buying experience. That is the most important thing that we are aiming at. So, everything we do is for the purpose of better satisfying our customer experience and consumer satisfaction and for auto insurance, there is no exception. So I wanted to say that the way you will see us to integrate the insurance is not so that we have a tab that sales only insurance and like there but rather you would see that we integrated that insurance buy-in in our consumer journey when they buy vehicle, when they deal with the dealer and also we’re not selling insurance for the sales purpose alone, we actually are also collaborating with our distributors to sell insurance. And in many of the cases, we would give the margin and the commissions of the insurance sales to the distributors in order to make sure that they got best benefits from offering that to the consumer. So again, I wouldn’t describe it as a channel, but we will use insurance increasingly as a value-add service that we’re going to provide to the consumer.

Operator

Our next question comes from Alex Yao from JP Morgan. Please go ahead. Your line is open.

Alex Yao

Hi. Good evening, everyone. Thank you for taking my question. Two questions, one is how do we model incremental elements that you guys will introduce to the business model, i.e. as you guys deemphasize the direct sale ecommerce business, the rest of the traditional media plus advertising business should go back to the 20%, 30% of the growth rate and maybe low-80 type of the gross margin profile. And then, as you guys adding the auto finance and auto lifestyle et cetera elements to the business and enhancing the technology, so how should we think about the margin structure in 2017? And then, the second quick question is on the cost of product development side. This line item increased pretty quickly this quarter, a lot faster than the top-line revenue growth. Can you help us understand is it one month [ph] impact, or it’s reflective of you guys ambition to enhance R&D capability and we should expect similar strong growth rates into the coming quarters? Thank you.

Yan Kang

I’ll probably take your first question, then on the second question, maybe you need to repeat a little bit, because I’m not sure we got your second question. But let me try to address your first question first on the modeling part. Unfortunately, I’m not a modeling expert, but what I can describe to you is how do we envision the business going forward, so that I can probably factor that into contract your model. Now, I think in the future, Autohome business is going to be composed with a number of these quick parts. One is our media business and the auto eco platform. The media business basically is the formation and a foundation of our eco platform. So, I would say media and the auto finance -- I’m sorry, media and the auto lifestyle are probably more part of this platform, this is core business. I say that is core is because this is very fundamental in terms it attracts the consumers to come to our website or mobile app for that matter to enjoy the content, to enjoy your lifestyle. This is more a traffic generator and at the same time also generates advertising revenue as some accessory of revenue in the forms of some consumer related revenues, for example some sales of probably outdoor activity, some sales of non-automotive advertising products in our ecosystem. That’s one business. The second group of business is a more transaction business, which is our new car ecommerce, which is our used car ecommerce and at some point is going to be also our aftermarket ecommerce as well. Those will be separated ecommerce business that you can probably find equivalence of our new car sales in the form of a automotive Tmall; that will be something of the core personality I can think of. Our new car ecommerce is probably going to be -- and it is someway already the largest ecommerce transaction platform online and it’s going to be like a Tmall. Our used car business very similarly is going to be a marketplace where the used car dealers find their transactions and close their deals with consumers online, similarly to our aftermarket business. For those businesses, I guess the valuation will be the more trickier, other than just your PE models or sort of DCF model, which you probably you can -- I’m sure you have better ways to evaluate those businesses, as you do with mobile or equivalent or similar business. For the core business, I think you can take a look at our revenue and our gross projection and as well as our cost structure, both probably ways that you can look at our core business. So, those will be two separate groups of evaluation approaches that you can think. Does that answer your first question?

Alex Yao

Yeah, sure. The second question is about the product development expense, which increased more than 100% a quarter, much faster than the top line growth. Just wondering what is the use and this line item is growing so fast, is it one-off or is it consistent trend that we are going to see very strong R&D and a product development cost increase into the foreseeable future?

Julian Jiun Lang Wang

Your second question, I think you have already had the answer yourself. In the last quarter or actually in most of the time 2016, we have invested heavily in the team and technology, and that resulted in a product development cost up by about 100%. But with that line item, you probably should view it as an investment rather than an expense because by building up strong technology platform and a strong team, that actually forms a good platform for us to move, to grow into year 2017 and beyond. So, going forward, you should not expect a similar growth rate in that line item going to next year because most of the investment we have already made in this year but that did build up a higher cost base going to next year.

Alex Yao

Is it mainly the headcount expansion that drives growth under this line item?

Julian Jiun Lang Wang

Well, that’s a combination of a lot of things, right, headcount, servers, bandwidth a lot of things.

Operator

Our next question comes from Thomas Chong from Bank of China. Please go ahead, your line is open.

Thomas Chong

Hi. Thanks management for taking my questions. I have two questions, the first one is can management provide some color about the number of vehicles sold in 2015 and how we should expect in 2017? And my second question is more about the financials. Can management provide the breakdown for the SBC [ph] under RMB, SG&A et cetera? Thanks.

Yan Kang

Yes. For our ecommerce platform for both what we call platform sales as well as direct sales, altogether, we sold roughly 25,000 vehicles that exclude by the way exclude our Double 11 that I have just described. So, excluding Double 11, we’re selling roughly 25,000 vehicles for Q3 and a cumulatively for 2016, the number will be something close to 50,000 of which 20% are for direct sales and the rest [indiscernible]. Again, this is excluding our number for Double 11, which is now coming at already 145,000 altogether. So, adding those two is quite impressive number. That’s for the ecommerce platform sales.

Julian Jiun Lang Wang

Another part of your question was about the composition of the expenses line items, right?

Thomas Chong

Yes.

Julian Jiun Lang Wang

Okay. I would actually suggest that you take a look at the earnings release we put out on last day. In that document, we actually have very detailed write-down of many things. One thing I would like to point out is share based compensation expenses related to the departing senior management, which happened in third quarter and we booked that -- we booked the share based compensation expenses under different line items, including cost of revenues, sales and marketing expense as well as product development. And in the earnings release document, you’ll see all the details.

Thomas Chong

Thanks. May I just have a quick follow-up about the number of vehicles that we target for 2017? Thanks.

Yan Kang

What we described is that the number of vehicles for direct sales will be significantly reduced for next year. Now, we achieved a dramatic increase, almost over 170% in our Double 11 for this year from last year. Now, we anticipate the growth of ecommerce platform to be very strong. We don’t have a specific number to share at this point of time. I think going forward when we have a better view of our next year forecast, we’ll probably give you a more accurate number. At this point, I’ll just say that it’s going to be very robust growth, as you have already witnessed from the last few months. Next year, I think it’s going to be a significantly increased number from this year.

Operator

We will now take our next question from Tian Hou from T.H. Capital. Please go ahead. Your line is open.

Tian Hou

My question is really related to your marketplace. So, as you change form listing, advertising to transaction business, so I wonder what’s the relationship between you and the OEM who are selling car on their own or car dealer on their own? What’s the relationship going to be going forward?

Yan Kang

The relationship is going be quite simple. They are our customers and they will continue to be our customers. And we will be their enabler and service provider to make sure that they navigate the market as smoothly as possible. So, we are going to use our consumer traffic; we’re going to use more target transaction items to help them to sell better cars whether offline or online. So, in some way, our platform ecommerce is going to be an extension of our advertising business and also lead generation business as we currently is. All of this is to make sure that we become a full service provider, use our technology to make sure they are more efficient, they are better improving their business model that are suited for the competition going forward.

Tian Hou

So, is that possible for the dealers and OEMs to shift their media budget to much more online marketplace?

Yan Kang

No. The media business in a way sort of is a different purpose from the ecommerce platform. The media is for awareness building, is for consumer education, is for conversion, is for loyalty building. So that’s why you see that when consumer buy a car, before they buy a car, they spend roughly three months in our website learning about various type of vehicle of their likes and dislikes. And they compare comments from their peers, they look for advises from our professionals. So, the use of the media will continue to exist in those functions. And our OEM, particularly some of the leading OEMs are aware of that; they’re aware of that in leveraging our media business to achieve those goals, branding goals and education and sort asset building. So that will continue to be the case. Now, what will be somewhat tricky will be some of the more transaction business including our lead generation business, including our ecommerce. This will in-time in our view probably integrate and converge. So, at one-time we’re offering the dealers leads to their offline sites in our lead generation business; at same time, we’re also offering opportunity for them to opening online shops that are better taking advantage of our online traffics. I think those serve different needs that the lead generation is more eminent, is more for the current states of business that is a very important part of their sales. The ecommerce platform will be representing the future. We think those will be needed for our dealer brands and OEM customers in helping them to navigate the ever more competitive automotive market.

Tian Hou

That’s very helpful. Thank you. That’s all my questions.

Yan Kang

Sure.

Operator

That will conclude today’s question-and-answer session. I’ll now turn the call back to management for closing remarks.

Yan Kang

Okay. Thank you very much for joining today. We really appreciate your support and we look forward to updating you on our next quarter’s conference call in a few month’s time. In the meantime, please feel free to get in touch with us, if you have any further questions or comments. Thank you very much.

Operator

That will conclude today’s call. Thank you for your participation. Ladies and gentlemen, you may now disconnect.