ATRenew (NYSE:RERE) interests for two reasons

ATRenew  (for "AllThingsRenew," aka Aihuishou) is a recent entrant to the NYSE (June 2021 IPO) and it has suffered along with other China based online stocks as a result of increased political oversight of the larger companies. My opinion is that this is overdone in this case. We can see what the authorities are trying to do with those financial and market bestriding companies. Here, there's little of such issues to consider. But the price has suffered all the same - we might expect a rebound.

The other thing is that the business makes obvious sense. We're not being asked to consider some black box, this is a reasonably simple business idea to grasp. Take in used electronics in bulk, sort and check, then retail. Given the rise in online selling - with the inevitable returns - and reselling as equipment is replaced by consumers then we've a swiftly growing marketplace to attack. Which seems to be being done successfully too.   

Latest results

The latest results have been published and they're interesting:

Yes sure, we'd much prefer to see that they were already throwing off vast dividends out of their considerable profits. But then we all also know that the internet can be a landgrab business. It's necessary to invest in order to create the position of being just the place to go for a particular activity. That very being the marketplace becomes that moat that protects the business in the longer term.

It's fine to be making losses while that position is built.

We do need to be careful on one point - is the company sufficiently well capitalised to be able to get there? 

Cash and cash equivalents, short-term investments and funds receivable from third party payment service providers increased to RMB2,538.0 million (US$393.9 million) as of September 30, 2021, from RMB1,140.2 million as of December 31, 2020, primarily due to net proceeds from the Company's initial public offering in June 2021.

Yes, yes it is. Those IPO proceeds are banked and can fund the run rate for some time, we're fine there. 

When we properly adjust losses they're falling:

We seem to be doing fine by our normal measures of the early stages of an online business. 

But what about the business itself? 

It's always worth considering what it is that a business is trying to do and work out whether it actually makes sense. Here, yes, that base model does. It is, essentially, taking in used and returns of electronics then checking them and retailing them back out into the market place. Doing this in Europe would be difficult, given the laws about guarantees on used electronics. China is more sensible on such matters. 

Work still needs to be done of course and significant spending is going on in automating that, But the continued rise of online retail is going to mean ever more returns that will be available. Similarly, continuing generations of new purchases will mean old equipment that users wish to sell on. This is clearly a market that will be growing.

This is clearly a believable, even sensible, business model. We've not got to believe anything strange or odd to see that this is so.

The market is also growing

This whole idea of the circular production chain is going to mean that there's institutional pressure for the market to grow as well. Pressure on retailers to make sure their returns are reused where possible for example. Advances in design and technology that make this easier too. 

My view

So we've got a swiftly growing company in a swiftly growing market. Why wouldn't we be interested? What particularly interests me here is that the base model of the business is clear and understandable. We're not being asked to swallow some strange change in behaviour or human nature. All that's required is efficiency in execution and the model will work.

Definitely worth a further look.

The investor view

Whether you as an investor are interested in China stocks is up to you. And many will be concerned about the new regulatory attitude to the larger companies in the country. My view is that that applies only to the larger stocks and companies where they are sufficiently important to be changing the nature of the overall economy. This doesn't apply here. But the uncertainty does, which is one reason why the stock price has been hit so hard. 

It's entirely possible that there will be an upward revaluation here. Both as the inherent growth of the company shines through and also as that political uncertainty recedes.