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Cheetah Mobile Revenue, Earnings Falter, but Big Plans Ahead

Anna Vodopyanova 2018-11-19 14:55 PM
Cheetah Mobile Revenue, Earnings Falter, but Big Plans Ahead

Cheetah Mobile Inc. (NYSE: CMCM) stock crawled 5 cents down to $12.32 per American depositary share after the company released disappointing quarterly earnings, but shared long-term innovation plans.

The Beijing-based creator of some of China's most popular mobile games and apps, which also makes robots as part of its artificial intelligence (AI) initiative, reported today its revenue in the first quarter was $182.6 million, down 4 percent from $189.8 million a year ago.

The decline was attributed to discontinued ads and migration from PC to mobile in Cheetah Mobile's overseas utility products and related services. Revenue from its mobile entertainment increased 8 percent year-over-year to $62.6 million, the company said, driven by its mobile game business.

The company reported it had 574 million mobile monthly active users (MAUs) globally in the first quarter. Of those, the company said, 75 percent were users outside China.

Net income attributable to shareholders of Cheetah Mobile was $11.2 million, or 7 cents per ADS in the first quarter, compared with $14.5 million, or 10 cents per share, a year ago.

Despite a drop in overall revenue growth and earnings, Cheetah Mobile said first quarter results exceeded the company's expectations.

According to the chief financial officer of the company, Vincent Jiang, Cheetah Mobile's gross profit increased 3 percent year-over-year to $120.2 million in the first quarter, while its gross margin expanded to 66 percent from 62 percent a year ago. Operating margin in the first three months grew to 12 percent from 2 percent in the same period last year.

"We continued to expand our profit margins in the quarter, thanks to our strategy to optimize the cost and expense structure for our utility products and related services business," Jiang said.

Cheetah Mobile&`#`39;s chairman and chief executive officer, Sheng Fu, said: "Our utility product business continued to generate strong profits and cash flow. We also solidified our leading position in the mobile casual game market by further enriching our game pipeline."

In a call with analysts today, Fu talked at length about Cheetah Mobile's plans in transitioning the company&`#`39;s focus to mobile games, which is its core business, and to a quickly developing industry, AI-powered technology.

Cheetah's apps, including games released more than a year ago and casual games, continue to grow in popularity, and Fu said the company has responded to consumer demand by adding levels and other upgrades.

In November, the company disposed of a news app startup News Republic, and began to invest in robotics. It partnered with an AI developer, Beijing-based OrionStar, where Cheetah Mobile holds a 30 percent stake and a warrant to acquire a controlling position. Several products were introduced with OrionStar earlier this year, which included voice and face recognition, text-to-speech transcription, audio content service, and a full-sized reception robot, Cheetah GreetBot.

"We believe 2018 will be a transformational year for Cheetah mobile," Fu said in the call with analysts. "While our evolution has had its ups and downs, over the years, we have successfully adjusted our operational reduction and a strategy to address the rapid changes in the Internet and mobile Internet space."

Fu credited Cheetah's talented research and development team, "massive" user base, and a strong cash position for giving the company confidence in long-term growth prospects.

For the second quarter, the company said it expected revenue to be in the range of $163 million and $172 million, below the results of $177.24 million from the same period in 2017.

The company said it expected to start selling Cheetah GreetBots in the fourth quarter this year.

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Shares of Cheetah Mobile dropped 5 cents to $12.32 per share after the company released its quarterly report.

(Source: Thomson Reuters Eikon)