Cheetah Mobile leverages AI to transform: To C in body, To B in mind

According to Leifeng.com, Cheetah Mobile recently released its fourth quarter financial report ending December 31, 2018 and its full year financial report for 2018.

Financial report data shows that Cheetah Mobile's total revenue in 2018 was 4.982 billion yuan, a year-on-year increase of 2.2%. Non-GAAP net profit attributable to Cheetah Mobile shareholders was 1.289 billion yuan, a decrease of 9.34% from last year's 1.421 billion yuan. Non-GAAP operating profit was 552 million yuan, an increase of 6.2% over last year. Non-GAAP operating profit margin increased from 10.7% last year to 11.1%.

From a business perspective, Cheetah Mobile's revenue is mainly divided into two major segments.

The first part is tool products and related services. Data shows that the revenue of this part is 3.12 billion yuan, a decrease of 6.7% over the same period last year. The reason is that the overseas revenue of this business segment has declined due to the suspension of certain advertising forms (such as mobile phone lock screen ads) and PC-related revenue.

However, Cheetah added that under the same business segment, the decline in overseas revenue was partially offset by the increase in domestic revenue - in the domestic market, revenue from tool products and related services increased by 22.3% to RMB 1.794 billion, accounting for 36% of total revenue. Specifically, Cheetah's applications "Cheetah Call" and "Fun Input" have achieved rapid growth in the domestic market.

The second part is the mobile entertainment business, the revenue of which increased by 19% year-on-year to RMB 1.779 billion, accounting for 35.7% of the total revenue.

The increase in revenue of this department is mainly due to the revenue of Cheetah Mobile Games; in 2018, Cheetah Mobile's mobile game revenue was 925 million yuan, a year-on-year increase of 48.5%. Cheetah said that the global user downloads of its games exceeded 2 billion, and the three classic IP games achieved rapid growth in operating profits. The newly launched casual game "Brick Crush" has become a hit in the industry. More than half of the revenue in the second half of the year came from user in-app purchases, and the ARPU value remained at a high level.

In addition, revenue from content-driven products was basically the same as last year, at RMB 853.9 million.

Looking at the fourth quarter alone, Cheetah Mobile's revenue performance is as follows:

• Revenue from tool products and related services was RMB 783 million (approximately US$113.9 million), down 16.5% year-on-year and up 6.3% quarter-on-quarter. Meanwhile, in terms of MAU, Cheetah's MAU dropped from 535 million in the previous quarter to 470 million; Cheetah said that the decline of 65 million MAU was due to reduced investment and the impact of Kochava's allegations.

• Revenue from mobile entertainment business was RMB 555.6 million (approximately US$80.8 million), an increase of 39.4% year-on-year and 11.6% quarter-on-quarter, accounting for 40.2% of total revenue. In the mobile entertainment business, Cheetah Mobile's revenue from mobile gaming business in the fourth quarter was RMB 326.2 million (approximately US$47.4 million), an increase of 91.4% year-on-year and 14.3% quarter-on-quarter; revenue from content-driven products (i.e. LiveMe) was RMB 229.4 million (approximately US$33.4 million), an increase of 0.6% year-on-year and 7.9% quarter-on-quarter.

• Revenue from other businesses was RMB 42.6 million (approximately US$6.2 million), compared with RMB 20 million in the same period last year and RMB 18.5 million in the previous quarter. Leifeng.com learned that the growth of this part of revenue was mainly driven by the growth of revenue from the Leopard Translation Stick; the revenue of the Leopard Translation Stick in Q4 increased by 193% month-on-month, and the sales volume in Q4 increased by 176% month-on-month. A typical case noticed by Leifeng.com is that during the "Double Eleven" period in 2018, the sales volume of the Leopard Translation Stick exceeded 15,000 units across the network, becoming the sales champion of similar products.

In addition, from the regional division of Cheetah's full-year revenue in 2018:

• Revenue from the Chinese market was RMB 1.9711 billion (approximately US$286.7 million), an increase of 27.5% compared with the 2017 fiscal year; accounting for 39.6% of total revenue, compared with 31.7% in the 2017 fiscal year;

• Revenue from overseas markets was RMB 3.0106 billion (approximately US$437.9 million), a decrease of 9.5% compared with fiscal year 2017; it accounted for 60.4% of total revenue, compared with 68.3% in fiscal year 2017.

Judging from this trend, Cheetah Mobile's revenue dependence on the domestic market is gradually increasing, but revenue from overseas markets still accounts for the majority.

Of course, even if it is not clearly reflected in the revenue level, AI is still a key word mentioned by Cheetah in its financial report.

Cheetah Mobile said that in 2018, Cheetah Mobile transformed from a traditional mobile Internet company to an AI-driven industrial Internet company; for example, on March 21, 2018, Cheetah Mobile released the intelligent service robot Cheetah Secretary, and its intelligent solutions were implemented in key industries and repurchased. Now it has been implemented in more than 20 scenarios such as intelligent tour guides, intelligent shopping guides, intelligent government affairs, and intelligent conferences, and has obtained hundreds of customers. In addition, Cheetah Mobile did not forget to emphasize that its co-invested Orion Star has successively launched bidding for projects such as smart hospitals, smart schools, and smart cities in various places, using AI robots and intelligent solutions to transform traditional industries.

Obviously, under the new industry development situation, Cheetah has also raised the banner of AI and To B, which is more conducive to its future imagination space.

However, Leifeng.com noticed that after Cheetah Mobile's financial report was released, the outside world's reaction was not good. Nomura Securities downgraded Cheetah Mobile's rating from buy to neutral, and Cheetah Mobile's stock price also fell sharply, currently maintaining at around $6.34. It can be seen that the outside world is not very satisfied with Cheetah Mobile's current situation. The expectation for it has been attributed to how it will gradually realize the transformation towards AI and To B in its existing business - obviously, this is not something that can be achieved overnight.

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