Cheetah Mobile Inc (CMCM) 2021 Q1 法說會逐字稿

Good day, and welcome to the Cheetah Mobile First Quarter 2021 Conference call. (Operator Instructions) Please note, this event is being recorded. I would now like to turn the conference over to Sheryl Zhang, Investor Relations Director of Cheetah Mobile. Please go ahead, ma'am.

Thank you, operator. Welcome to Cheetah Mobile's First Quarter 2021 Earnings Conference Call. With us today are Mr. Sheng Fu, our Chairman and CEO; and Mr. Thomas Ren, our CFO. Following management's prepared remarks, we will conduct a Q&A session.

Cheetah Mobile earnings release was distributed earlier and is available on our IR website at www.ir.cheetahmobile.com.

Before we begin, I refer you to the safe harbor statements in our earnings release, which will also apply to this call today as we will make certain forward-looking statements. Now I would like to turn the conference call over to our Chairman and CEO, Mr. Sheng Fu. Please go ahead, Fu.

Thank you, Sheryl. Hello, everyone. In the first quarter of 2021, with our previous guidance, Cheetah Mobile's revenue was about RMB 200 million. The company has efficiently improved operational efficiency. Gross margin continuously increased to 70.1%. Operating loss narrowed to RMB 57 million and the net income attributed to our shareholder was RMB 76 million.

Our cash position has been increasing to about USD 276 million as of March 31, 2021. The abundant cash result enable us to keep investing in our core business to empower the company's long-term sustainable growth.

For our internet business in this quarter, the company had been focused on the domestic market and enhancing membership service. Our business has gradually transformed from a single advertising model to a diverse supply model of advertising plus subscription.

Our products and service, all center on how to deliver superior user experience and improve our user friction. As a result, we see a continued increase in revenue from our membership service in terms of both absolute numbers and the percentage of total internet revenues.

Besides, the company has been consistently developing new utility products on mobile platform to increase the user time and attract more high-value young users, despite the huge challenge from the market. Our efforts to optimize our business model and products. Our internet business managed to rely net profit for 5 consecutive quarter.

For our AI business, we have seen some initial achievements in the business model of shopping mall robots. By now, we have more than 12,000 robots in about 12,200 shopping malls, in more than 40 cities, pilot in several shopping malls showed the selling coupon by our robots could effectively attract new customers to merchants.

They are very active to participate because it is a win-win situation for both customers and merchants. We have also launched mini app based on this shopping mall robot coupon selling model. In May, we started to expand this business and have seen a rapid growth. We believe that we have found the key points to monetize this business and expect a boost in the coming quarters.

Lastly, I would like to emphasize that in spite of extension headwinds last year, we have consistently realized net profit -- sorry, net profit and increase our cash reserves. This cannot be achieved without our determination and improved operational efficiency.

In the coming quarters, we will keep the profitable growth of our domestic internet business. At the same time, our top priority will still be the monetization of our shopping mall robots business, which will create new growth engines for the company.

With that, I will now turn the call to our CFO, Thomas Ren, to go through the detail of our first quarter financial results.

Thank you, Fu. And hello, everyone. Thank you all for joining us today. Now I will walk you through our financial results. Please note that unless stated otherwise, all money amounts are in RMB terms. In the fourth quarter of 2021, our total revenues were RMB 198 million, which was within our previous guidance. It represented a year-over-year decrease of 62% and a quarter-over-quarter decrease of 25%.

The year-over-year decrease was from the suspension of the company's collaborations with Google since February 2020 and the company's strategic retrenchment of gaming-related business and assets last year. The quarter-over-quarter decrease was mainly due to the normal seasonal change in the first quarter and the decreased revenues from the company's diminishing mobile gaming business.

Now let me break down our revenues into internet and AI and other sectors. Revenues from the company's internet business decreased by 62% year-over-year and 25% quarter-over-quarter to RMB 188 million in the first quarter of 2021. Revenues from our internet products have been accounted for a vast majority of our total revenues. So the changes were mainly due to the same reasons as stated above.

Revenues from AI and others were RMB 11 million in the quarter, representing a year-over-year decrease of 66% and a quarter-over-quarter decrease of 24%. As our AI business is still in the very early stage, short-term volatility is within our expectation.

Turning to costs and expenses. The following discussion of results will be on a non-GAAP basis, which excludes stock-based compensation expense, the use of non-GAAP measures in this context will help us to better present the results of our operating performance, without the effect of noncash items. For financial information presented in accordance with U.S. GAAP, please refer to our earnings release.

In the past several quarters, our ongoing streamlining of business is on the right track. We have successfully improved our operational efficiency and narrowed operating losses. In the fourth quarter of 2021, total costs and expenses decreased by 62% year-over-year and 20% quarter-over-quarter. As a result, our operating loss was RMB 58 million in the quarter compared to RMB 141 million in the same period last year and RMB 57 million in the previous quarter.

Cost of revenue decreased by 60% year-over-year and 41% quarter-over-quarter to RMB 59 million in the first quarter of 2021. The decrease in costs were mainly from disposal of certain overseas utility and gaming-related business and assets as well as improved operational efficiency. Research and development expenses decreased by 48% year-over-year and increased by 9% quarter-over-quarter to RMB 71 million in the first quarter of 2021. Along with our efforts to streamline our business, we have been keeping investing in R&D in our domestic utility and AI business to optimize our products and services.

Selling and marketing expenses decreased by 74% year-over-year and 14% quarter-over-quarter to RMB 80 million in the first quarter of 2025. This decrease was mainly due to more strategic and discipline promotional activities. General and administrative expenses decreased by 44% and year-over-year and 14% quarter-over-quarter to RMB 49 million in the first quarter of 2021. This year-over-year decrease shows the excellent execution of our cost optimization strategy.

Now let me turn to our balance sheet, which remains robust. As of March 31, 2021, we had cash and cash equivalents, restricted cash and short-term investments of USD 276 million and long-term equity investments of USD 365 million. Our strong balance sheet enables us to continue to invest according to our strategies to rejuvenate long-term growth for the company. And for our second quarter revenue guidance, we currently expect total revenues to be between RMB 175 million and RMB 225 million. Please note, this forecast reflects our current and preliminary view and is subject to change.

This concludes our prepared remarks. Operator, we are now ready to take questions. Thank you.

(Operator Instructions) And today's first question comes from Vicky Wei at Citi.

So will management share with us the latest industry trend for the AI business and the company strategy as we see AI revenue decline due to the decline in sales of consumer-facing AI-related products? (foreign language)

(foreign language)

[Interpreted] Okay. Let me translate the first part. So as your -- to your question regarding the decrease for our AIB revenues, I think, we all know, the competition in the Chinese AI hardware industry is very severe, yes, facing to customers, so especially in the AI speaker industry. And we think it's difficult to have a true or real gross profit. And also, for us, our company, we made some challenge in the overseas market which should increase some of our operating losses. So we do the strategy shift to cut down this 2C business, but I don't think it will affect our strategy in AI business.

(foreign language)

[Interpreted] Yes, our company strategy in AI is still focusing on 2B business. And also, we are seeing tremendous increase in the market regarding some service robots, especially after the pandemic.

(foreign language)

[Interpreted] Yes. For example, we can see in the industry -- for example, like delivery service or promotional service for the restaurant as well as the delivery service in hotel, such demand is increasing significantly. And also for the whole industry, the sales volume for such kind of service robot is also increasing very fast.

(foreign language)

[Interpreted] OrionStar -- one of our investees, OrionStar promoted the service robot for restaurants to deliver dishes. And OrionStar started to sell or lease such kind of service robot in this January. And the rental permit is about RMB 100, and we can see tremendous growth for the past 5 months.

(foreign language)

[Interpreted] Yes, because Cheetah Mobile is the single life shareholder of Star. So actually, through the cooperation with OrionStar and also our investment in this company, it means we can have such kind of cooperation when we launched in such kind of new use scenario.

(foreign language)

[Interpreted] As I mentioned in our prepared remarks, on the pilot for the nation model for our shopping mall robot, we have some initial achievements. So our pilot in past couple of years told us that for this model, maybe the brand advertising is not the bad place. But now we realize that we can sell coupons for the restaurants or the local merchants in the shopping mall through our service robots and also to help the merchants to attract new customers, and we can see some very good trend in our pilot shopping mall. Also efficiency of our service robots is -- we can see the great potential.

(foreign language)

[Interpreted] The biggest difference between our model and the traditional screens in shopping malls, is that the actual customer can have real interaction with our robots in the shopping malls. And the customer may ask is there any other restaurants where the service robots could search with coupons with very high discount to attract the customers to the restaurant. So both the restaurants or the customers, they are very active for such kind of models. And I think, as I mentioned, it's like a win-win situation.

(foreign language)

[Interpreted] In conclusion, we believe that it seems like in restaurant or shopping mall we already see a very fast growth potential for service robots. And I think we can launch our copy, our initial talents models to more shopping malls.

(foreign language)

I hope that answers your question, Vicky.

(Operator Instructions) Our next question comes from Melody Chan with Jefferies.

I have a question regarding our internet business. Given that we have transferred from the advertising model to membership subscription model, can you share a bit more on our strategy on the subscription business? And how should we think about the potential and the growth driver of it? (foreign language)

(foreign language)

[Interpreted] Yes. As of today, I think for the Chinese internet users, hybrid, we think it's already a trend that users would like to pay for the software or certain features of the softwares.

(foreign language)

[Interpreted] Especially for some key features, so in some security functions on the PC or security protection functions or functions like light office features like PDF conversion or PDF view features. You can see the growth on user payment is fast.

(foreign language)

[Interpreted] As to the future outlook for this industry, we can see nowadays, most software has adopted a subscription model on membership payment model. And the market size is also growing. And for us, we are just converting our previous users on both PC or mobile apps to payment users. And in the -- our PC revenue is also growing, contributed by the payment users' growth. And for our key products on PC, is called (inaudible), is virus detection software on PC. It's already existed for, like, 20 years. And most users, I think they don't like the advertising model. And so we convert the model and also we see great satisfaction by our users for our payment model.

(foreign language)

[Interpreted] Yes. And based on that, we are very confident that -- we are confident that the -- our internet business revenue can resume the growth in the next couple of quarters.

(foreign language)

[Interpreted] Yes. I hope this answers your question.

Ladies and gentlemen, this concludes today's question-and-answer session. I'd like to turn the conference back over to management for any final remarks.

Thank you all for joining us today. If you have any questions, please do not hesitate to contact us. Thank you. Bye.

Thank you. This concludes today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines, and have a wonderful day.