Cheetah Mobile(CMCM) - 2019 Q2 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Total revenues for Q2 2019 were RMB970 million, a decrease of 12% year-over-year [12] - Revenues from utility products and related services decreased by 44% year-over-year to RMB424 million [12] - Revenues from mobile entertainment increased by 50% year-over-year to RMB498 million, driven by a 109% growth in mobile games [13] - AI and other revenues grew by 236% year-over-year to RMB49 million [14] - Gross profit for the quarter was RMB643 million, with a gross margin of 66% [15] - Non-GAAP operating loss was RMB22 million, improved from RMB143 million in Q2 last year [15] Business Line Data and Key Metrics Changes - Utility products and related services generated an operating profit of RMB121 million, down from RMB282 million in Q2 last year [16] - Mobile entertainment business reported an operating loss of RMB68 million, reduced from RMB99 million in Q2 last year [16] - AI and other business segment had an operating loss of RMB74 million, increased from RMB41 million in Q2 last year [16] Market Data and Key Metrics Changes - The overall mobile casual game market increased by 100% year-over-year in June 2019 [6] - Mobile games business revenues grew by 88% year-over-year to RMB591 million [6] Company Strategy and Development Direction - The company is focusing on AI investments, despite the early stage of development, and aims to build a new growth engine around AI to enterprise services [11] - The company plans to continue investing in mobile games and utility products while exploring new monetization opportunities [10][11] - The company is optimistic about the long-term potential of its legacy mobile internet business [10] Management Comments on Operating Environment and Future Outlook - Management acknowledged challenges in the utility product business due to past misleading statements and ongoing difficulties in resuming collaborations with partners [4] - The company expects to face continued challenges in growing utility product revenues in the second half of 2019 [4] - Management expressed confidence in the long-term prospects of the mobile entertainment business and AI investments [21][22] Other Important Information - The Board declared a cash dividend of US$0.5 per ADS, totaling about US$72 million [10] - The company had US$488 million in cash and cash equivalents as of Q2 2019 [17] Q&A Session Summary Question: Can management share more color for each of the business segment into third quarter? - Management indicated that utility products will see a slight decrease, while mobile entertainment and AI segments are expected to grow [22] Question: How should we think about the contribution from new initiatives and margin profile? - Management stated that while current margins are lower, they expect improvements in the long term as new initiatives take off [26] Question: Should we expect any M&A opportunities during the transition process? - Management is open to M&A opportunities but is focusing on smaller, strategic investments rather than large mature companies [25]