Cheetah Mobile Inc.
Q4 2020 Earnings Call Transcript

Published: 23 Mar 2021

[Operator:]

Good day and welcome to the Cheetah Mobile Fourth Quarter and Full Year 2020 Earnings Conference Call. All participants will be in a listen-only mode. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to Helen Zhu, Investor Relations Director of Cheetah Mobile. Please go ahead, ma’am.

[Helen Zhu:]

Thank you, operator. Welcome to Cheetah Mobile's fourth quarter and full year 2020 earnings conference call. With us today are our company's Chairman and CEO, Mr. Fu Sheng; and our company's CFO, Mr. Thomas Ren. Following management's prepared remarks, we will conduct a Q&A session. Before we begin, I refer you to the Safe Harbor statement in our earnings release, which also applies to our conference call today as we will make forward-looking statements.

[Fu Sheng:]

Thank you, Helen. Hello everyone. Whilst the macro environment remains challenging, with focus and determination, Cheetah Mobile improved operational efficiency, terrified our revenue streams beyond advertising and stayed focused on domestic markets. In 2020, we earned RMB1.6 billion in revenue and RMB417 million in net income attributable to our shareholders and our business began to take hold. Meanwhile, we remained committed to our AI-related robotics business to build sustainable for Cheetah Mobile in the long-term -- long run. Here are the operating highlights. First, we cut our cost and expense. As a result, non-GAAP operating loss continue to narrow this since Q4 2019. In the fourth quarter of 2020, non-GAAP operating loss was RMB57 million reduced from RMB204 million in the same period last year and RMB119 million in the previous quarter. Specifically, our internet business earned about RMB76 million in non-GAAP operating profit in the fourth quarter of 2020 compared to an operating loss of RMB92 million in the same period last year and operating profits of RMB71 million in the previous quarter, thanks to our continued operating optimization. Cheetah Mobile still holds $225 million at hand, despite that we paid $200 million cash dividends to our shareholders in 2020. Looking ahead, we will continue to cut our costs and expense and improve operating efficiency. Second, through offering membership service within our utility products, we diversified our revenue streams beyond advertising in 2020 will include user experience, user satisfaction, and our user privacy protection as our top priority in our home market. Our goal is to improve the user retention rate and attract more users through word of mouth. In the domestic market, we continue to encourage users to subscribe for an ad-free experience. Such individual -- initiative -- such initiative helped us reduce reliance on advertising and allow our utility products to deliver a superior experience. As a result, both paying user counts and subscription revenue continue to grow in 2020. And we expect this metrics to continue to grow tent in the future supported by the membership service and our efforts on enhancing our user experience, we expect revenue from our key internet business to gradually stabilize and resume quarter-over-quarter growth in the coming quarters. Third, we optimized our operation for our AI business by focusing on selected number of user case, while, they are deploying our AI robots in shopping malls. COVID-19 in China has been well-controlled. And this Chinese economy hasn't recovered. Our AI-related robots can help shopping mall operators better serve their customers and help brands and shops promote their product and service. While our AI business is still in its early stage, we believe we are on the right direction of our business.

[Thomas Ren:]

Thank you, Fu Sheng and good day 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 2020, our total revenues were RMB271 million within our revenue guidance. It represented a year-over-year decrease of 56%. The year-over-year decline was primarily due to the suspension of our collaborations with Google since February 2020, as well as the disposal of certain gaming-related business and assets. On February 21st, 2020, the Cheetah Mobile announced that the company's Google Play Store, Google AdMob, and Google AdManager accounts had been disabled, which negatively affected its ability to attract new users and generate revenue from Google. Given the unfavorable environment in the overseas markets, we have chosen to shift our focus from overseas markets to the domestic market. In second half of 2020, the company disposed certain gaming-related business and assets in the overseas markets. As a result, we expect that revenue contribution from the mobile game business to decrease in the foreseeable future. Post such disposals, Cheetah Mobile's business primarily comprises of two pieces. One is the Internet business, which includes our utility product on both the PC and mobile platforms in domestic market and a remaining and diminishing portion of its mobile game business. The other is AI and other business. Therefore, we started reporting our revenues and operating profits by the above two business lines from this quarter. We have retrospectively revised segment information from the previous period to be comparable with the current period. Revenues from the company's internet business decreased by 56% year-over-year to RMB257 million in the fourth quarter of 2020 due to the above mentioned factors. In the fourth quarter of 2020, nearly 74% of the company's revenues from its internet business were generated by the utility products, while the remaining came from the diminishing mobile game business.

[Operator:]

Thank you. We will now begin the question-and-answer session. Our first question today comes from Vicky Wei with Citi. Please go ahead.

[Vicky Wei:]

Good evening management. Thanks for taking my question. My question is about the advertising market and the AI robots. So, what does management think of the current advertising market sentiment going into the first quarter 2021? And what was the top three key advertising vertical for fourth quarter? And my second question is, post the pandemic, does management witnessed any behavioral changes in habits in terms of adoptions of AI robots? Any color about the progress of Cheetah Mobile's AI robots adoptions would be great.

[Thomas Ren:]

Thank you, Vicki. So, I will answer your first question about the general advertising market and Fu Sheng will answer your second question. So, for the advertising market, it seems that COVID-19 pandemic is now already under control in China. We can see a strong recovery trend of the macro economy in China, which in turn led to a recovery to advertising market as well. So, specifically for a few sectors like FMCG, auto, gaming, and education, I think those few sectors will maintain a strong growth momentum and also we can see the recovery from the travel and entertainment sectors from last year. But I also want to draw your attention that for us, as we mentioned in the prepared remarks, we are now be focusing our reliance on advertising, we are developing the user subscription model. So, we expect -- we can see more contribution from user contributed revenue for our domestic utility product. Hope this answers your question. So, I will turn to Fu Sheng to answer your question about the AI.

[Fu Sheng:]

I will translate this part. So, after the COVID-19 pandemic, we indeed noticed that there are a lot of business customers, their acceptance level for the AI robotics accelerating and also it benefits us from the past few years, we continue to invest on AI technologies, including our investee, OrionStar to reduce the cost of the robotics. So, we can feel that the home market acceptance to the AI robotics is becoming much more than before. Okay. So, I will translate this part. So for example, our robotics in shopping mall along with the traffic in the shopping mall is recovering. We can see in more and more shopping mall, the interaction with our shopping mall robotics is increasing. So, some customers already used to asking our robotics about where to find certain brand of coffee or certain brands on restaurants and various toilet et cetera. So, we are seeing that more and more customers in the shopping mall used to such kind of inquiry to our robotics.

[Thomas Ren:]

So, that's all the Fu Sheng's response. Hope it answers your question Vicky?

[Vicky Wei:]

Thank you so much.

[Thomas Ren:]

Thank you.

[Operator:]

And our next question today comes from Melody Chan with Jefferies. Please go ahead.

[Melody Chan:]

Good evening. Thanks for taking my question. I have two questions. The first is can m increase share some deals on 2021 outlook across different sectors? And then my second question is, so Apple recently increased its privacy control and all the app developers are required to have the approval from users to use data. So, will this impact advertising business?

[Fu Sheng:]

Okay, so I will translate this part. So, Fu Sheng was talking about the outlook for our own business, so look forward as we mentioned just now, I think we met good challenge in the overseas market last year. So, the strategy for us in the prior year was to return to our home market which is domestic market and now it seems that our domestic mobile internet business, not only we stabilize our revenue level and also the fact, we cannot regain some growth in this year. And the growth is not only coming from the advertising and also coming from our user subscription model and we believe for the internet segment, we can see recovery trend in this year. Yes, so, Fu Sheng is talking about the -- in the coming year, we can see more severe competition for the whole internet industry and for us, our utility product can not only to do some functional features, and also we need to connect -- to be connected with content and community are the clock functions, then we can regain some under the -- for our utility software.

[Thomas Ren:]

Thank you.

[Operator:]

Thank you. And there are no further questions. So, at this time, I'd like to turn it back over to our management team for final remarks.

[Helen Zhu:]

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

[Operator:]

Thank you. This concludes today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines.