Cheetah Mobile Reiterates its Third Quarter
2017 Total Revenue Guidance
BEIJING, Oct. 27, 2017 /PRNewswire/ -- Cheetah Mobile Inc.
(NYSE: CMCM) ("Cheetah Mobile" or the "Company"), a leading mobile
internet company that aims to provide leading apps for mobile users
worldwide and connect users with personalized content on the mobile
platform, today responded to the allegations raised in a short
seller's report dated October 26,
2017.
Cheetah Mobile believes these allegations are unfounded and
contain numerous errors, unsupported speculation, and a general
misunderstanding of the industry and the Company's business model.
The Company stands by its publicly reported financial results and
its public disclosures regarding the Company's business. The
Company has informed its board of directors and its independent
auditors of the report, and will conduct a review of the
allegations as appropriate. Today the Company would like to clarify
certain key errors in the report.
Allegations Regarding Live.me:
i) Comparison with YouNow
The allegations question Live.me's revenue based on comparison
with YouNow. As Live.me is well ahead of YouNow on metrics
such as user downloads and total grossing ranking according to
publicly available data. It is not meaningful to compare the
revenue of Live.me and YouNow.
Live.me and YouNow's Download Rankings on Google Play
Live.me was among the top 10 social apps in the U.S. on Google
Play in terms of user downloads V.S. YouNow among the top 50.
Live.me and YouNow's Download Rankings on Apple's
App Store
Live.me was among the top 35 social apps in the U.S. on Apple's
App Store in terms of user downloads
V.S. YouNow among the top 66.
Live.me and YouNow's Gross Rankings on Google Play
Live.me remained the No. 1 grossing social app in the U.S. on
Google Play V.S. YouNow among the top 25.
Live.me and YouNow's Gross Rankings on Apple's App Store
Live.me was among the top 5 grossing social apps in the U.S. on
Apple's App Store V.S. YouNow among
the top 30.
In addition, Live.me is materially different from YouNow in
several key aspects of its business model. For example, Live.me has
significantly more mobile users than YouNow, who exhibit
fundamentally different behaviors than PC users. Also, through a
so-called "Back to Coin" feature, a broadcaster can convert virtual
gifts he or she receives into coins and give them to his or her
followers and other broadcasters and users. It is an effective
mechanism to transform virtual gifts into a social currency to
foster a vibrant and healthy social environment on the
platform.
ii) Users and broadcasters' spending pattern
The allegations used incorrect methods to estimate the cost of
coins and so arrived at the wrong conclusion that top broadcasters
gave away more than they received. They also questioned the
spending patterns of viewers and broadcasters, which shows a
fundamental lack of understanding of the live broadcasting industry
and Live.me in particular. Live broadcasting with virtual gifting
is a relatively new phenomenon, which first became very popular in
Asia only in the last couple of
years. Many users are willing to spend significant amount of time
and money to enjoy these types of interactions they otherwise may
never be able to experience. Live.me is one of the pioneers that
started this business model in the U.S. and has enriched the lives
of many people.
In addition, many broadcasters are themselves viewers of other
broadcasters and thus are willing to send virtual gifts to others.
Based on the Company's data, about 80% of users on the Live.me
platform shared virtual gifts they received with other users on the
platform.
iii) Broadcasters' followers
The allegations suggest that top earning broadcasters are fake
because they don't have many followers on mainstream social
platforms. This actually is a unique feature of Live.me
because it has cultivated a significant number of home-grown online
celebrities who were not online celebrities already popular on
other social platforms. Many unknown ordinary people have become
extraordinary online stars on Live.me and their experiences are
quite inspirational. For example, one of the Company's broadcasters
in the U.S. was a solider. After returning to the U.S. from
overseas deployment, he lost an arm in a traffic accident. Yet, he
didn't give up on life. He became a live broadcaster on Live.me and
gained significant popularity. His life story inspires many fans to
take on life's challenges with a positive attitude.
iv) User account
The allegations also suggest that many of the company's users
are fake because their user names are similar. This can be a mixed
result. On the one hand, it is common for many online users to have
user names similar to well-known figures or certain popular
phrases. For example, there are about 60 accounts having name
similar to singer Taylor Swift on
Twitter based on a quick search. On the other hand, there might be
"fake accounts" on the platform created by illegitimate users. Fake
accounts are a problem across social networks (e.g. Facebook,
Twitter), and Live.me is committed to fighting account fraud. The
Live.me team is actively building machine learning content
moderation tools to detect and combat fraud.
Allegations Regarding Utility Products:
i) User Data
The Company stands by its previously disclosed user MAUs. While
there has been certain decline in the MAUs of Clean Master and
Security Master since early 2015, the Company has launched a series
of new casual games since late 2015, and these casual games reached
around 100 million MAUs in the end of the second quarter of 2017.
The Company's other utility products such as CM Launcher and
Cheetah Keyboard also have gained significant growth in user base.
For example, CM Launcher has remained one of the top 3 personalized
apps in the U.S. on Google Play since May
2017 according to App Annie.
The allegations estimate of the Company's total MAUs based on
incomplete information relating to just a subset of the Company's
many products is entirely misleading. In addition, users often have
multiple Cheetah Mobile products installed in a single phone and
such users will be counted only once in deriving the Company's
overall MAUs. Thus, the loss of a user in one product may not
reduce the MAUs accordingly.
ii) Facebook effect
It is true that in 2015, Facebook was the main third-party
advertising platform which contributed to most of the Company's
overseas revenues for utility products. While revenue contribution
from Facebook decreased over the last two years, the Company
remains a significant business partner of Facebook and is one of
the largest distributors of Facebook in the China market. In addition, the Company has
diversified its revenues sources and it is working with multiple
advertising networks including Google Admob, Twitter, Yahoo and
other Ad exchanges. Facebook only contributed to 22% of the
Company's mobile utility revenues in the second quarter of
2017.
iii) Sales team
The allegations question the revenues of the Company's utility
products and services because of the departure of certain sales
people. This also reflects a fundamental misunderstanding of the
Company's business. The Company's direct sales team that sources
advertisers only contributed a small portion of the revenues for
utilities products, while the majority of such revenues are
directly from third party advertising networks such as Facebook and
Google Admob, which do not require the significant involvement of a
sales team.
iv) Utility products' usefulness
The allegations claimed that the Company's utility products are
"useless". On the contrary, the Company's core utility products
Clean Master and Security Master received 4.7 scores in Google Play
with more than 40 million and 24 million users respectively
participating in the review. In addition, the Company's junk file
cleaning functions have been embedded in mainstream mobile phones
such as Samsung and Xiaomi models to provide file cleaning
services. Cheetah Mobile Security Master (4.2) received the best
antivirus software for Android award according to an AV-TEST
Product Review and Certification Report – Sep/2017. That report can
be accessed at
https://www.av-test.org/en/antivirus/mobile-devices/android/september-2017/cheetah-mobile-security-master-4.2-173506.
Allegations Regarding Cheetah Mobile's Other Financial
Matters
i) Cash Balance
The Company stands by its previous disclosure that as of
June 30, 2017, the Company had cash
and cash equivalents, restricted cash and short-term investments of
RMB2,383.3 million (US$351.5 million). The Company maintained
strict internal control procedures. The Company regularly
reconciles cash and cash equivalents and time deposits with its
bank statements and documented the bank statements and
reconciliation reports every month. The Company received
unqualified opinions regarding its internal control over its
financial reporting as of the years ended December 31, 2015 and 2016, respectively, from
its independent auditor. Further information regarding the
Company's interest income and expenses are provided below.
Interest Income, net
Interest income and interest expense are netted and disclosed as
"Interest income, net" in the Company's financial statements.
|
|
Year Ended
December 31,
|
|
|
|
2014
|
|
2015
|
|
2016
|
|
|
|
RMB
|
|
RMB
|
|
RMB
|
|
US$
|
|
Interest
income
|
|
28,221
|
|
15,097
|
|
15,675
|
|
2,258
|
|
Interest
expense
|
|
-
|
|
(547)
|
|
(7,892)
|
|
(1,137)
|
|
Interest income,
net
|
|
28,221
|
|
14,550
|
|
7,783
|
|
1,121
|
|
Interest income fluctuation
The interest income for the second quarter of 2017 was
RMB6.89 million, and decreased by 29%
compared to the interest income of RMB9.68
million for the fourth quarter of 2014, which mainly
reflects the combination of an increased amount of cash bank
balances and the significant decrease in deposit interest rates for
RMB and USD accounts.
CMCM Reported Cash
Balance vs Interest Income
|
|
|
|
|
As
of
|
|
31-Dec-14
|
|
30-Jun-17
|
|
RMB
|
|
RMB
|
|
(in
thousands)
|
Cash and cash
equivalents
|
1,115,738
|
|
1,848,638
|
Time deposits
recorded in short-term investments
|
428,330
|
|
440,472
|
Total cash and
bank balance
|
1,544,068
|
|
2,289,110
|
%
inc/(dec)
|
|
|
48%
|
|
|
|
|
|
|
|
|
|
For The Three
Months Ended
|
|
31-Dec-14
|
|
30-Jun-17
|
|
RMB
|
|
RMB
|
|
(in
thousands)
|
Interest income,
net
|
9,678
|
|
3,380
|
- Interest
expense
|
-
|
|
(3,517)
|
- Interest
income
|
9,678
|
|
6,897
|
%
inc/(dec)
|
|
|
-29%
|
ii) Capital Expenditure
The Company is an asset light company. It has moved away from
buying and utilizing its own servers and almost all of the
Company's apps are deployed in cloud systems such as Amazon Web
Services. The Company incurred significant costs for these cloud
services, bandwidth and internet data center expenses. All of these
expenses are included in the cost of revenues, which amounted to
RMB1,543.8 million (US$222.4 million) in 2016.
iii) Share-based compensation expenses
A number of factors contributed to a decrease in share-based
compensation in recent quarters. The Company granted a significant
number of equity awards in 2014 and 2015. It has elected to
recognize share-based compensation using the accelerated method for
all equity awards granted with graded vesting. The Company has not
granted similar equity awards in subsequent years, and the
Company's share prices have been in a downward trend. As a result,
the Company's share-based compensation expenses are more front
loaded during the previous several years.
iv) Debt
The allegations question why the Company still has about
$70 million debt while its cash
balance is growing. There is nothing unusual about this, as the
Company has multiple units operating across several countries. It
is common practice to maintain a banking relationship with multiple
financial institutions for better liquidity management.
Allegations Regarding OrionStar
Investment:
The allegations claim that the OrionStar investment is a vehicle
for the misappropriation of shareholder capital. Because the
transaction is considered a related-party transaction, the Company
has followed strict procedures to ensure the fairness of the
investment. Each of the Company and Kingsoft Corporation, the
parent company of Cheetah Mobile, engaged an independent appraiser
to evaluate the transaction and the audit committee of the Company
has approved the transaction as well. Several external investors
also invested in OrionStar at the same valuation.
Allegations Regarding Management Departure and Selling
Shares:
The allegations cast the departure of Mr. Ka Wai Andy Yeung, the Company's former CFO, as
a red flag indicating the Company is in difficulty. Mr. Yeung
is a well-respected U.S. trained professional. Before his departure
in March 2017 for another business
opportunity, he has been with the Company for nearly three years.
The current CFO, Mr. Vincent Zhenyu
Jiang, joined the Company in April
2017, he is a CFA charter holder and also an attorney
registered in the State of New
York, and previously worked at the prestigious Wall Street
law firm Skadden, Arps, Slate, Meagher & Flom LLP.
Cheetah Mobile reiterates its third quarter financial forecast
of total revenues to be between RMB1,150
million (US$170 million) and
RMB1,210 million (US$178 million), representing a year-over-year
increase of 2% to 7%.
About Cheetah Mobile Inc.
Cheetah Mobile is a leading mobile internet company. It aims to
provide leading apps for mobile users worldwide and connect users
with personalized content on the mobile platform. Cheetah Mobile's
products, including its popular utility applications Clean Master,
Security Master and Battery Doctor, help make users' mobile
internet experience smarter, speedier, and safer. Leveraging the
success of its utility applications, Cheetah Mobile has launched
its line of mobile content-driven applications, including News
Republic and Live.me.
Cheetah Mobile provides its advertising customers, which include
direct advertisers and mobile advertising networks through which
advertisers place their advertisements, with direct access to
highly targeted mobile users and global promotional channels, which
are capable of delivering targeted content to hundreds of millions
of users.
Safe Harbor Statement
This press release contains forward-looking statements.
These statements, including management quotes and business outlook,
constitute forward-looking statements under the U.S. Private
Securities Litigation Reform Act of 1995. These
forward-looking statements can be identified by terminology such as
"will," "expects," "anticipates," "future," "intends," "plans,"
"believes," "estimates" and similar statements. Such statements
involve inherent risks and uncertainties. A number of factors
could cause actual results to differ materially from those
contained in the forward-looking statements, including but are not
limited to the following: Cheetah Mobile's growth strategies;
Cheetah Mobile's ability to retain and increase its user base and
expand its product and service offerings; Cheetah Mobile's ability
to monetize its platform; Cheetah Mobile's future business
development, financial condition and results of operations;
competition with companies in a number of industries including
internet companies that provide online marketing services and
internet value-added services; expected changes in Cheetah Mobile's
revenues and certain cost or expense items; and general economic
and business condition globally and in China. Further
information regarding these and other risks is included in Cheetah
Mobile's filings with the U.S. Securities and Exchange
Commission. Cheetah Mobile does not undertake any obligation
to update any forward-looking statement as a result of new
information, future events or otherwise, except as required under
applicable law.
Investor Relations Contact
Cheetah Mobile Inc.
Helen Jing Zhu
Tel: +86 10 6292 7779 ext. 1600
Email: IR@cmcm.com
ICR, Inc.
Xueli Song
Tel: +1 (646) 417-5395
Email: IR@cmcm.com
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SOURCE Cheetah Mobile