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Cheetah Mobile (NYSE:CMCM)
Q4 2020 Earnings Call
Mar 23, 2021, 7:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:


Operator

Good day, welcome to the Cheetah Mobile fourth-quarter and full-year 2020 earnings conference call. [Operator instructions] 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 -- Investor Relations Director

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 section. Before we begin, I refer you to the safe harbor statements in our earnings release which also applies to our conference call today as we will make forward-looking statements. At this time, I would now like to turn the conference call over to our CEO and chairman, Mr.

Fu Sheng. Please go ahead, Fu Sheng.

Fu Sheng -- Chairman and Chief Executive Officer

Thank you, Helen. Hello, everyone. While the macro environment remains challenging, with focus and a little bit determination, Cheetah Mobile improved operational efficiency, verified our revenue streams beyond advertising and a safe focus on domestic market. In 2020, we earned RMB 1.6 billion in revenue and RMB 417 million in net income attributable to our shareholders and our business began to take hold.

Meanwhile, we remain committed to our AI-related ROIC business to build sustainable growth for Cheetah Mobile in the long term -- long run. Here are the operating highlights. First, we cut our costs and expense. As a result, non-GAAP operating loss continued to narrow since Q4 2019.

In the fourth quarter of 2020, non-GAAP operating loss was RMB 57 million, reduced from RMB 204 million in the same period last year and RMB 190 million in the previous quarter. Specifically, our Internet business earned about RMB 76 million in non-GAAP operating profit in the fourth quarter of 2020. Compared to an operating loss of RMB 92 million in the same period last year and operating profit of RMB 71 million in the previous quarter. Thanks to our continued operating -- optimization.

Cheetah Mobile still holds $255 million at hand despite that we paid $200 million cash dividends to our shareholders in 2020. Looking ahead, we will continue to cut up our cost and expense and improve operating efficiency. Second, through offering membership service within our utility products, we diversified our revenue streams beyond advertising in 2020. We put user experience, user certification 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 -- rely on advise anything and allow our utility product to deliver a super experience. As a result, both paying user accounts and subscription revenue continued to grow in 2020.

And we expect these metrics to continue to grow in the future, supported by the membership service and our efforts on enhance 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 a selected number of user case. One of them is deploying our AI robots in shopping malls. COVID-19 in China has been well-controlled.

And this Chinese economic has recovered. Our AI-related robots can help shopping mall operators better serve their customers and have brands and shops promote their products and service. While our AI business is still in its early stage, we believe we are on the right direction of our business. Before I turn the call to Thomas for financial highlights, I would like to emphasize our strong cash reserves and our confident shareholder returns.

In 2020, we will continue to cut our cost and expense and experiment more monetization models for our AI business to rebuild a sustainable growth model for the long term. With that, I will now turn the call to our CFO, Thomas Ren, to go through the details of our fourth-quarter financial results.

Thomas Ren -- Chief Financial Officer

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 RMB 271 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 21, 2020, 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 general 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 the 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 products on both the PC and the mobile platforms in the domestic market and a remaining and diminishing portion of the mobile game business. The other is the 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 reversed 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 RMB 257 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 from utility products, while the remaining came from the diminishing mobile game business. In the future, we expect revenues from our utility products to account for a vast majority of this reporting segment. Revenues from AI and others were $14 million in the quarter, representing a year-over-year decrease of 50%, mainly due to a decline in consumer-facing AI-related products.

Turning to our fourth quarter of 2020 costs and expenses. The following discussion of results will be on a non-GAAP basis which excludes stock-based compensation expenses and goodwill impairment. The use of non-GAAP measures in this context will help us to better present the result 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, we continued to streamline our operations and cut our costs and expenses. In the fourth quarter of 2020, total costs and expenses decreased by 61% year over year and 33% quarter over quarter. As a result, our operating loss significantly narrowed to RMB 57 million in quarter from RMB 203 million in the same period last year and RMB 119 million in the previous quarter.

Notably, the operating profit for the Internet business was RMB 76 million in the fourth quarter of 2020. Increase from an operating loss of RMB 92 million in the same period last year and an operating profit of RMB 71 million in the previous quarter due to our cost and expenses cutting. As of December 31, 2020, Cheetah had about 150 full-time employees, decreasing by about 50% from the end of 2019. In 2020, our total operating expenses decreased by 44%.

In 2021, we will continue to cut our costs and expenses, particularly sales and marketing and personnel-related expenses. Turning to non-operating items. During the quarter, the fair value of some of our investees increased. As a result, we reported a net income attributable to Cheetah Mobile shareholders of RMB 85 million in the fourth quarter.

Importantly, our balance sheet remains strong. As of December 31, 2020, we had cash and cash equivalents, restricted cash and short-term investments of $255 million and long-term equity investments of $369 million. Our strong balance sheet gives us the confidence to continue to invest in the AI-related business to rejuvenate long-term growth for the company. And for our first-quarter revenue guidance, we currently expect total revenues to be between RMB 165 million and RMB 215 million.

Please note, this forecast reflects our current and preliminary views and is subject to change. This concludes our prepared remarks. Operator, we are now ready to take questions. Thank you.

Questions & Answers:


Operator

[Operator instructions] Our first question today comes from Vicky Wei with Citi. Please go ahead.

Vicky Wei -- Citi -- Analyst

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

[Foreign language]

Thomas Ren -- Chief Financial Officer

Thank you, Vicky. 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 strong recovery trend on the macro economy in China which in turn lead 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. So -- but I also want to grow your attention that -- well for us, as we mentioned in the prepared remarks, we are now defocusing our reliance on advertising while we are developing the user subscription model. So we expect -- we can see more conversion from user contributed revenue for our domestic utility products.

I hope this answers your question. So I will turn to Fu Sheng to answer your question about AI.

Fu Sheng -- Chairman and Chief Executive Officer

[Foreign language]

Thomas Ren -- Chief Financial Officer

OK. 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 is accelerating. And also, it benefits us from the past few years.

We continue to invest on AI technologies including the -- our Invest or star 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.

Fu Sheng -- Chairman and Chief Executive Officer

[Foreign language]

Thomas Ren -- Chief Financial Officer

OK. So I will translate this part. So for an example, our robotics in the 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 the -- there to fund certain brands of coffee or certain brands of restaurants and various hotels, etc. So we are seeing that more and more customers in the shopping mall used to such kind of inquiry to our robotics.

Fu Sheng -- Chairman and Chief Executive Officer

[Foreign language]

Thomas Ren -- Chief Financial Officer

Another example is robotics in restaurants promoted by our investee orionStar. So toward the end 2020 orionStar promoted restaurant service robotics. The monthly rental OrionStar is connecting from an restaurants less than RMB 2,000. And actually, this cost is already lower than common waiter's cost.

And efficiency on the delivery is already enough to substitute a waiter. And just in a couple of months orionStar already entered into a few hundred restaurants which they run the restaurant robotics.

Fu Sheng -- Chairman and Chief Executive Officer

[Foreign language]

Thomas Ren -- Chief Financial Officer

So especially after the COVID-19 pandemic so and also our continuing investment into the AI technology. I think we already reduced our cost to a level that could be accepted by the market. And also, we can see the untouched service and also the service with fewer face-to-face communication is also gradually adopted by the market. So we think it's a right timing.

We can benefit from the market acceptance. So that's all the Fu Sheng's response. Hope it answers your question, Vicky.

Vicky Wei -- Citi -- Analyst

Thank you very much.

Thomas Ren -- Chief Financial Officer

Thank you.

Operator

[Operator instructions] And our next question today comes from Melanie Chan with Jefferies. Please go ahead.

Unknown speaker -- Jefferies -- Analyst

Hi. Good evening. Thanks for taking my question. So I have two questions.

The first is can management share some views on 2021 outlook across different sectors. And 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? [Foreign language]

Fu Sheng -- Chairman and Chief Executive Officer

[Foreign language]

Thomas Ren -- Chief Financial Officer

OK, so I will translate this part. So Fu Sheng was talking about the outlook for our own business. So the fourth, as we mentioned just now, I think we are -- in that great 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 a domestic market.

And now it seems that our domestic mobile Internet business, not only we stabilize our revenue level and also we expect we can 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 a recovery trend in this year.

Fu Sheng -- Chairman and Chief Executive Officer

[Foreign language]

Thomas Ren -- Chief Financial Officer

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 products can not only to do some functional features and also, we need to connect, to be connected with content and community or the cloud functions. And then we can regain some energy for our utility software.

Fu Sheng -- Chairman and Chief Executive Officer

[Foreign language]

Thomas Ren -- Chief Financial Officer

OK. So as I just said, for the AI and the robotics industry, I think it is now the turning point, although you can see some not an AI company, they are not doing great or is not smooth for them to either -- to new run financing or the IPO. But I think, generally, it's not a bad thing for the whole industry. And for the AI and the robotics business, it's not only about some certain technology indicator or you published some assay or win some price on competition as a standard.

So I think now it has been attending to stage to that. The product should be the core feature. And as long as your product can meet your customers need and also to reduce customers actual cost and to leverage or improve the user experience, I think that's the core combination energy for the AI products.

Fu Sheng -- Chairman and Chief Executive Officer

[Foreign language]

Thomas Ren -- Chief Financial Officer

Yeah. I think obvious phenomena we can see is that robotic products previously, it depends highly on some governance purchase, but -- or to use the robotic in some exhibition. But now, it has been converted to wider use at either the restaurants or hotels as an efficient -- more efficient tool. So I think I'm quite confident that this industry will grow very fast.

Fu Sheng -- Chairman and Chief Executive Officer

[Foreign language]

Thomas Ren -- Chief Financial Officer

Yeah for your second question about the new policy by Apple. I think basically, it has a very minimum effect on our utility products because our utility apps or products, mainly on the -- either Android or PC platforms and also for our overseas gaming products, we already, as we mentioned, we already disposed certain overseas gaming products. So for the Apple policy itself, there is very minimum impact on us.

Fu Sheng -- Chairman and Chief Executive Officer

[Foreign language]

Thomas Ren -- Chief Financial Officer

Yeah. No, I also want to emphasize that another outlook is about no matter the overseas market or domestic market. Now it's becoming more and more important to -- for the users' privacy information. It requires more and more focus for the old apps developers.

We can see on the recent March 15 got up by CCTV, either the fraud advertisement or disruptive advertisement is also becoming focused by government.

Fu Sheng -- Chairman and Chief Executive Officer

[Foreign language]

Thomas Ren -- Chief Financial Officer

Yeah. For the whole industry, I think in the future the advertisement with low-quality or violating some user price information. It will be controlled more and more strict by either the government or mobile phone manufacturers.

Fu Sheng -- Chairman and Chief Executive Officer

[Foreign language]

Thomas Ren -- Chief Financial Officer

Yes. So then the -- we were facing some challenges from either Facebook or Google in last year or the year before. So we already realized that the user experience and also the low-quality advertisement issue. So we are already in 2020, we already start to reduce our advertisement and also to reduce our relation to advertising.

So we developed the user subscription model. I think it improves our user experience and so in the -- we just mentioned on the CCTV GALA. So there was -- no Cheetah Mobile product was involved. I think it has a big relation or great relations with our change on our business model for our utility products.

Fu Sheng -- Chairman and Chief Executive Officer

[Foreign language]

Thomas Ren -- Chief Financial Officer

Thank you. And also I want to supplement about -- a little bit about our outlook for 2021 for the -- because I want to emphasize that because, first, the -- we were terminated by Google last year. And also secondly, we already disposed certain gaming-related products or business in the second half of 2020. So I think generally, for our full-year outlook, I think we will still see a decrease trend for the full-year revenue.

But we are confident that since Q2 -- because Q1 is always a slack season for advertising. So I think we can expect some recovery from our revenue credit in Q2. So that's my supplement information. Thank you.

Fu Sheng -- Chairman and Chief Executive Officer

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 -- Investor Relations Director

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

Operator

[Operator signoff]

Duration: 40 minutes

Call participants:

Helen Zhu -- Investor Relations Director

Fu Sheng -- Chairman and Chief Executive Officer

Thomas Ren -- Chief Financial Officer

Vicky Wei -- Citi -- Analyst

Unknown speaker -- Jefferies -- Analyst

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