Logo of jester cap with thought bubble.

Image source: The Motley Fool.

Cheetah Mobile (NYSE:CMCM)
Q3 2021 Earnings Call
Nov 24, 2021, 7:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:


Operator

Good day, and welcome to the Cheetah Mobile third quarter 2021 conference call. [Operator instructions] I would now like to turn the conference over to Sheryl Zhang, investor relations director of Cheetah Mobile. Please go ahead, ma'am.

Sheryl Zhang -- Investor Relations Director

Thank you, operator. Welcome to Cheetah Mobile third quarter 2021 earnings conference call. With us today are Mr. Sheng Fu, chairman and CEO, and Mr.

Thomas Ren, CFO. Following management's prepared remarks, we will conduct the Q&A session. Before we begin, I refer you to the safe harbor statements in our earnings release, which will also apply to our conference call today, as we will make forward-looking statements. At this time, I'd now like to turn the conference call over to our CEO, Mr.

Sheng Fu. Please go ahead, Fu.

Sheng Fu -- Chairman and Chief Executive Officer

Thank you, Sheryl. Hello, everyone. In the third quarter of 2021, consistent with our previous guidance, Cheetah Mobile's revenue was RMB 196 million. For our internet business, we continue to transform our business from single advertising model to a diversified model of advertising plus subscription.

The number of members kept double-digit growth, and the revenue from our membership businesses have increased for more than five quarters consecutively. In GC platform, we further enhanced our service and our membership privilege. The overall member satisfaction score stays at high level. On our mobile platform, we improved the user experience through product optimizing -- optimization and the more [Inaudible] service.

The percentage of new users, as well as the renewal rates, both increased. In general, after the huge internal challenges, our internet business has been packed to the right check as we planned. However, now globally, advertising is facing some uncertainty in China. Sectors such as education, real estate, travel have slowed down due to COVID-19.

Government supervision, and regulation, and some other reasons, the impact has been passed on to advertising business. Companies, including Baidu and Tencent, are not very optimistic about advertising in the coming quarters. Our outlook for the first quarter also reflects these factors. Overseas, advertising business of big companies, such as Facebook, also faced headwinds from the change of iOS 14, macroeconomic, and COVID-related factors.

Our overseas advertising agency business is inevitably adversely affected. As this might be a massive quarterly impact, this also has been factored in our fourth quarter guidance. Good news is revenues from our global cloud service has been growing very well due to expanding service categories and the client base in this quarter, and the price which we tried to explore overseas markets, and the very demand for this service. We are very optimistic about its future growth.

For our AI business, GMV and the revenue from shopping-mall coupon-selling robots has been up for several months in a row. We applied both offline and the online marketing strategies to expand the business. Offline, we have deployed more than 10,000 robots in more than 40 cities. Online, we used our own WeChat mini-program, [Inaudible], some other local network community, as well as some mainstream third-party platforms.

Customers can register in [Inaudible] through our shopping-mall robots, and then choose their favorites coupons for a list of opportunities we displayed in this mini-program. Merchants can also use [Inaudible] professional platform to review the data of their coupon sale and to analyze. Currently, our robots sell more than 5,000 kinds of coupons for more than 1,000 merchants on more than 700 shopping malls all over the country. By the end of October, GMV per day and the weekends has achieved another milestone.

For this business, we have gradually reached competition barriers. It has been widely welcomed by more and more merchants and the customers. Generally speaking, revenue from our new businesses, such as the membership business, the global cloud service business, and the shopping-mall coupon-selling robots business were typically -- while our revenues from advertising-related business will face some challenges in the coming quarter. for costs and expense.

Our operational efficiency has been greatly improved in past quarters. Upon this, we will continue the strict control of our cost and expense to maximize our operational efficiency and as the interest of our shareholders. Additional, as of September 30, 2021, our cash position was around $288 million and the long-term equity investment was about $376 million. The abundant capital reserves ensure us to focus on our strategies and the growth strategically.

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

Thomas Ren -- Chief Financial Officer

Thank you, Sheng, and hello, everyone. Thank you, all, for joining us today. Now, I will walk you through our key financial highlights. Please note that unless stated otherwise, all money amounts are in RMB terms.

As Sheng just mentioned, in the third quarter of 2021, our total revenues were 196 million, representing a year-over-year decrease of 46% and a quarter-over-quarter decrease of 7%. The revenue was within the range of our previous guidance. To explain the reasons behind the changes, now, let me break down our revenues into internet, and AI, and other sectors. As a result of the company's ongoing business streamlining efforts, we realigned our business segments based on the change of the way that the management assesses the company's segment performance.

The company's overseas advertising agency services, which assists company to launch advertisement on overseas advertising platforms, had changed from the internet business into AI and others due to the synergies created between the company's advertising agency services and global cloud services. Consequently, the company had retrospectively revised segment information and the related revenue presentation to perform the change in the company's segments. Revenues from the company's internet business decreased by 51% year over year and 16% quarter over quarter to 161 million in this quarter. The year-over-year decrease was due to the company's strategic efforts to diminish the gaming-related business in past quarters.

The quarterly decrease was mainly because revenue in the second quarter of 2021 was temporarily increased due to June 18 promotional events, and no such promotional event occurred in this quarter. Revenues from AI and others at the reclassification of segment from this quarter, this segment now includes our shopping-mall coupon-selling business, overseas advertising agency business, global cloud business, and some other business. Revenues from this segment were 36 million in the third quarter of 2010, representing a 9% year-over-year decrease and a 63% quarter-over-quarter increase. The year-over-year decline was primarily attributable to the planned drop in sales of AI-related hardware products.

The quarter-over-quarter increase was from our global cloud services, as well as shopping-mall coupon-selling robots business. Turning to costs and expenses, the following discussion of results will be on a non-GAAP basis, which excludes stock-based compensation expenses. The use of non-GAAP measures in this context will help us to better represent the results of our operating performance without the effect of non cash items. For financial information presented in accordance with U.S.

GAAP, please refer to our earnings release. Our operating loss was 59 million in the third quarter of 2021 compared with 119 million in the same period of last year and 56 million in the previous quarter. Our adjusted EBITDA was negative 38 million in the third quarter of 2021 compare to negative 101.6 million in the same period last year and negative 47.7 million in the previous quarter. Cost of revenue decreased by 34% year over year and increased 48% quarter over quarter to 74 million in the third quarter of 2021.

The year-over-year decrease was primarily due to the decreased revenue. The quarter-over-quarter increase was from increased spending over AI-related business. Research and development expenses decreased by 54% year over year and increased by 11% quarter over quarter to 52 million in the third quarter of 2021. The decrease was due to the deconsolidation of certain gaming-related business in past quarters.

Our investment in research and development has been keeping flat. The quarter-over-quarter change was mainly due to less government grants in this quarter. Selling and marketing expenses decreased by 49% year over year and 30% quarter over quarter to 85 million in the third quarter of 2021. This year-over-year decrease was attributable to the streamlining of our business and the strategic reduction of our costs, while the quarter-over-quarter decrease was mostly because we incurred incremental promotion expenses for the June 18 promotional event in the second quarter.

General and administrative expenses decreased by 46% year over year and by 7% quarter over quarter to 48 million in the third quarter of 2021. The decrease was mainly due to the streamlining of our business and our effective expense control. Now, let me turn to our balance sheet. As of September 30, 2021, we had cash and cash equivalents, restricted cash, and the short-term investments of $288 million and long-term equity investments of $376 million.

This strong balance sheet reassures us to follow our long-term development plans and achieve our strategic goals. And for our fourth quarter revenue guidance, we currently expect total revenues to be between 130 million and 180 million. As Sheng just mentioned, our guidance has reflected the uncertainty we face in the fourth quarter due to the headwinds in global advertising business. 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] And today's first question comes from Melody Chan at Jefferies. Please go ahead.

Melody Chan -- Jefferies -- Analyst

[Foreign language] Let me translate my questions. My first question is on the advertising business. So, how should we think about the impact of the COVID uncertainty and the macro weakness, and also the regulation impact. And my second question is on the AI business.

How should we think about the AI business outlook in 2022? Thank you.

Sheng Fu -- Chairman and Chief Executive Officer

[Foreign language]

Thomas Ren -- Chief Financial Officer

OK. Thank you, Melody. I will answer your first question, and Mr. Sheng will answer your second question and I will translate for him.

So, your question, I think, is regarding the advertising business. And firstly, I would briefly answer the impact of COVID uncertainty and then also macro weakness. Yes, we think COVID uncertainty and the macro weakness still affect our business. And we can see now, globally, advertising is facing some uncertainty.

In China sectors, such as education, real estate, travel, have been slowed down due to COVID-19, and also the government supervision and regulations, and some other reasons. So, the impact has been passed on to advertising business. So, some bigger internet platform companies are not very optimistic about advertising in the coming quarters. And also, our outlook for the fourth quarter also reflects these negative factors.

And overseas, on the overseas market advertising business, as we mentioned, for the big platform company like Facebook, they are also facing headwinds from the changes, iOS 14, macroeconomic, and COVID-related factors. So, our overseas advertising agency business is also adversely affected. And this might be impacted by multi-quarters. This also has been factored in our fourth quarter guidance.

And also, for our shopping-mall coupon-selling robots business, there were also some negative impact on our business in certain cities. Some shops in these cities were closed, or some restaurants stopped. But it is controllable and the impact was only in limited areas. So, we didn't see a significant impact on our shopping-mall robot business.

And also, I think your question also involves the regulation impact and the Personal Information Protection Law. Yeah, we also see the strict government supervision and regulations could also slow down the advertising business. This has already been reflected in some Chinese big internet companies' financial results. And as we mentioned earlier, we also expect some negative impact on our other advertising-related business.

And for us, internally, our related departments have been starting and following the regulations and laws seriously. We also adjusted how we display advertisement on our platforms and how we can collect your first information. We conducted some internal restructure to better comply with the updated government regulations. And also, as we mentioned, now, we are focusing on new business, such as membership, shopping-mall coupon-selling, and the global cloud service.

We are confident about the growth of this new business. So, generally speaking about the regulation, we will strictly comply. And at the same time, we also have made business strategies to ensure the growth of our overall business. Hope this answers your question.

Sheng Fu -- Chairman and Chief Executive Officer

[Foreign language]

Thomas Ren -- Chief Financial Officer

OK. Let me translate this part. So, we have deployed over 10,000 service robots in thousands of cities across China. Recently, we realized that the customers, they're already used to talking to robots in the shopping malls, like inquiry, the information of merchants in that shopping mall, or the service provided by those merchants.

Sheng Fu -- Chairman and Chief Executive Officer

[Foreign language]

Thomas Ren -- Chief Financial Officer

Because we found the customer already used to, you know, communication --communicating with our service robots, we found that the customers is asking the location or interaction with our services robots. The coupons we recommend for the customers could be acceptable.

Sheng Fu -- Chairman and Chief Executive Officer

[Foreign language]

Thomas Ren -- Chief Financial Officer

And all the merchants in the shopping malls, especially the restaurants, they also that to deploy some off their coupons in this shopping mall to attract its traffic.

Sheng Fu -- Chairman and Chief Executive Officer

[Foreign language]

Thomas Ren -- Chief Financial Officer

When the customer is shopping in the mall, so for most of the times, they didn't have a clear targeted restaurant. So, sometimes, it might be -- they might go in to the recommend restaurants because of the coupons we recommend.

Sheng Fu -- Chairman and Chief Executive Officer

[Foreign language]

Thomas Ren -- Chief Financial Officer

Combining the three parties' demands, we are promoting the mini-program called [Inaudible].

Sheng Fu -- Chairman and Chief Executive Officer

[Foreign language]

Thomas Ren -- Chief Financial Officer

When the customers interact these -- our robots, so they -- firstly, they need to register our mini-program to become a member of our mini-program. And then, they pay to find coupons through our program. And then, they can bring the electronic coupons to the restaurant or to the merchants to enjoy the discounts.

Sheng Fu -- Chairman and Chief Executive Officer

[Foreign language]

Thomas Ren -- Chief Financial Officer

So by promoting our service robots around the shopping malls, we can successfully convert the offline traffic into the online traffic or online user base of our mini-program.

Sheng Fu -- Chairman and Chief Executive Officer

[Foreign language]

Thomas Ren -- Chief Financial Officer

So by this business model, we can apply our advantage of the internet traffic business model to combine the offline traffic user base.

Sheng Fu -- Chairman and Chief Executive Officer

[Foreign language]

Thomas Ren -- Chief Financial Officer

Yeah, we have provided over 5,000 coupons in the -- our mini-program.

Sheng Fu -- Chairman and Chief Executive Officer

[Foreign language]

Thomas Ren -- Chief Financial Officer

We believe this business model could be grow fast because, as we just mentioned, it's a combination of a three parties' demand.

Sheng Fu -- Chairman and Chief Executive Officer

[Foreign language]

Thomas Ren -- Chief Financial Officer

This could also convert our traditional internet business from the previous pure advertisement model into the consuming and payment procedures.

Sheng Fu -- Chairman and Chief Executive Officer

[Foreign language]

Thomas Ren -- Chief Financial Officer

We can also earn commissions by selling the coupons. This could be another source of our future commercial income.

Sheng Fu -- Chairman and Chief Executive Officer

[Foreign language]

Thomas Ren -- Chief Financial Officer

This is basically our shopping-mall service robots business model.

Melody Chan -- Jefferies -- Analyst

[Foreign language] Thank you.

Sheng Fu -- Chairman and Chief Executive Officer

[Foreign language]

Thomas Ren -- Chief Financial Officer

Thank you, Melody.

Operator

[Operator instructions] And as there are no further questions at this time, I'd like to hand the conference back to our management for closing remarks.

Sheryl Zhang -- Investor Relations Director

Thank you, operator. Thank you all for joining us today. If you have any questions, please don't hesitate to contact us. Thank you.

Bye.

Operator

[Operator signoff]

Duration: 30 minutes

Call participants:

Sheryl Zhang -- Investor Relations Director

Sheng Fu -- Chairman and Chief Executive Officer

Thomas Ren -- Chief Financial Officer

Melody Chan -- Jefferies -- Analyst

More CMCM analysis

All earnings call transcripts

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.