Cheetah Mobile (CMCM 1.22%), a Chinese maker of mobile apps and games, lost 90% of its value over the past five years as its revenue and earnings plummeted. Its recent first-quarter report also didn't inspire much confidence in a near-term recovery.

Cheetah's revenue fell 51% annually to 528.1 million yuan ($74.6 million) during the quarter. It posted an adjusted net loss of 97.7 million yuan ($13.8 million), or $0.10 per ADS, compared to a profit of 33.8 million yuan a year ago.

Cheetah expects its revenue to decline another 60%-65% annually in the second quarter, but it didn't offer any bottom-line guidance. Those bleak numbers indicate the company is still in serious trouble, so investors should steer clear of its battered stock.

A young woman uses a smartphone.

Image source: Getty Images.

Tracking Cheetah Mobile's collapse

Cheetah produces a wide range of mobile utilities and games for Chinese and overseas users. Its most well-known apps include Clean Master, CM Browser, CM Locker, and Piano Tiles 2. But in recent years, Alphabet's (GOOG 0.72%) (GOOGL 0.83%) Google and Facebook (META 2.67%) cut ties with Cheetah over allegations of ad fraud.

Google and Facebook both claimed Cheetah's apps defrauded advertisers by "injecting" background clicks without any user interaction. Facebook ended its ad partnership with Cheetah in 2018, and Google booted Cheetah's apps from the Play Store and its ad platforms earlier this year. Cheetah pleaded ignorance in both cases and pledged to address those issues, but neither tech giant restored Cheetah's ads or apps.

Back in China, Cheetah's utilities and games face intense competition from bigger rivals like Alibaba (BABA 0.57%), which offers similar utilities via its UCWeb unit, and Tencent (TCEHY 0.33%), which dominates China's gaming market with hit games like Honor of Kings and Peacekeeper Elite, along with other mobile app makers.

Cheetah also recently sold its stakes in Live.Me, a popular live streaming platform, and the red-hot start-up ByteDance, which owns TikTok, to raise cash. But instead of reinvesting that cash back into the company, Cheetah recently announced a special dividend of $200 million -- or a whopping $1.44 per ADS (which is only worth about $3) -- which will be paid on July 9.

That dividend might ease the pain for some of Cheetah's long-suffering investors, but it won't solve any of its long-term challenges.

How bad was the damage?

Excluding its divestment of Live.Me, Cheetah's revenue declined 36% annually during the quarter.

A woman uses a smartphone.

Image source: Getty Images.

Its revenue from utility products and related services plunged 58% to 210.8 million ($29.8 million) due to steep declines across all its domestic and overseas segments. Those declines were mainly attributed to its loss of access to Google's platforms, sluggish demand for its PC-based services, and soft ad spending throughout the COVID-19 crisis. Online ads from its apps generated 71% of the segment's revenue during the quarter.

Cheetah's mobile gaming revenue fell 5% to 285.5 million yuan ($40.3 million) as its games were purged from the Google Play Store. Of the segment's revenue, 70% came from in-game ads and the rest came from in-app purchases.

On the bright side, Cheetah's adjusted gross margin expanded year-over-year from 66.2% to 72% as it divested Live.Me's lower-margin business. It also reduced its operating expenses 28% annually as it spent less money on marketing and promotions.

Unfortunately, those higher margins couldn't offset its massive revenue declines. During the conference call, CEO Sheng Fu declared Cheetah would "continue to communicate with Google and Facebook" to restore its partnerships, but warned it would struggle to acquire new users and monetize its overseas traffic for the foreseeable future.

Cheetah is pivoting toward AI-powered robots for transportation networks and hospitals to offset the declines in its core business, but that newer unit generated just 31.8 million yuan in revenue ($4.5 million) during the quarter -- or 6% of its total revenue -- while racking up an operating loss of 148.9 million yuan ($21.1 million).

A rudderless ship headed into treacherous waters

Cheetah's stock might look cheap at less than one times its annual revenue, but investors are avoiding it because it's a rudderless ship.

Its core growth engines are sputtering out, and it's desperately trying to fill the void by plowing its cash into a special dividend and a deeply unprofitable AI and robotics business. For now, investors should stick with bigger and better-run Chinese tech stocks -- like Tencent and Alibaba -- instead of this struggling underdog.