Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of Cheetah Mobile Inc (NYSE:CMCM) rose as much as 16% on Tuesday after the Chinese mobile Internet company announced first-quarter results that exceeded analysts' consensus estimates and offered better-than-expected revenue guidance for the current quarter.

So what: Here's how the headline numbers shook out:



Analysts' Consensus Estimate

Q1 Revenues – BEAT

% Surprise

$108.5 million


$105.5 million

Q1 Earnings-per-ADS* – BEAT

% Surprise






Analysts' Consensus Estimate

Q2 Revenues

$126.6 million-$128.2 million

$127.0 million

Source: Thomson Financial Network, Cheetah Mobile

Sheng Fu, Cheetah Mobile's CEO, sounded a very optimistic note in his comments on the quarter (CEOs are genetically predisposed to be optimistic):

Started only two years ago, our mobile monetization, especially in overseas markets, has already become our main source of revenue and a key growth engine for us ... for the first time in our operating history, mobile revenues accounted for a majority of total revenues, a major milestone toward achieving our mobile and global transformation goals.

That's all well and good with regard to revenues -- 113% year-on-year growth is impressive, no doubt about it. However, when it comes to the bottom line -- which is what share valuations are based on, after all -- I think it's worth nothing that if one subtracts the share-based compensation expense from the company's first-quarter adjusted earnings-per-ADS (as one ought to), it reduces earnings-per-ADS by a whopping two-thirds, from $0.09 to $0.03.

Now what: Combining mobile Internet and China, Cheetah Mobile is a hyper-growth story through and through. When that story meets/exceeds investors' expectations – as it did today -- all is well. However, at a valuation of 164 times forward earnings and 69 times cash flow, per research firm Morningstar, the shares appear to be balanced on a razor's edge. To this value investor, Cheetah Mobile looks like a speculation that carries significant risk of a permanent capital loss. There is nothing wrong with putting money in a speculation per se – just as long as one understands the nature of the venture.