Cheetah Mobile Inc. (ADR) (NYSE:CMCM) Under Pressure After Mixed Q1 Financial Results

The company reported earnings per share of 8 cents, a drop from earnings of 13 cents a share reported a year earlier. Despite the drop, the earnings met Wall Street expectations.

According to the Chief Executive Officer, Sheng Fu, the company started the year on a high depicted by revenue exceeding the upper end of the guidance. The company’s utility product business also experienced robust growth and in the process helped generate substantial profits and cash flow.

“We continued to expand our profits and margins in the first quarter of 2018 as a result of our strategic efforts to optimize the cost and expense structure for our utility products business and our initiative to dispose of News Republic,” said Mr. Vincent Jiang, Cheetah Mobile’s Chief Financial Officer.

Q1 Financial Results and Milestones

Cheetah Mobile reported revenues of $182.6 million for the first quarter, a drop from $186.53 million reported a year ago. However, it still topped analysts’ estimates of $180.34 million. Cost of revenues dropped 14.6% year-over-year to $62 million as a result of reduced bandwidth and IDC cost.

Net income came in at $11.84 million down from a net income of $14.19 million reported a year ago.

Operating profit, on the other hand, totaled $21.74 million an improvement over $4.12 million reported last year. Total operating expenses dropped 12.6% year-over-year to $98.5 million. Non-GAAP operating expenses, on the other hand, decreased 10.9% to $97 million.

During the quarter, the company served an average of 574 million global mobile monthly active users. Mobile active users from markets outside of China accounted for 75.4% of the total number of MAUs,

Beijing OrionStar Technology, an investee in Cheetah Mobile, achieved a record-setting 98.36% recognition rate, as part of a facial recognition test conducted by the Paul G Allen School of Computer Science.

Q2 Business Outlook

For the second quarter, the company expects revenues of between $163 million and $172 million. Wall Street, on the other hand, expects the company to post revenues of $193.30 million.

The company exited the first quarter with a cash and cash equivalent of $535 million.

 Fraud Detection Solution

Separately, Cheetah Mobile has implemented a new fraud detection and prevention solution to identify and mitigate in-app advertising fraud. Protected Media is the new solution that seeks to increase transparency when it comes to online advertising.

The new solution leverages AI technologies and methodologies to protect premium advertisers and the integrity of their market-leading applications. Protected media will provide a multi-layered ad fraud detection and prevention, to accurately identify the source of bad traffic. It is expected to offer both the advertiser and publisher trust and transparency.

According to Amichai Zuntz EVP Sales of Protected Media, add publishers should be able to regain control of the traffic with the new solution and in the process focus on creating applications and content that can attract premium advertisers.