Cheetah Mobile Inc (CMCM)

[finesand]

AdWare Fraud Accusation Short Attack

Christmas came early? Probably!
Forgive me typos and grammar, I just copy paste some prelim text of our notes here, barely structuring it yet.

First of all this wasn't the first short attack on the company.

Now the CMCM ex-partner Kochava 'discloses' some phenomenons, where he prematurely points his fingers to CMCM and one other company for good measure, see
https://www.buzzfeednews.com/article/craigsilverman/android-apps-cheetah-mobile-kika-kochava-ad-fraud

In the business of disclosing security vulnerabilities etc, the finder USUALLY contacts the involved companies w/o raising the flag in public. Finder may receive a finders fee.
The behavior Kochava exposes with the public disclosure, breaches the unwritten rules in this field. So called 'Zero day' disclosures are rare and using the yellow press even more so :)
Who knows how they get compensated for it. They surely got their dime here IMHO. Simply unethical in this business.

CMCM made a 2nd PR regarding the orchestrated and algo lead short attack today https://www.prnewswire.com/news-releases/cheetah-mobile-further-responds-to-recent-articles-regarding-app-installation-attribution-300756450.html

Know that the SP wasn't even able to get above the 5min 8ema on around 10M traded shares, about 143M OS (reduced since 3Q18).

The company lost more than 1/3 of their MCAP!

Good algos were employed here, that's for sure :)

+++

Now let's talk about the future of CMCM.

May 26, 2017, 08:30 ET https://www.prnewswire.com/news-releases/cheetah-mobile-invests-in-robotics-business-300464519.html

Jul 26, 2017, 08:00 ET https://www.prnewswire.com/news-releases/orionstar-wins-challenge-to-recognize-one-million-celebrity-faces-with-artificial-intelligence-300494265.html

In May '17 CMCM invested into OrionStar https://www.bloomberg.com/research/stocks/private/snapshot.asp?privcapId=432245050

CMCM started to plan their adware mobile-phone helper-all exit strategy in early 2017, knowing that this revenue source will no t match their growth trajectory and is declining.

CMCM entered the AI driven application market w/ and w/o hardware involved.

1Q18 CC:

Cheetah GreetBot, which is a full-sized reception robot developed by Beijing OrionStar. Cheetah GreetBot can recognize visitors when they arrive, communicate with them, help them find their contacts and accompanying them to meeting rooms
With Beijing OrionStar's end-to-end knowledge of robot production, they can tailor maker -- tailor make Cheetah GreetBot for customers such as companies, banks and hospitals at a compelling price.
Beijing OrionStar had made significant progress on Cheetah GreetBot production testing since its launch. If they execute according to plans, we expect to start delivering Cheetah GreetBot to customer in Q4 2018.

Q&A My first question about the margin trend for Q2 and 2018 due to our investment in the robotics business. And my second question is about our competitive strengths and our differentiations in the robotics business versus our peers.

A: First of all, for the OrionStar, Beijing OrionStar, this is a -- we are not controlling the company right now. We only have a warrant to acquire controlling position. So at this moment, it was (inaudible) possible right now (inaudible) alternative measurements, so we have not recognized the cost and expenses of Beijing OrionStar yet. So just on our book is our costs. The expense and costs will not impact the bottom line of Cheetah Mobile. In term of the margin, we expect that the gross margin will probably be slightly lower because the top line was reduced.

Timeline as planned was to start selling new products in 4Q18,
but company is now ahead of their plan:

Translator launched July 2018 https://pandaily.com/cheetah-mobile-launches-the-most-affordable-ai-translator-at-40/

GreetBot launched in August 2018 https://venturebeat.com/2018/08/29/cheetah-mobile-and-orionstar-release-greetbot-ai-receptionist-robots/

On 11/22/18 post 3Q18 CFO gave a nice interview https://finance.yahoo.com/video/chinas-cheetah-mobile-aims-become-232458309.html

he mentioned TikTok investment will gain around $86M https://play.google.com/store/apps/details?id=com.photogrid.tiptap&hl=en_US

Bytedance is the Tik Tok creator https://edition.cnn.com/2018/10/18/tech/bytedance-china-tiktok/index.html

and on 11/26 Bytedance generated $43M sold + $43M holding for CMCM https://www.sec.gov/Archives/edgar/data/1597835/000119312518333486/d652620d6k.htm

one of CMCM's big wins of investments https://www.prnewswire.com/news-releases/bytedance-and-nba-announce-global-partnership-to-deliver-customized-mobile-friendly-content-powered-by-artificial-intelligence-300755383.html

hope they buy the remaining portion of OrionStar, for which they do have an option.

Bottom line, company is moving away from the adware biz as planned long time ago anyways and their AI driven apps + tools are well received and already selling.

Such a transition is never easy, but seemingly CMCM managed it best so far - not being damaged by quarterly negatives. The shift and R&D being paid by the exiting adware revenues.

In this sense: Christmas came early!