Cheetah Mobile Inc (CMCM)

[finesand]

Updated DD by SeaOfSand, motivated simply by the very 'cheapness' of P/E < 4 now

https://finesand.wordpress.com/2019/06/01/cheetah-mobile-cmcm-performance-update-1/

- or -

https://seekingalpha.com/instablog/48819309-seaofsand/5310773-cheetah-mobile-cmcm-update-1

Bottom line, we have an annual revenue increase of just 0.1% and net income drop of around 14% annually already being compensated by a more than 55% MCAP drop, valuated at P/E < 4 today.

We understand the company’s seasonal income fluctuations and cause of the current ‘income dip’, which shall only be of temporary nature as the shift in business direction will allow even more growth than the to be replaced ad-ware cash flow. Company’s ability to compensate transitional income via financing activities is also very much undervalued.

Income would need to drop 62% further down from currently now ~$170M to $64.5M to make the $4.50/ADS price at P/E 10 somewhat reasonable, even though such a drop in net income would be outworld’ish.

More realistic would be allowing a cautious P/E ~10 while company is transitioning. Let’s say current $170M annual income drops another 14% more in 2019, leaving this year with only ~$146M and EPS of $1.08/ADS having 135M ADS left (see below). Hence $10 – $11 per ADS should be today’s recover goal at P/E 10 already accounting for another last drop in income.