Cheetah Mobile (CMCM, Financial) posted strong results in the recently reported quarter. The company managed to post impressive results mainly on the back of strong user growth, which led to growth in mobile revenue. The company is expecting this momentum to continue in the future as well.
With the transition to smartphones, Cheetah Mobile is seeing solid improvement in mobile MAUs, which increased 184% on a year-over-year basis last quarter. It is expecting better traction from its Clean Master product on Google Play in the tools category as well.
Product development moves
Cheetah Mobile is engaged in bringing innovations across its products to hold a competitive edge in the market. It is bringing in new apps, expecting them to enhance its position in the market. However, its products are already seeing good response from the users. Recently, Clean Master and CM security had been awarded the best in the Android Security. This can be a further attractive point to the users which can help it to improve its user base. Cheetah Mobile wants to stretch its footprints across the national boundaries. It is seeing good business opportunities in Taiwan. To capture the growing opportunities, Cheetah Mobile has enhanced its R&D activities in this region.
Moving to the mobile segment, Cheetah Mobile is confident of fetching good growth opportunities. The rate at which it is improving shows that it still has a lot in its store for Cheetah Mobile. The company is now with strategic partnership with mobile advertisers globally with the setup of a business development centre in San Francisco. In addition, Cheetah Mobile has also started its overseas gaming operation by testing several mobile games in various markets beyond the national boundaries. This is contributing well to the company’s top line and is expected to further grow significantly in the upcoming quarters.
It is focusing on various initiatives to improve its profitability. It has gotten into many strategic partnerships in the past which are paying off for it. In China, it is planning to extend its partnership with some of the giants including Baidu (BIDU, Financial), Tencent and Alibaba (BABA, Financial). Cheetah Mobile is mainly concerned about enhancing its mobile monetization on the international front as well. For this, it is making efforts to enter into some new profitable partnerships. To further promote its apps in India, it has entered into strategic partnerships with Karbonn and Lava. It is applying the same strategy with HTC in Taiwan to promote its apps. With these strategic partnerships, Cheetah Mobile is expecting to stretch its reach with this app offerings.
On the top Cheetah Mobile making to invest meaningfully in the product innovations to capture the bright opportunities in the Mobile segment. To make it happen the main focus of the company will be majorly on the enhancing its user base.
Conclusion
The stock is expensive with a trailing P/E of 213.51 but the company’s forward P/E of 22.83 shows good earnings growth in the near term. But if we look at the future five years earnings growth the stock can be a good long term holding as its earnings are growing at CAGR of 130.00% which is far better than the industry average of just 20.42%. Considering these valuation levels, it is clear that Cheetah Mobile is a good pick and the investors can definitely pick the stock for their portfolio despite paying heavy premium for the stock.
