Cheetah Mobile (CMCM, Financial) is making significant progress. Its revenue and earnings topped the consensus estimates on both the top as well as bottom lines in the last reported third quarter 2014. Its revenue grew at a triple-digit growth rate of 139% to $61.3 million, while net income rose 360% to $9.8 million. Looking ahead, for the fourth-quarter the company expects its revenue to be in the range of $91.0 million to $93.0 million. Let us look at its growth drivers that are accelerating its sales performance.
Impressive user growth
Cheetah Mobile continues to drive user engagement. The ongoing product innovations such as its flagship app Clean Master and CM security apps are gaining market share for the company. In fact these apps have bagged the top spot in AV-Test's assessment of Android security for the fourth time during the year. Moreover, the company was included in top three publishers in non-game apps category on Google Play.
Going forward Cheetah remains focused upgrading its product innovation and accelerating its user base and user engagement that should boost its sales performance. Its mobile MAU grew 184% to 340 million year-on-year basis. Cheetah managed to add over 56 million active users during the third-quarter.
In addition, the company should benefit from the growing mobile advertisement worldwide. It continues to develop relationship with overseas mobile advertisers that should enhance its mobile revenue in the future. Also, it has recently set up a business development center in San Francisco that should certainly bring several other advertisers to its folds. Moreover, Cheetah remains upbeat to start with its gaming operation overseas. It has done away with the testing for number of mobile games in different overseas markets.
Its mobile advertisement business continues to gain traction in the overseas markets due to noteworthy progress in contextual native advertising publishing platform and growth of advertisers worldwide.
According to a report by Gartner, the mobile advertisement spending worldwide is projected to touch $18.0 billion this year as compared to $13.1 billion in 2013. Further, the report illustrate that this market has capacity of reaching $41.9 billion by 2017. Display format and video are considered top revenue contributors to this billion dollar opportunity in the future.
In fact, Cheetah earned handsome amount from a strong ramp up of overseas mobile advertising business. Its mobile revenue expanded 628% annually and 48% quarterly respectively. The mobile advertisement contributes approximately 24% to its total quarterly revenue.
Acquisitions to power its growth
Cheetah continues to develop strategic partnerships with leading internet app and mobile internet companies globally. It has recently expanded its partnership with Baidu, Tencent and Alibaba to the mobile site in China. These partnerships should assist the company in better advancement of its mobile monetization in the future. It has recently build partnerships with mobile makers in order to promote its apps. It has entered into relationships with India-based Karbonn and Lava and Taiwan-based HTC to promote its apps. The company expects the current partnerships along with the upcoming partnerships to dramatically expand the reach of its apps.
Overall the company looks good. It is aggressively taping the vast opportunity in mobile platform. However, it does sees tough competition ahead from its rivals such as Qihoo 360 Technology (QIHU, Financial) and Baidu (BIDU, Financial). These companies are ramping up their mobile apps that will hurt Cheetah’s addressable markets.
Conclusion
Cheetah Mobile is undeniably a good bet. It has a lot of rooms to expand in the future. It is continuously expanding its presence with innovative products and building partnerships with mobile app and mobile internet companies. These moves should generate positive earnings for the company in the future. The analysts expect its earnings to grow at CAGR of 130.00%, quite higher than average industry CAGR of 20.56% for the next five years. This indicates mouth-watering yields for the stock in the future.
Also, the stock relatively shares cheap valuations with the trailing P/E of 213.25 and forward P/E of 22.81. It floats at the initial stage of its business cycle that is the reason it has such as huge growth rate. It has PEG ratio of 0.48 that undeniably supports its growth over the coming years. Its balance sheet carries total cash of $282.90 million and has no debt outstanding.
