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$CMCM, A Declining Chinese Tech Company in for a Comeback

Long post. Obligatory not financial advice.

$CMCM, Cheetah Mobile Inc., is a declining Chinese software company. $CMCM's vestigial software business includes **Utility Products** and **Mobile Entertainment**. According to their annual report, their products include *Clean Master, Cheetah Browser, Piano Tiles,* etc, though personally I have not used any of them. Their questionable ads and privacy practices have long been criticized. In plain English, Cheetah Mobile makes ad-infested Chinese bloatwares and cheaply-made mobile games. And they were pretty good at it, at least until they got banned by Google Play in early 2020 for disruptive ads and data collection. Their revenue got slaughtered and $CMCM became a penny stock.

What makes $CMCM interesting is their other business. Cheetah Mobile has been heavily investing in AI technologies including speech recognition, natural language processing, etc. Right now Cheetah Mobile is transitioning into a AI robot business. On the [website](https://www.ainirobot.com/) of OrionStar, the robot branch of $CMCM, they've listed a bunch of robots suitable for different scenarios, such as booking appointments at hospitals, locating stores and collecting membership points at malls, and food delivery at resturants. I pretented to be an aspiring resturant owner and called OrionStar for a quote for their robot. Surprisingly, the sales rep sounded knowledgeable and legit, even giving me business tips for organizing my "restaurant." I got quoted RMB 2,000 ($300) per month for renting their restaurant delivery bot and RMB 48,000 ($7,500) for a cash purchase. Strangely, the quote was the same for another, perhaps lesser, bot. This possibly implies that they are subsidizing their products for more market share, which I'll mention later.

I live in China and speaking from personal experience, I've seen an increasing amount of their products recently. I saw a bunch of them in an airport and one in a nearby mall. Having interacted with the bots a bit, I can definitely tell they've put in the effort to make them actually useful. There are some helpful apps for locating restrooms and paying for parking stuff. Still, right now smart phones make more sense to me.

**Bull Case**

1. The market for commercial robots is entirely a blue ocean. To this date I have yet to see another competitor.

2. The demand is real. Commercial robots could potentially replace traditional kiosks and reception desks.

3. Seeing the speed at which businesses adopt OrionStar robots, Cheetah Mobile might turn into a profittable business very soon. In addition to the upfront sale of robots, $CMCM can potentially capitalize on the software of their devices. Basically they can turn their robots into oversized, shared smart phones in public places.

4. $CMCM has a **current ratio of 1.89** at the end of Q3, 2020. Though having deteriorated slightly compared with the end of 2019, Cheetah Mobile is't going bankrupt any time soon.

5. $CMCM has $160,432,000 of cash by the end of Q3, 2020, while only currently trading at a market cap of $381,701,000.

**Bear Case**

1. The transition has not been easy. In Q3, 2020, their AI robot business only contributed to a mere **5.8%** of their total revenue, not a significant difference from the 3.8% at the end of 2019. Essentially, $CMCM still is a dying bloatware business. However, with the curren speed that Cheetah robots are showing up in China, we might be in for a surprise soon.

2. My anecdotal experience is inherently biased. Full disclosure, I own a miniscule amount of $CMCM with my play money, and I do want them to succeed. I am considering to double down on my position.

3. This AI robot thing is still a growing business. OrionStar has yet established its niche to replace reception desks and waiters. Their Q3, 2020 report indicates **a -893.9% operating margin** for their AI business. This confirms my previous guess that these bots are being heavily subsidized by OrinStar.

4. The integrity of $CMCM management has been questionable at best. This is a company that has been consistently and relentlessly pushing forward disruptive ads and privacy breaches. They were so bad that they got banned by Google. Do not expect this to change even with their new business model.

5. There is always additional risk when investing in a foreign company, especially a Chinese one.

$CMCM will publish their 2020 annual report on 3/23. I believe we might see significant growth of their AI robot business.