Cheetah Mobile (NYSE: CMCM) stock has jumped by around 10% on Friday morning and by more than 400% over the past week. But does that make CMCM stock worth considering for investors?
What Does Cheetah Mobile Do?
Founded in 2009, Cheetah Mobile operates as an internet and AI company in the People’s Republic of China, the United States, Japan, and internationally.
The Chinese company’s utility products include Clean Master, a junk file cleaning, memory boosting, and privacy protection tool for mobile devices; Security Master, an anti-virus and security application for mobile devices; and Duba Anti-virus, an internet security application to protect users against known and unknown security threats and malicious applications.
In addition, it offers applications such as mobile games, wallpapers, office optimization software and more. Furthermore, the company provides mobile advertising publisher services, cloud-based data analytics engines, artificial intelligence and premium membership services.
Finally, the company offers AI and robotics products which can assist with deliveries, reception duties, retail efforts and more.
The company was formerly known as Kingsoft Internet Software Holdings Limited and changed its name to Cheetah Mobile in March 2014.
How Does Cheetah Mobile Make Money?
The company serves direct advertisers that include mobile application developers, mobile game developers and e-commerce companies, as well as search engines and partnering mobile advertising networks.
It also sells features such as premium membership and in-app virtual items to its mobile app and game users. The business also sells its various AI robotics products, which range from greeters and home-based robots to restaurant and hotel delivery models, to businesses and consumers.
CMCM Stock Financials
The business’ most recent full year earnings showed revenue of $123.1m for the 12 months ended 31 December, a decline of roughly 50% on the performance the year beforehand.
Gross profit was down by around 50% as well, with the business having taken some punishment from a sharp drop in revenues from its internet business, while its AI business revenues also dipped though by a less severe degree. Consequently, the company swung to a net loss of $55.4m.
CMCM stock has a price to sales ratio of 0.83 and a price to book ratio of 0.20. These compare with software and programming industry average measures of 7.54 and 10.15 respectively, according to CSIMarket, indicating that the stock could be underpriced.
The year to date has seen the company’s share price rise by almost 250%. Over the past 12 months CMCM stock has reached a high of $10.40 and a low of less than $0.70. The share price at the time of writing is $3.66.
CMCM Investment Risks
Back in July, the company was added to the SEC’s delisting watchlist along with several other stocks for Chinese companies. The delisting threat is due to concerns about auditing compliance of US-listed Chinese companies.
Additionally, the business has been threatened with being delisted from the NYSE as recently as May, after its trading price fell below $1 for more than 30 days. The company has since bounced back from this, but further volatility could easily follow.
These risks relating to the company’s listing on US exchanges don’t even touch on industry risks the business faces, which include already evidenced declines in monthly active usership of CMCM’s products, fragile revenue streams and COVID-19 related disruption to Chinese operations.
Finally, the business' reputation carries its own risks. Cheetah Mobile has courted controversy in the past, with its ads being removed by the likes of Alphabet (NASDAQ: GOOGL) and Meta Platforms (NASDAQ: META) due to issues such as misleading content and reported 'click fraud'.
These issues could have tarnished the business' reputation seriously, placing a lot of pressure on its AI robotics segment to pick up the slack. However, this much smaller part of the business made just $20.5m in revenue in 2021, compared to $102.6m from the already rapidly declining internet business.
Is CMCM Stock a Good Investment?
Despite the explosion in share price, CMCM remains a penny stock and is therefore an inherently risky investment proposition. The stock could be subject to severe volatility, which may not be ideal depending on investors’ personal circumstances.
Additionally, it faces severe risk of being delisted from US exchanges in the near future, further adding to the riskiness of the stock. The company’s financials don’t inspire confidence either.
While the AI robotics business is an interesting card in Cheetah Mobile's hand, it returns just a fraction of what the company's internet business used to deliver. With a damaged reputation and steep competition from the likes of Alibaba (NYSE: BABA), it seems unlikely that this part of Cheetah Mobile could recover to its former heights either.
As such, the company appears to be in a very precarious position.
Wall Street Journal only has one analyst currently covering the stock, but they have given CMCM stock a Sell rating, as opposed to Underweight three months prior.
Investors should consider their own personal attitude to risk before deciding to back CMCM stock.