Cheetah Mobile Inc.

Good day, everyone, and welcome to the Cheeto Mobile second quarter 2020 conference call. After today's presentation, there will be an opportunity to ask questions. Please also note today's event is being recorded. At this time, I'd like to turn the conference call over to Helen Yu, Investor Relations Director of Cheeto Mobile. Please go ahead, ma'am.

Thank you, operator. Welcome to Cheetah Mobile's second quarter 2020 earnings conference call. With us today are our company's chairman and CEO, Mr. Fu Sheng, and our company's CFO, Mr. Thomas Jin. Fully in management's prepared remarks, we will conduct a Q&A session. Before we begin, I refer you to the Safe Harbor Statement in our earnings release, which also applies to our conference call today as well as make forward-looking statements. At this time, I would now like to turn the conference call over to our Chairman and CEO, Mr. Fu. Please go ahead, Du Dong.

Thank you, Helen. Hello, everyone. We delivered overall better than expected results in the second quarter of 2020. Today, total revenue came in at RMB 394 million, exceeding the high end of our revenue guidance. Non-GAAP Netcom grew to RMB 244 million. However, We still facing challenges in operating our business. In overseas markets, we are unable to resume our cooperation with Facebook and Google. As a result, we have difficulty in acquiring new users and monetizing our traffic. And our overseas revenue continues to decline. Given today's environment, We are not confident in resuming our cooperation with Facebook and Google. In the domestic market, the online advertising industry has been negatively impacted by the pandemic since the beginning of this year, leading to the decline of eCPM. The scope of these hard wins, we choose to strategically shift our focus from overseas markets to the domestic market and introduce the user satisfaction model. Financially, we have reduced cost and expense and focus on our AI investment in the shopping mall. In today's call, I would like to highlight the following. First, we significantly reduced our cost and expense during the quarter. As a result, the non-gap operating loss narrowed by RMB 8 million quarter over quarter in Q2, despite that our total revenue decreased by RMB 130 million from the previous quarter. The revenue decrease was primarily due to the suspension of our collaboration with Google since February 2020, as well as the outbreak of COVID-19, which continue to impact our online advertising business in China. During the quarter, we cut back our cost and expense for overseas markets, leading to 61% year over year. and 31% quarter-over-quarter decrease in cost and expense for our mobile internet business, namely the utility products and the mobile game operations. In the coming quarter, we will continue to improve operational efficiency, reduce cost and expense, and significantly narrow our operating launch on the corporate leverage. Second, PC revenue increased by 2% quarter over quarter to RMB 120 million, driving the growth of user subscription revenue. During the quarter, both paying user accounts and daily subscription revenue from our Duba antivirus software reached new heights. This achievement proved the user subscription model within utility apps. Recently, we have copied the user subscription model from PC to mobile by introducing premium service for Clean Master. The initial user adoption has been very encouraging as we have seen the paying user count and the daily subscription revenue remained growing since inception. Third, given today's environment, we believe Chinese mobile internet company will face increasing challenges aboard. As a result, our utility product business will move from overseas market to the domestic market. This move allow us to reduce cost and expense gradually. During the quarter, we introduced some new utility products in our home market. In the future, we will add more utility products in the domestic market to further enrich our product offering and boost our revenue. Fourth, the number of AI-related robots in shopping malls grew to about 7,000 by the end of the second quarter. Our robots help customers find the shops and brands they are looking for. improve the customers' shopping experience, and create more business opportunities for merchants. The customers' daily inquiries with our robot has been growing. Increased customer usage has attached many shops and brands to come to us to gain coverage. Recently, We tried to work with several brands, including restaurants, auto companies, and accessories to direct traffic to their local shops. The progress of our robot in shopping malls delayed about six months due to the pandemic. However, we will accelerate the monetization monetization along with the recovery from COVID-19 situation. Fifth, our long-term equity investment contains several well-known projects. As of June 30, 2020, we had US dollar 292 million long-term equity, investment, sitting on our balance sheets. During the quarter, some of our major investors made notable developments. For example, Blimey achieved profitability, leading Chinese online education platform that teach programming to children closed a new round of funding raising. Looking ahead, we expect to continue facing potential headwinds so that we are unable to grow or sustain our total revenues in second half of 2020. However, we will continue to reduce cost and expense and narrow our operating loss in the coming quarters. At the same time, we will uphold our commitment to AI, bake it with our strong cash reserves. We believe AI will allow us to build a new growth engine for the company in the long term. With that, I will hand the phone over to our CFO, Thomas.