Q4 2016 Cheetah Mobile Inc Earnings Call

Mar 21, 2017 AM EDT
CMCM - Cheetah Mobile Inc
Q4 2016 Cheetah Mobile Inc Earnings Call
Mar 21, 2017 / 12:00PM GMT 

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Corporate Participants
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   *  Helen Zhu
      Cheetah Mobile Inc. - IR
   *  Sheng Fu
      Cheetah Mobile Inc. - CEO
   *  Andy Yeung
      Cheetah Mobile Inc. - CFO

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Conference Call Participants
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   *  David Sun
      Morgan Stanley - Analyst
   *  Joyce Ju
      Citi - Analyst
   *  Wendy Huang
      Macquarie Capital Ltd. - Analyst
   *  Thomas Chong
      Bank of China International - Analyst
   *  Editor

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Presentation
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Operator   [1]
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 Hello and welcome to the Cheetah Mobile fourth quarter 2016 earnings conference call. All participants will be in listen-only mode. (Operator Instructions) After today's presentation, there will be an opportunity to ask questions. (Operator Instructions) Please note this event is being recorded. I would now like to turn the conference over to Helen Zhu, Director of Investor Relations. Please go ahead.



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 Helen Zhu,  Cheetah Mobile Inc. - IR   [2]
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 Thank you, operator. Welcome to Cheetah Mobile's fourth quarter and full-year 2016 earnings conference call. With us today are Mr. Fu Sheng, our CEO; and Mr. Andy Yeung, our CFO. Following management's prepared remarks, we will conduct a Q&A session. Before we begin, I refer you to the Safe Harbor statements in our earnings release, which also applies to our earnings conference call today as we will make forward-looking statements. At this time, I would now like to turn the conference call over to our CEO, Mr. Fu Sheng. Please go ahead, Fu Sheng.



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 Sheng Fu,  Cheetah Mobile Inc. - CEO   [3]
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 Thanks, Helen, and hi everyone. In early 2016 our business faced some difficulties, which forced us to rethink our positioning and our growth strategies for the future. It is increasingly clear to us that content is the driver for future growth and AI is the core enabler to connect our users with highly personalized content. With that, we are excited to see that two of our key content apps, Live.me and News Republic, grew strongly in Q4 2016 in the US. Cheetah Mobile has the capability to develop not only popular utility apps, but also popular content driving apps. Financially, our total revenues and profits again grew QoverQ in the 4Q. In fact our total revenue set record higher in the quarter and our quarterly mobile revenues exceeded CNY1 billion for the first time despite entering into a more mature growth trade. Our utility apps grew steadily and sustained in the quarter.

 At the Company's profit center, our utility apps continued to expand its profitability over the past quarters, which in turn supported our mobile content strategy. Looking forward, we'll remain focused in implementing our mobile content strategy, leveraging the big data generated by a massive user base, and AI technology to connect our user with more personalized and regional content. We have further enhanced our leading position as a global traffic platform. For our core utility apps such as Clean Master, our user base remains relatively stable in key developed markets. In addition, we are pleased with good progress in our other utility apps. CM Launcher was ranked as Number 1 personalization app globally in January 2017 on Google Play. It is also important to note that both its user base and its engagement have grown significantly over the past few months without any marketing activities.

 Photo Grid expanded its popularity, now the second largest photo app in Indonesia. Moving on to our content driving products. We are pleased to see continued strong growth of Live.me in user members, user engagement, and paying users. In less than a year, Live.me has become one of the top social apps for young people in the US. According to App Annie, Live.me has been the Number 1 grossing social app in the US on Google Play since August 2016 and one of the Top 5 social apps on Apple App Store. In the past quarter we introduced the nearby function, which enables users to discover people or things that they may find interesting around them. This feature helps to increase user stickiness with the app. We remain amazed by how well the virtual gift function was received by our users and that is used by our users to interact with each other in social settings.

 We will continue to refine Live.me, making it easy and more fun for users to share their daily life on our life changing social platform. News Republic also delivered robust results in the fourth quarter of 2016. We upgraded News Republic to an AI enabled personalized news content delivery model in the third quarter of 2016. Since then, both its user base and user engagement have grown. Currently our users on average raised 2 times to 3 times more than articles than before. According to App Annie, News Republic has been the Number 1 news app in US on Google Play since December 2016. The key element of our content strategy is AI. In December, we have had adjusted our personalized news content delivery engine several times since the acquiring is public. The only change in the predictive model from CBDC to LR and updated to DAN, our CTR improved by 30%. Accordingly, we continued to extend our partnerships with global leading media in the past quarter.

 Also we recently launched Cheetah Open Feed platform, which also allow app developers and OEMs to play Cheetah personalized news delivery service into their apps and the mobile operating system helping them to further attract and engage users. We made significant progress on our content strategy, but we know we still have a lot of work ahead of us. Our utility app has entered into a more mature growth phase and significant investments are still needed to drive the growth of our content driving product, which are likely to still reach on margins in 2017. However, given our strategies in product and the technology developments and our massive 600 million user base, we are confident that our transformation into a mobile content platform will enable us to build sustainable and profitable business model in the long run and create value to all of our shareholders.

 Before I hand the call to Andy, I want to thank him for his significant contribution to the Company over the past three years having helped Cheetah Mobile establish a solid financial operating team and a corporate governance platform. Andy will be missed. On behalf of the Company's Board of Directors, I would like to thank you Andy for your dedication to the Company. We wish you best of luck going forward. With that, Andy, please go ahead.



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 Andy Yeung,  Cheetah Mobile Inc. - CFO   [4]
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 Thank you, Sheng. Hello everyone. As you read in the press release, I will be resigning from Cheetah Mobile effective March 31, 2017. A new CFO search is being conducted by our Board of Directors. Meanwhile the Board has appointed Francis Ng, CFO of Kingsoft and a Board member of Cheetah Mobile, as the Interim CFO until a replacement is on board. On a personal note, I would like to thank Fu Sheng, the Board, and the rest of the management team for providing me the confidence, trust, and opportunity to work with one of the most dynamic global companies emerging out of China. It has been a pleasure to work with you all. For all the investors and analysts who have covered our Company ever since we went IPO and subsequently, thank you for your interest in the Company and respect you have for me and the team. It has been a pleasure to work with you all as well.

 Cheetah Mobile has been an amazing company with hundreds of millions of users globally. It will remain one of the most dynamic names in the mobile Internet space and continue to rapidly evolve and lead in the mobile Internet ongoing evolution. I wish you the best of luck and success going forward.

 Moving on, we are delighted to have delivered solid financial results in the fourth quarter of 2016. In the second quarter of 2016, we set a clear goal to rejuvenate revenue growth and improve our financial conditions and both of our revenues and profitability continued to improve in the second half of 2016. In fourth quarter 2016 our total revenues, mobile revenues, and overseas revenues all achieved record high driven by the steady and sustained revenue growth generated by our utility apps. Importantly, we also further expanded our profitability in the past quarter.

 Our non-GAAP operating profit grew more than 200% as compared with the previous quarter. In addition, we generated CNY419 million in free cash flow in the fourth quarter 2016. Going forward, we will remain focused on the execution of our mobile content strategy, which will lay a strong foundation for another round of strong monetization, revenue growth, and profitability improvement in the coming quarters. Now, let me walk you through the details of our fourth quarter financial and full-year 2016 financial performance. All financial numbers are in RMB unless otherwise noted. In December 2016 the number of mobile MAUs was 623 million, an 11 million increase from quarter-over-quarter. For the fourth quarter of 2016, total revenues increased by 11% year-over-year and 13% quarter-over-quarter to CNY1.27 billion, which was slightly above the high-end of our guidance.

 For the full-year 2016, total revenues increased by 21% year-over-year to CNY4.56 billion primarily driven by the steady and sustained revenue growth from our utility apps and the contribution from our new content driven apps, Live.me and News Republic. By platform, for the fourth quarter of 2016, mobile revenues increased by 28% year-over-year and 15% quarter-over-quarter to CNY1.03 billion. Mobile revenues accounted for 81% of our total revenues in the fourth quarter, up from 70% in the prior year period and 80% from the third quarter 2016. For the full-year of 2016, mobile revenues increased by 43% year-over-year to CNY3.53 billion. Mobile revenues accounted for 77% of our total revenues in 2016, up from 66% in 2015. For the fourth quarter, PC revenues declined by 29% year-over-year, but increased by 5% quarter-over-quarter.

 The year-over-year decrease was mainly due to the migration of Internet traffic from PC to mobile in China and the quarter-over-quarter increase was mainly due to higher PC game revenues in the fourth quarter 2016. For the full-year of 2016, PC revenue declined by 20% year-over-year. By region for the fourth quarter, overseas revenues increased by 31% year-over-year and 16% quarter-over-quarter to CNY833 million. Overseas revenues accounted for 65% of our total revenue in the quarter. For the full year, overseas revenues increased by 42% year-over-year to CNY2.75 billion. Overseas revenues accounted for 60% of total revenues. For the fourth quarter of 2016, China revenue declined by 14% year-over-year, but increased 8% quarter-over-quarter. The year-over-year decrease was mainly due to the decline in PC revenues and the quarter-over-quarter increase was mainly due to higher mobile advertising revenues in the fourth quarter 2016.

 For the full year, China revenue declined by 1.2% year-over-year. By segment, revenue from online marketing services for the fourth quarter were CNY1.03 billion, which remained stable year-over-year and increased by 5% quarter-over-quarter. For the full year, revenues from online marketing services increased by 20% to CNY3.95 billion driven by higher demand from mobile advertiser and monetization of light causal games through in-game advertising. Revenues from IVAS for the fourth quarter of 2016 were approximately CNY209 million, which increased by 134% year-over-year and 89% quarter-over-quarter. For the full-year 2016, revenue from IVAS increased by 27% to CNY501 million primarily driven by our initial monetization of Live.me in the overseas market. Going forward, we will continue to experiment with innovative monetization model for Live.me, which are proven to be successful in China.

 Revenue from Internet security services and other for the fourth quarter were approximately CNY33 million, which increased by 36% year-over-year and 5% quarter-over-quarter. The year-over-year increase was primarily driven by higher mobile Internet software licensing revenue. For the full year, revenue from Internet security services and other increased by 19% to CNY113 million. Moving to our costs and expenses. To help facilitate the discussion of the Company's operating performance in addition to financial information presented in accordance with US GAAP, the following discussion will also provide financial information on a non-GAAP basis, which excludes stock-based compensation expenses. For detailed financial information presented in accordance with US GAAP, please refer to our press release which is available on our website. Total SBC expenses for the quarter declined by 45% year-over-year and 25% quarter-over-quarter to CNY54 million. For the full-year of 2016, SBC expenses decreased by 3% to CNY306 million which was mainly due to changes in the estimated forfeiture rate of our share-based compensation expenses. Cost of revenues for the fourth quarter of 2016 increased by 57% year-over-year and 15% quarter-over-quarter to CNY464 million. Non-GAAP cost of revenues for the fourth quarter of 2016 increased by 56% year-over-year and 15% quarter-to-quarter to CNY463 million. For the full year, cost of revenue increased by 61% year-over-year to CNY1.54 billion. Non-GAAP cost of revenue for the full year increased by 62% to CNY1.54 billion, which was primarily due to step up investment in content for our content driven products and an increase in bandwidth, Internet data center costs associated with increases to traffic, and data analytics.

 Gross profit for the fourth quarter decreased by 5% year-over-year, but increased by 12% quarter-over-quarter to CNY810 million. Non-GAAP gross profit for the quarter decreased by 5% year-over-year, but increased by 12% quarter-over-quarter to CNY811 million. For the full-year 2016, gross profit increased by 7% year-over-year to CNY3.02 billion. Non-GAAP gross profit for the full-year of 2016 increased by 7% to CNY3.03 billon. Gross profit margin for the fourth quarter of 2016 was 63.6% as compared with 34.3% in the prior year period and 64.2% in the third quarter of 2016. Non-GAAP gross margin for the fourth quarter of 2016 was 63.6% as compared to 34.2% in the prior year period and 64.2% in the third quarter of 2016. For the full-year of 2016, gross margin was 66.2% as compared with 74.7% in the prior year. Non-GAAP gross margin for the full-year of 2016 was 66.2% compared to 74.7% in the prior year period.

 Now R&D expenses for the quarter increased by 12% year-over-year and flat quarter-over-quarter to CNY235 million. Non-GAAP R&D expenses for the quarter of 2016 increased by 32% year-over-year and 7% quarter-over-quarter to CNY213 million. For the full year, R&D expenses increased by 30% year-over-year to CNY906 million. Non-GAAP R&D expenses for the full-year of 2016 increased by 37% year-over-year to CNY758 million primarily due to increased headcount associated with our step-up investment in big data analytics and new product development. At the end of 2016, we had approximately 1,700 R&D personnel. Sales and marketing expenses for the fourth quarter of 2016 decreased by 21% year-over-year, but increased by 4% quarter-over-quarter to CNY408 million. Non-GAAP sales and marketing expenses for the fourth quarter decreased by 20% year-over-year, but increased by 6% quarter-over-quarter to CNY408 million.

 The year-over-year increase was mainly due to lower expenses on promotional activities as a result of our strategy to implement cost control for our utility apps, which was partially offset by increased product promotional activities for our content driven applications and an increase in direct sales personnel. The quarter-over-quarter increase was mainly due to increased mobile product promotional activities in the quarter. For the full-year 2016, sales and marketing expenses increased by 10% year-over-year to CNY1.65 billion. Non-GAAP sales and marketing expenses for the full-year 2016 increased by 10% to CNY1.64 billion. G&A expenses for the quarter increased by 29% year-over-year and decreased by 10% quarter-over-quarter to CNY127 million. Non-GAAP G&A expenses for the fourth quarter 2016 increased by 82% year-over-year and decreased by 14% quarter-over-quarter to CNY96 million. The year-over-year increase was mainly due to higher professional service fee and increased expense in G&A function and the quarter-over-quarter decline was mainly due to a decrease in professional service fee.

 Now for the full year, G&A expenses increased by 25% year-over-year to CNY562 million. Non-GAAP G&A expenses for the full year increased by 42% to CNY419 million. Operating profit for the quarter was CNY62 million as compared with operating profit of CNY80 million in prior year and an operating loss of CNY34 million in the previous quarter. Non-GAAP operating profit for the fourth quarter of 2016 decreased by 35% year-over-year, but increased by 205% quarter-over-quarter to CNY116 million. For the full year, operating loss was about CNY12 million as compared to an operating income of CNY217 million in 2015. Non-GAAP operating profit for the year decreased by 45% to CNY294 million. Operating margin for the quarter was 4.9% as compared to 6.9% in the prior year period and an operating loss margin of 3% in the previous quarter.

 Non-GAAP operating profit margin for the fourth quarter was 9.1% as compared to 15.5% in the prior year period and 3.4% in the third quarter 2016. The year-over-year decrease was mainly attributable to increased investment in content driven applications and the quarter-over-quarter increase was mainly due to total revenue increase and cost control measures. For the full-year 2016, operating loss margin was 0.3% as compared to operating margin of 5.7% in 2015. Non-GAAP operating margin was 6.4% in 2016 as compared to 14.4% in 2015. Net income for the fourth quarter of 2016 increased by 4% year-over-year and [13%] quarter-over-quarter to CNY59 million. Non-GAAP net income for the fourth quarter was CNY113 million, which decreased by 27% year-over-year but increased by 56% quarter-over-quarter. For the full-year of 2016, net loss was CNY81 million as compared to net income of CNY176 million in 2015.

 Non-GAAP net income for the full-year 2016 decreased by 54% year-over-year to CNY226 million. Diluted net income per ADS for the quarter was CNY0.41 or $0.06 as compared to CNY0.40 in the prior year period and even in the prior quarter. Non-GAAP diluted net income per ADS was CNY0.80 or $0.12 as compared to CNY1.08 in the prior year period and $0.51 in the previous quarter. For the full-year of 2016, diluted loss per ADS was CNY0.58 or $0.08 as compared to diluted income per ADS of CNY1.24 in 2015. Non-GAAP diluted net income per ADS for the full-year was CNY1.59 as compared to CNY3.45 in the 2015 period. Adjusted EBITDA for the fourth quarter was CNY159 million. For the full-year 2016, adjusted EBITDA was CNY457 million. Looking ahead for the first quarter of 2017, we currently expect total revenues to be between CNY1.15 billion and CNY1.19 billion representing a 3% to 7% year-over-year increase and a 7% to 10% quarter-over-quarter decrease.

 The estimated quarter-over-quarter revenue decrease is primarily due to our usual seasonality. Please note that this forecast reflects the Company's current and preliminary view and is subject to change. Before we start the Q&A session, I would like to remind everyone that on March 16, 2016 the Board of Directors authorized a one-year share repurchase program, which allowed the Company to buyback up to $100 million in aggregate values of its ADS. During the one-year period, the Company have repurchased a total of 2.54 million ADS representing 25.4 million Class A ordinary shares at an average price of $10.35 per ADS under the share repurchasing program that expired on March 16, 2017. This concludes our prepared remarks. Operator, we're now ready to take questions.



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Questions and Answers
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Operator   [1]
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 We will now begin the question-and-answer session. (Operator Instructions) David Sun, Morgan Stanley.



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 David Sun,  Morgan Stanley - Analyst   [2]
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 So first of all, I'm sorry to hear that Andy is leaving. Wish you all the best, Andy. (interpreted) So first one is on the core business, we have seen quite a few initiative changes in the past few months such as rebranding mobile ad business, launching Cheetah Open Feed platform. So, I'm just wondering what's the thinking or logic behind those changes and can management share more color on the product positioning, sales team structure, and the potential revenue opportunities from those new initiatives? And the second question is on the content products. IVAS numbers was quite positive this quarter. What's the revenue contribution and associated losses from the new business in the fourth quarter? And also from the third-party data tracking, we found that Live.me first quarter numbers is also very strong. So what do we expect the contributions from content products in Q1 and also what's the major areas of development and when you expect for 2017? Thanks.



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 Andy Yeung,  Cheetah Mobile Inc. - CFO   [3]
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 (interpreted) So, I would translate the answer for your question. First of all, thank you for your comments. So in terms of our utility applications, I think over the past couple of quarters you've seen user applications remain pretty strong and grew steadily and remain the top positions in the application space despite increased competition. If you look at our business line overall, I think CM and other user applications continue to show solid performance and steady growth. I think if you look at not only those user applications growing in revenue contribution, but also contributing increasingly on the profitability fund as well. So if you look at the overall two applications as a product matrix, I think over the past year would admit that we have not been a focus, but you have seen increasingly more focus for us to develop the product metrics in the two user application side and I think that's showing results in the past couple of quarter.

 Also if you look at about that and if you look at our recent data or you look at the publicly available data, you probably have seen that CM Launcher is a product produced by us have become the Number 1 launcher product globally beating some of the more local competitor like Apple and others and that product's growth was mainly organic without much or very little marketing activities to promote that application mostly coming from users downloading it for themself from the app store. Another product that we also have seen very strong user demand and organic download is Photo Grid and that user number continues to grow quite nicely. And so I think if you look at our product metrics or the profitability of the new application is that we will continue to maintain market leadership in that space and continue to explore other products to satisfy this demand as well. So, regarding the second question about the contribution from our content products.

 I think if you look at the income contribution, it continues to grow very rapidly. If you look at the content product themselves, probably adding somewhere between CNY140 million to CNY150 million to our revenues in the quarter. However, because it's still subscale right now in our view even though it's growing very nicely, Live.me and even News Republic, both in terms of user, user number, user engagement level, and also revenues are all growing really nicely for us. But this is still in investment phase so the combined operation probably added to about CNY190 million to CNY200 million losses to our bottom line. So, again we have delivered pretty strong earnings this quarter and that's despite investments in the content products.

 Looking forward for the full year, I think we will continue to expect the content product to grow because obviously we're just beginning to launch the product for less than a year and we also recently turned on the monetization. So I think we will continue deliver and be a key driver for our growth in 2017. In terms of the investment in the content side, I think we will continue to invest quite heavily on content. But again as we mentioned before, we would like to see that the content investment supported by the profit that we could derive from our two application as well our PC operation and that really have not changed at all. So, that's how we look at it. Hopefully that answers your question, David.



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Operator   [4]
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 Joyce Ju, Citi.



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 Joyce Ju,  Citi - Analyst   [5]
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 This is Joyce from Citi. Congratulations on the strong set of results this quarter. I basically have one follow-up question on the content apps. As you mentioned, the content apps have already achieved a quite good rev growth in the fourth quarter and we have seen the App Annie ranking also performed pretty well in the first as well. So we are just trying to kind of get more colors on what type of monetization methods Cheetah plans to explore for those apps because I think you mentioned earlier that there are different ways like you try to monetize probably not only for example IVAS. And my second question is a follow-up on the new utility app Mr. Fu just mentioned. For the new utility apps, do we expect like large investments or will it cause like further pressure on the margins. (spoken in Chinese)



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 Sheng Fu,  Cheetah Mobile Inc. - CEO   [6]
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 (interpreted) So in terms of monetization for Live.me or News Republic or even for our recent application, I think as we have previously mentioned, we'll continue to try out different innovative monetization methodology and so including for example looking at more precise targeting based on regions, based on our criteria. If you look at Live.me, we are also very happy to see that the virtual gift function was very well received by our global user and produced some very good results. And then last, I think the overall Company remain mainly largely driven by advertising revenues, but certainly we'll continue try out different monetization models. For example if you look at the gaming operation side, initially we have this virtual item purchased and later on we often switch and experiment with in-app advertising. So I think for monetization, right now we are looking at trying out different things for sure and when we launch those monetization strategy, we will definitely discuss more with you and other folks here.



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 Andy Yeung,  Cheetah Mobile Inc. - CFO   [7]
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 (interpreted) So regarding your second question, with the new product user applications that increase expenses or put pressure on profit margins, I think the way we look at utility applications and our PC product as well is that they are a cash cow and we like to maintain that steady pace and also we want to maintain that profitability. So if you look at new applications development for utility applications, we would focus on looking at what the user demand is and have small team to develop this product and try it out and only if they are successful, then we will maybe utilize some of the marketing dollar to help promote those products. But again like the main focus for utility applications for us is to provide what the user wants and demands and we want to satisfy that demand. And so as a result, we will definitely control the expenses both for the R&D as well as marketing dollars to new applications. And I think the way we do that is that we'll definitely try to maintain a steady growth and profitability for those applications and then look for incrementally adding more products that have strong demand from the user base.



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Operator   [8]
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 Wendy Huang, Macquarie.



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 Wendy Huang,  Macquarie Capital Ltd. - Analyst   [9]
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 (interpreted) My first question is about the long-term margin outlook and where do you expect the 2017 margin to be? And the second question is your country has robust agreements also under your operations so do you have any change that asset to your listed company? We also want to clarify the CNY140 million to CNY150 million revenue you just mentioned from the content. So is that actually classified under the Internet value-added services or under the other revenue? Thank you.



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 Sheng Fu,  Cheetah Mobile Inc. - CEO   [10]
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 (interpreted) So, I will translate that. So Wendy, I think when we look at the profitability comparisons between 2016 as a whole and versus 2015, certainly I think as we mentioned in the second quarter 2016 we did face some difficulties and our growth rate was meaningfully significantly less than what we had expected at the beginning of the year and that had an impact on the first half 2016 profitability. But as we mentioned in the second quarter at that time, we will initiate a number of initiatives to rejuvenate growth and also improve profitability. So I think if you look at our results in the third quarter and the fourth quarter, we delivered on those promise. You've seen two consecutive quarter of sequential increase in our revenues and you've also seen our profitability expand in the third and fourth quarter consecutively and that achievement was accomplished under the condition where we invest very heavily on our content product. As we mentioned, we invest very significantly on R&D, marketing, and to a lesser extent IDC service expenses for our content product.

 And we're very glad that those investments are beginning to pay off as we've seen the results in the recent quarter, Live.me and News Republic have both performed as we mentioned in our prepared remarks quite well in terms of using the various engagement level and also revenue contribution. So for us content is our core strategy and we had pretty stepped up investing in the content products. And underlying content is the AI technology for example. That's a very core technology that I think will have an opportunity for us to become a market leader to really breakthrough in our current product side as well. So, we pretty stepped up investing in content and also in AI technology. But of course we would do it as we mentioned before within reasonable parameter. And so if you have seen what we have done in the prior two quarters, it's pretty clear that we will continue to invest in content, but we'll continue to maintain steady and solid growth in profitability from our existing PC products as well as our utility application to support that investment. So, hopefully that answer your question.



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 Andy Yeung,  Cheetah Mobile Inc. - CFO   [11]
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 Regarding the robotics, so Mr. Fu actually have invested in a robotic company himself last year. And as you probably have seen in our prior press release, we are in the process of looking into a potential agreement to acquire some stake in the robotic company. I think a detail of that would be announced once we have that detailed information so we won't discuss much about that. But if you look at the reason why Cheetah Mobile may be interested in robotics is that there's a lot of commonality between robotics especially in deep learning and AI that may have common applications for what we want to do on the Internet space. And so in the long run I think as a company, we definitely would like to invest in this very important emerging technology that we think is going to be a game changer in the Internet industry. And so that's why we are interested in potential investment in this Company, but again we would provide further details once we have some in the form of a press release. There's nothing more we would like to add other than that. Thank you.



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 Wendy Huang,  Macquarie Capital Ltd. - Analyst   [12]
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 (spoken in Chinese)



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 Andy Yeung,  Cheetah Mobile Inc. - CFO   [13]
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 So if you look at the content revenues for Live.me, it's fully in IVAS because it's virtual gift. And so if you look at virtual gift, the IVAS increased quarter-on-quarter mainly coming from the increase in Live.me's revenue increase. And News Republic is mainly advertising so it's placed in the online marketing services category of revenue.



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Operator   [14]
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 Thomas Chong, Bank of China International.



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 Thomas Chong,  Bank of China International - Analyst   [15]
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 (interpreted) My first question is about our relationship with Facebook. Can management give us some color about whether we will deepen our cooperation with Facebook this year and on top of that, may I also ask about the Facebook revenue contribution to mobile advertising revenue this quarter? And my second question is about the recent online video initiative. Is there any color about the monetization potential and management expectations on this revenue contribution? Thanks.



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 Andy Yeung,  Cheetah Mobile Inc. - CFO   [16]
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 (interpreted) So, let me translate that. First of all, I think we continue to work very closely and very amicably with Facebook. Obviously Facebook is a very large company and works with many, many other partners as well. So as we mentioned, obviously Facebook remains one of our very important partner and we definitely like to continue to work well with them and expand partnership as much as we can. But as we mentioned since the second quarter, we have taken some initiative to diversify our revenue stream from different channel partners and we're very happy to say that today our channel diversification have been moving quite nicely and so the contribution from Facebook as a percentage of our overall revenue probably would have been declining bit smaller compared to last year and also because our revenue also have grown as well.

 So, we will provide more detailed information probably on our 20-F. But I think it's fair to say that even though our Company has seen 21% year-over-year increase in our total revenue, the contribution from Facebook will likely be smaller compared to 2015. The second question that you have is about video advertising. So as a company, we see video advertising as a very important format for mobile advertising. But to be honest with you, if you look at our video content right now besides live streaming, we have still limited video content. So we like to increase that, but we do not anticipate that as a key driver at least in 2017.



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Operator   [17]
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 This concludes the question-and-answer session. I would now like to turn the conference back over to management for any closing remarks.



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 Helen Zhu,  Cheetah Mobile Inc. - IR   [18]
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 Thank you all for joining us today. If you have any further questions, please do not hesitate to contact us. Thank you. Bye.



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Operator   [19]
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 The conference is now concluded. Thank you for attending today's presentation. You may now disconnect your line. Have a great day.



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 Editor,    [20]
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 Portions of this transcript that are marked (interpreted) were spoken by an interpreter present on the live call. The interpreter was provided by the Company sponsoring this Event.




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