IPO Report: Cheetah Mobile (CMCM)

Cheetah Mobile ($CMCM) has a diversified suite of mission critical applications optimizes internet and mobile system performance and provides real time protection against known and unknown security threats. It is headquartered in Beijing, China.

Eight other companies are scheduled for the week of May 5, 2014. The complete IPO calendar is available at IPOpremium.

The manager and joint managers are Morgan Stanley, J.P. Morgan, and Credit Suisse. The co-managers are Macquarie Capital and Oppenhemier.

CMCM scheduled a $162 million IPO on the NYSE with a market capitalization of $1.86 billion at a price range midpoint of $13.50 for Thursday, May 8, 2014. SEC Filings

Overview

CMCM has a diversified suite of mission critical applications optimizes internet and mobile system performance and provides real time protection against known and unknown security threats.

Pre-IPO Kingsoft Corporation Limited (HKG:3888) owns 54% of CMCM. Kingsoft has a market cap of $29 billion.

Income statement comparisons for the March '14 quarter vs the March '13 quarter are not favorable for CMCM.

With this kind of negative performance companies always say they are 'investing for growth' however…

Valuation

Glossary

Pre-IPO grade-score summary

Conclusion

The rating on CMCM is neutral+, primarily because Kingsoft ($29 billion market cap) owns 54% pre-IPO, and CMCM is big enough to be important to Kingsoft.

However, CMCM did have a poor March '14 quarter regarding income statement % of revenue trends, compare to Q1 '13.

Business

CMCM’s mission is to make the internet and mobile experience speedier, simpler, and safer for users worldwide.

To achieve this mission, CMCM has developed a platform that offers mission critical applications for its users and global content distribution channels for its business partners, both of which are powered by its proprietary cloud-based data analytics engines.

For its users, CMCM’s diversified suite of mission critical applications optimizes internet and mobile system performance and provides real time protection against known and unknown security threats. CMCM had 340.7 million monthly active users for all of its applications in February 2014.

CMCM’s mobile applications attracted 222.5 million monthly active users in March 2014. CMCM’s applications have been installed on 502.1 million mobile devices as of March 31, 2014.

For its business partners, CMCM’s platform provides them multiple user traffic entry points and global content distribution channels capable of delivering targeted content to hundreds of millions of people.

CMCM’s business partners share revenues with CMCM and promote its products and services. CMCM has benefited significantly from its cooperation with over 380 online marketing business partners in 2013, including the major Chinese internet companies Alibaba, Baidu and Tencent.

At the core of CMCM’s platform are its proprietary cloud-based data analytics engines. For CMCM’s users, the data analytics engines perform real time analysis of mobile applications, program files, and websites on their devices for behavior that may impair system performance or impose security risks. For CMCM’s business partners, the data analytics engines help create user interest graphs according to a number of dimensions such as online shopping, gaming and frequently used applications, thus facilitating targeted content delivery.

Dividend Policy

No dividends are planned.

Intellectual Property

As of March 31, 2014, CMCM has eight patents in the PRC relating to its software and other proprietary technology.

Seven of the eight patents are either independently held by Zhuhai Juntian; jointly held by Zhuhai Juntian, Beijing Security, and Conew Network; or jointly held by Beike Internet, Beijing Security, and Conew Network. 

Competition

In the mobile internet space, CMCMgenerally competes with other mobile application developers, including those developers that offer products claiming to perform similar functions as Clean Master and Battery Doctor.

In the internet space, CMCMmainly competes with Qihoo 360 in China’s internet security and anti-virus market.

In addition, CMCMcompetes with all major internet companies for user attention and advertising spend.

5% stockholders

Sheng Fu          13.4%

David Ying Zhang         6.3%

Kingsoft Corporation Limited     54.1%

TCH Copper Limited     18%

FaX Vision Corporation 13%

Core Pacific-Yamachi International (H.K.) Nominees Limited      8.2%

Matrix Partners Funds   6.3%                                                   

Use of proceeds

CMCM expects to net $147 million from its IPO. Proceeds are allocated as follows:

$50 million to penetrate selected international markets;

$35 million to expand and strengthen its sales and marketing efforts;

$35 million to invest in technology, infrastructure and research and development capabilities;

and balance for other general corporate purposes, including working capital needs and potential acquisitions.