Cheetah Mobile Inc. (CMCM) Earnings Call Transcript & Summary

Welcome to China Mobile's Second Quarter 2026 Earnings Conference Call. With us today our company's Chairman and CEO, Mr. Fu Sheng; and our company's Director and CFO, Mr. Thomas Chong. Following management's prepared remarks, we will conduct the Q&A section. Please note that the management team will be presented by an AI agent. Before we begin, I refer you to the safe harbor statement in our earnings release which also is to our conference call. [indiscernible] turn the conference call over to our Chairman and CEO, Mr. Fu Sheng. Please go ahead, Mr. Fu.

Hello, everyone. Thank you for joining Cheetah Mobile's Second Quarter 2026 Earnings Call. This quarter, we made further progress in changing the mix and improving the quality of our business. Our new AI businesses are growing quickly and becoming a much larger part of the company. At the same time, our Internet services business remains profitable and is becoming more efficient. Today, I would like to focus on 3 areas. The accelerated growth of our services of cloud and AI infrastructure business, the progress we are making in robotics, especially in smart mobility and the continued improvement in the mix and quality of our business. Cheetah Mobile now has 3 reporting segments: Internet services, robotics and others, and Global Enterprise Services. Global Enterprise Services include services of cloud and AI infrastructure and our advertising agency services. Let me start with services of cloud and AI infrastructure business, because it is becoming 1 of our most important growth drivers. In the second quarter, services of cloud and the AI infrastructure revenue were RMB 59 million, up 83% year-over-year and 26% quarter-over-quarter. It accounts for 22% of total revenue. The growth in this business is accelerating. Its year-over-year growth rate increased from 68% in the first quarter to 83% in the second quarter. Gross billings, which reflects the total value of services sold through our company exceeded RMB 500 million during the quarter, compared with about RMB 200 million in the same period last year and about RMB 300 million in the previous quarter. This shows that the scale of customer demand is growing critically based on our current business momentum. We expect gross billings from services of cloud and AI infrastructure to exceed RMB 2 billion in 2026, representing year-over-year growth of over 100%. We also expect related revenue to exceed RMB 200 million to exceed representing year-over-year growth of over 50% we operate as a connection point between leading global clubs and AI ecosystems and enterprises expanding overseas as enterprises use a broader range of clubs and AI services, the ability to connect and manage these resources is becoming increasingly important. Accessing a model is only the first step. Companies also need to select right models and integrate them into daily workloads manage their computing and total cost and keep their services running reliably through our services, we connect customers with cloud infrastructure and model inference services from leading global providers, including Amazon Web Services, Google Cloud and Microsoft Azure. We also support deployments, cost control and daily operations. I have personally spent a great deal of time talking with Chinese entrepreneurs and management teams about how to use AI in practical ways. These conversations have shown us that many companies want to use AI, but need simple and effective tools that can truly improve their work. Our goal is not to join the costly race to build foundation models. Our goal is to help these companies make effective use of leading AI models and turn AI into the real productivity, we will stay disciplined in how we invest and focus on real customer demand, service quality, repeat business and healthy returns. AI infrastructure also brings us closer to the daily needs of enterprise customers Today, we may help a customer with cloud resources, computing power or AI model services. Over time, we may also serve the same customer with AI agents, software tools and other services. This gives us a path to deepen customer relationships and expand the services we provide over time. Now let me turn to robotics. Revenue from robotics and others was RMB 55 million up 73% year-over-year and 6% quarter-over-quarter. It accounted for more than 20% of total revenue during the second quarter. We began shipping Smart Mobility products for sale in Europe for product mobility and in China as a result. Smart mobility began contributing revenue during the quarter. our robotics in business beginning to grow. While revenue from our voice robot business was broadly stable. Within robotics, we see smart mobility as a potential growth engine and the long-term need is significant as more pilot will face mobility challenges. And once you travel independently safely and with dignity, we are designing our products around these needs. Our smart mobility products winning less than 16 kilograms can be folded for easier transport are designed to support air travel and can operate from approximately 10 hours under specified conditions. These features help users travel independently and with confidence in daily life and on longer journeys to address unmet needs, we incorporate autonomously usability demented through our robotics work into proven electric mobility products. This helps us control product costs while meeting customers' needs for safety, reliability and ease of use. We developed this product with established electric mobility manufacturers, combining our robotics capabilities with their products and market expertise. Some companies in this field have spent several years and raised substantial capital to bring similar panels to market by reusing our existing robotics capabilities and working with established partners. We moved from project initiation to initial mass production and shipments in a little over year with cumulative investment in the range of several tens of millions of RMB. This reflects our disciplined and capital-efficient approach to product development. This business is still at an early stage. Our priorities are to deliver reliable products, meet local standards and earn the trust of customers and partners, we may move step-by-step and build a business on solid commercial results. More broadly, we have built a shared robotics platform that brings together voice interaction, autonomous mobility and robotic arm capability. We do not view our voice robots, smart mobility products and robotic arms simply as separate product categories. They are different applications of the same underlying platform. We reuse and adapt its capabilities to address specific customer needs and solve real-world problems rather than trying to build an all-in-one robot today by applying and demonstrating these capabilities through individual products. This approach can allow us to bring these capabilities together in more general purpose robots. This is our step-by-step path. We will continue to improve and move the robotics and other segments towards breakeven. Taking together revenue from services of cloud and AI infrastructure and our Robotics and Other segment accounted for about 43% of total revenue this quarter compared with 38% in the previous quarter and 22% in the same period last year. Their share of our revenue has roughly doubled in 1 year. To me, this is the most important change taking place at Cheetah Mobile, cloud and AI infrastructure connects enterprises, expanding overseas with global cloud and model ecosystems while Robotics brings AI into the physical world. Together, they are building meaningful new sources of revenue and connecting Cheetah Mobile with long-term demand for AI computing and real-world AI products, our established businesses continue to provide a solid base the adjusted operating margin of our Internet Services segment improved to 19.4% this quarter compared with 11.3% in the first quarter and 14.1% in the same period last year. This reflects our continuous focus on efficiency and the quality of revenue. We will keep the Internet business stable, profitable and cash generative looking ahead changes in our advertising agency business, which is included in the Global Enterprise Services segment, they continue to affect our total revenue and bottom line in the near term. However, revenue excluding advertising agency services increased approximately 10% year-over-year and 5% quarter-over-quarter in Q2. We believe this underlying growth together with a continuous shift in our revenue mix better reflects the progress of our business transformation. Our priorities are clear. We will help more companies go global and use leading AI models to improve productivity, we will turn the early progress in smart mobility into more shipments, more customers and repeat business. We will also keep our Internet and Global Enterprise Services segments profitable and efficient on an adjusted operating basis, while continuing to improve the economics of the robotics and other segments, our job now is to turn this change in our revenue mix into sustainable growth and better returns for our shareholders. Thank you to our employees for their hard work and to our customers and partners for their trust and to our shareholders for their continuous support. I will now hand the call over to our CFO, who will discuss our financial results in more detail.

Thank you, [indiscernible]. Let me begin with our overall performance for the second quarter. Total revenue was RMB 766.1 million, representing an increase of 2.7% quarter-over-quarter and an increase of 9.9% year-over-year. The year-over-year decline was primarily due to lower revenue from advertising agency services within the Global Enterprise Services. Advertising Agency Services revenue decreased 7% year-over-year and 15.0% quarter-over-quarter to RMB 22.0 million mainly due to changes in review policies implemented by a major global advertising platform is contribution to total revenue declined to from 25% in the same period last year, excluding advertising agency services, revenue was RMB 244.1 million. increasing approximately 10% year-over-year and 5% quarter-over-quarter. This reflected continued growth in services, our cloud and AI infrastructure business, robotics and others and Internet value-added services. Operating loss was around $73.6 million compared to RMB 283 million. R&D in the first quarter and RMB 11.1 million in the same period last year. On a GAAP basis, operating loss was RMB 25.6 million compared with RMB 22.5 million in the first quarter is compared with a non-GAAP operating loss of RMB 2.1 million in the second quarter of 2025. The year-over-year increase primarily reflecting lower advertising agency services revenue within Global Enterprise Services, the sequential movements in our non-GAAP operating results reflected higher adjusted operating profit from Internet services offset by lower adjusted operating profit from global enterprise services primarily due to lower advertising agency services revenue as well as a wider adjusted operating loss from robotics and others as we continue to invest in the development and commercialization of our robotics businesses trainers and Internet services Revenue from Internet services decreased 17.3% year-over-year and 3.4% quarter-over-quarter to RMB 130.5 million within a segment Internet value-added services revenue increased 6.7% year-over-year and 2.9% quarter-over-quarter to RMB 101.2 million percent 77.6% of segment revenue. This growth partially offset the decline in online advertising revenue, which decreased RMB 53.5 million over year and 20.2% quarter-over-quarter to RMB 293 million. With Internet value-added services now accounting for nearly 70% of segment revenue and continuing to grow both year-over-year and sequentially. Adjusted operating profit increased 14.2% year-over-year and 67.2% quarter-over-quarter to RMB 25.4 million. As operating margin expanded to 19.4% and from 14.1% in the same period last year and 11.3% in the first quarter, including the adjusted operating profit and adjusted operating margin improved despite lower segment revenue. Reporting the continued growth of Internet value-added services and stronger operating efficiency. Turning to robotics and others. Revenue increased 72.5% year-over-year. At a 6.4% quarter-over-quarter to RMB 54.5 million, accounting for 20.5% of total revenue. The growth was due to an increase in sales volume of our robotic products the year-over-year increase benefited from the contribution of new factory required by the company on July 29. 2025. Adjusted operating loss was RMB 34.0 million, narrowing by 35.5% from RMB 52.7 million in the same period last year. widening from RMB 26.9 million in the first quarter. The sequential widening primarily reflected our continuing investment and development and virtualization of our robotic businesses. As [indiscernible] discussed, Smart Mobility is a newly launched product line and remains in the investment phase. Our robotics businesses are at different stages of product development and commercialization now. Let me turn to global enterprise services revenue from this segment decreased 23.3% year-over-year, but increased 11.5% quarter-over-quarter to RMB 81.1 million. The year-over-year decline was mainly due to a 70.0% decrease in advertising agency services revenue to RMB 202 million on a sequential basis. Advertising agency services revenue decreased 15.6%. This was partially offset by continuing strong growth in services of cloud and AI infrastructure, revenue from services of cloud and AI infrastructure increased 83.1% year-over-year and 26.2% quarter-over-quarter to RMB 59.1 million driven by growing demand from enterprises expanding overseas for cloud resources. Computing power and AI model services. Services, cloud and AI infrastructure accounted for 72.8% of Global Enterprise Services and 22.2% of total revenue compared with approximately 11% of total revenue in the same period last year, adjusted operating profit from global enterprise services. It was CNY 94.3 million, decreasing 80.7% year-over-year and 32.0% quarter-over-quarter. The decline primarily reflected lower advertising agency services, partially offset by continued growth of services, our cloud and AI infrastructure. Importantly, global enterprise services remain profitable on an adjusted operating basis, as of June 30, 2026. We have CNY 1,271 million or USD 187.3 million in cash and cash equivalents. This strong cash position provides us with ex ability to invest prudently in our AI and robotics businesses going forward as we think about the results, we're placing continued progress in evolving our business mix, total revenue turned to sequential growth. Our revenue, excluding advertising agency services increased both year-over-year and quarter-on-quarter. Internet services delivered solid profitability, global enterprise services remain profitable. despite the decline in advertising agency services, robotic and others maintained strong revenue growth as we continue to invest in the commercialization of Smart Mobility. Thank you, we are now ready to take your questions.

Hello, everyone, for today's call [indiscernible] will answer questions in Chinese. An AI agent will translate to management's comments into English in another line. Please note that the translation is for convenience purposes only. In the case of any discrepancies or management statement in Chinese or prework, if you are unable to hear the Chinese translation, a transcript in English of this call will be available on the company's IR website within 7 working days. Thank you so much.

[Operator Instructions] [indiscernible] for analysts [indiscernible] can ask questions in Chinese. Due to time, we only arranged communication with analysts this time. we will arrange some communication with investors after the meeting. Please understand. Thank you very much. The first question, please from Jeffrey Thomas Chong.

Thank you, Jeffrey, for your questions. As this ranges approach in terms of the performance as [indiscernible] and a product, are there any plans. Comments on you and for sharing [indiscernible] we still have a few minutes. Any questions in future. In the product aspect, what are plans combines expected the growth sale to banking.

Okay. Let me answer [indiscernible]. Our company's smart wheel has started to contribute revenue this quarter First of all, why did we make the smart wheel share? First of all, from the technical stack from the technical accumulation, we have been making robots for almost half a year. And we have made great progress in real navigation, automatic obstacle avoidance, environmental perception or in today's popular word, embodied intelligence we have made great achievements and for intelligent wheelchairs, in fact, in terms of technology transferability is very high. In other words, we do not regard intelligent where Bill shares, but as mobile robots. Therefore, the biggest feature of our intelligent wheel chair is to help people sitting in will shares, achieve assistant driving the experience brought by this intelligent wheelchair to users is unprecedented. So indeed, to be honest, our progress is quite fast and it has already started selling overseas. Do I need to disclose the sales revenue. Well, we are not ready to disclose that yet because this project is still in the early stages. It has only been a year since the project was initiated and entered mass production. The progress has been quite fast. In terms of technology, various certifications are required, especially as it is for a special group. We have spent a lot of time on this aspect overseas. Overall, I think our idea is that with the advent of AI, Almost all products can be redefined. I think the significance of intelligence lies in this regardless of the pace of R&D, the investment and R&D costs has been highly efficient. Thanks to our past technological accumulation. We have tens of thousands of robots operating in various environments, conducting autonomous obstacle avoidance. Therefore, we have extensive technological reserves in this area. Additionally, we have observed that in recent years, this market has gained popularity. Some VC funds are investing in start-ups. I think our biggest difference from others in making Smart Wheelchairs is that we don't simply accumulate technologies, we accumulate sensors, chips and computing power instead within the cost acceptable to users. We aim to achieve a highly cost-effective assisted driving capability. This was also the positioning of our product at that time. By the way, let me take this opportunity to advertise our product is made as full carbon fiber. It is closable. Earlier this year, I had a dislocated hit all scene. During the 3 months I use my own smart wheelchair, I used it around my home and even took it on planes, traveling to Hong Kong and Singapore all by myself. Therefore, I believe its application prospects are quite broad. As for how large this business can grow, I said do you take a look. Actually, the wheelchair market is quite large. We believe that the high-end wheel term market is worth over USD 100 million. Our Smart wheelchair combines the line highway affordability of today's electric will peers while also enhancing comfort and introducing intelligence features. Overall, we are very excited about this product. But since we are currently focusing on the overseas market that our channels and certifications to consider. I won't go into specific details Yes. It should be more than a business scale that everyone is very enthusiastic about now. And we are also cooperating with the world's largest or top traditional wheelchair manufacturers. We have already cooperated formally. They also highly recognized our product. That's about it.

Okay. Now let's move on to the second analyst question. It is from Mr. Lee Cheng Ru of Guoyuan Securities.

My question is about the AI infrastructure business. This business continues to grow rapidly in this quarter. So could the management please provide further information other the company's core competitive advantages in this view compared with other competing power in the infrastructure service providers in terms of clients, technology capabilities or cost efficiency, what are our differentiated advantages. Additionally, how do you view the client demand in the coming quarters and the sustainability of revenue growth.

All right, let's the answer this question. We are also in Silicon Valley looking at many AI infrastructure here. The infrastructure and technical facilities. Let me answer your question in reverse. First, ending today's AI infrastructure is far from being in place, demand is still growing rapidly. The number of calls today may be similar to that of generators, 100 years ago, when we may have thought I was already very popular. But in fact, it will have a huge impact across all walks of life as China's open source large language models become more and more powerful. We are also seeing more and more clients willing to use outside and they have very strong demand. So I am very optimistic about the market demand. This is the first point. Second, compared with other companies, our advantage. I think the biggest advantage [indiscernible]. Some investors ask me, why do I make the [indiscernible] on video accounts. Essentially, the how to sell is the company's asset. And the second is that the core of entailing these accounts is to find our target customers. And then we have launched from training to land to the entry. First guide is the -- all processing. I think our real competitive advantage over our competitors is that we have a certain influence to find our target customers. Second, we started to do AI for all employees 2 or 3 years ago and last year, all of us had to write code. At that time, the LLM wasn't as good as it is today, but we have already explored the experience. So today, we have turned this experience into a training course for our clients and continue to train them. The training process is also a process of finding target customers. The training itself enhances their AI capabilities, and then we assist them in implementing AI locally. For example, we don't just resell API, our resell business. While we also provide services, including a series of enterprise end products based on these services, such as the lobster we worked with on it recently, we also had programming tools like Cloud and easy Code, and we also provide AI for [indiscernible] each position of our clients. The AI scoring of your entire organization, which we call gelato help you with the diagnosis of AI in the organization. It's a whole set of tools. So I think our biggest competitive advantage is that we have highly differentiated services. The second advantage is that we cooperate with Amazon and Google, including oral for a long time. Especially before we take on [indiscernible]. We were actually 1 of Amazon's largest clients among Chinese companies at that time. So we have a deep relationship and are also very familiar with our entire technical systems. In addition to providing the AI training services just mentioned, we help companies deploy AI cloud how they which [indiscernible], including Alibaba or Tencent in China, we have the technical capabilities to help you implement Therefore, we have our own technical accumulation in this regard. Our delivery capability is also quite strong. It does take time and manpower to continuously accumulate. Moreover, these overseas cloud vendors has such a large revenue growth rate which in turn proves that our space is still very large, although our revenue is only 5%. We have a revenue of 500 million, but we think this only accounts for a very small share of the vendor we cooperate. So our idea is to help Chinese companies, other they are going global or landing, if we provide the ultimate service for AI voice, I believe there is still huge growth potential. Thank you.

The next question is from [indiscernible] of Haitong International.

I would high growth business. Currently, the RT part, robotics and AR, they are maintaining our vision as we know. The overall market path is below the net asset value. So I would like to ask the management. I will leave you the current valuation gap between the company and our business for revenue. We'll be considering introducing strategic investment from external company or even as an independent testing to provide financial or high growth businesses for on loss business commercial value?