Morgan Stanley maintains cheetah mobile stock overweight rating

Beijing time August 5 Evening News, Morgan Stanley today issued an investment report to maintain the Cheetah mobile stock (NYSE:CMCM) "overweight" rating.

The following is a summary of the contents of the report:

We believe that the current risk of cheetah mobility is manageable and investors need not be overly concerned. Currently, Cheetah Mobile is communicating with Google to solve the problem transparently. The recent downloads of "Master cleanup" may be affected, but the rankings are expected to resume in the Google Play app store soon.

Event：

Since July 15, the Cheetah Mobile flagship app, Clean master, has been moved out of the recommended rankings by Google's store and received a Google ticket. This May and June, based on downloads, cheetah "cleanup guru" ranked fourth in non-gaming apps in Google Play App Store. According to Cheetah Mobile, the app was moved out of Google Play's recommended rankings because some small affiliate marketing channels violate Google's Google Play App Store's promotional policies, such as a banner ad that doesn't have a "close" button. Currently, cheetah movements have stopped working with these affiliated channels and are discussing with Google how to solve the problem. We believe that the recent download volume of the "Master cleanup" will be affected, but the rankings are expected to resume soon. So there is no need for markets to worry too much.

The cheetah "cleanup guru" has not been blocked: it should be pointed out that the "clean master" has not been blocked by Google. Users can still find the application in the Google Play app store by searching for a name or product category. According to Cheetah Mobile, "cleaning master" more than 70% of the download amount of their own organic (organic) download, such as users from the list to click on the application, or search to find the application. In addition to its own organic downloads, Cheetah Mobile also promotes "cleanup gurus" through two core channels, including large channels such as Facebook and Twitter, and small, affiliated channels. Large channels are costly but easy to manage. Small channel cost is low, but the quality is uneven, not easy to manage.

Recovery rankings are key: downloads and user penetration are key to promoting commercialization. Therefore, Cheetah Mobile must restore the "clean master" in the Google Play App Store rankings. As of March this year, "clean master" has 140 million months active users, 73 million active users. Cheetah Mobile has demonstrated a strong cross-selling capability through the "cleanup guru", such as helping its secure mobile applications attract more than 20 million months of active users.

Commercialization: Tencent recently announced that it will increase its marketing budget on the Cheetah Mobile platform, which is a boon to the commercialization of cheetahs. In the two-year period from December 27, 2013 to 31 in December 2015, the annual cap on the promotion costs of Tencent's planned move to the cheetah was 22 million yuan and 33 million yuan respectively, and the Supplemental Agreement was revised to 100 million yuan and 105 million yuan. In 2013, Tencent contributed about 14% of the total revenue of the cheetah movement.

Conclusion: We believe that the uncertainty facing the "master of Cleanup" will soon be over. The user data of "clean master" highlights the user interaction of this application, and also reflects its value. It is not good news to be moved out of the rankings by Google Play, but on the positive side, the cheetah movement is already communicating with Google to solve the problem. In addition, the issue has also made the Cheetah move aware that it should better manage its affiliated channels. We also believe that such a problem will not happen again in the future.

Valuation: We continue to maintain the "overweight" rating of Cheetah Mobile stocks. (Li Ming)