Cheetah Mobile, Inc. Q2 FY2026 earnings call

• Strategic Shift to AI and Robotics: Management highlighted a significant transformation in the business mix, with Cloud/AI infrastructure and Robotics now comprising ~43% of total revenue, up from 22% a year ago. The focus is on helping enterprises adopt AI rather than building foundation models.
• Cloud and AI Infrastructure Growth: Revenue from cloud and AI infrastructure surged 83% year-over-year. Gross billings exceeded RMB 500 million in Q2, signaling strong enterprise demand. The company acts as a bridge between Chinese enterprises and global cloud providers (AWS, Google, Azure).
• Smart Mobility Launch: Cheetah Mobile began shipping smart mobility products (smart wheelchairs) in Europe and China. These products leverage existing robotics technology for autonomous navigation and obstacle avoidance, weighing under 16kg and supporting air travel.
• Internet Services Efficiency: Despite lower online advertising revenue, the Internet Services segment saw its adjusted operating margin expand to 19.4%. The company is prioritizing profitability and cash generation in this established segment.
• Capital Discipline: The robotics division adopted a capital-efficient approach, moving from project initiation to mass production in just over a year by partnering with established manufacturers and reusing internal robotics capabilities.

Total revenue was RMB 766.1 million, up 9.9% year-over-year. The company operates three segments:

1. Internet Services: Revenue decreased 17.3% year-over-year to RMB 130.5 million, accounting for approximately 17% of total revenue. Adjusted operating margin improved significantly to 19.4%, driven by efficiency gains and growth in Internet value-added services.

2. Robotics and Others: Revenue increased 72.5% year-over-year to RMB 54.5 million, contributing over 20% of total revenue. This segment remains unprofitable with an adjusted operating loss of RMB 34.0 million, reflecting continued investment in smart mobility commercialization.

3. Global Enterprise Services: Revenue decreased 23.3% year-over-year to RMB 81.1 million (approximately 11% of total revenue). This decline was primarily due to a sharp drop in advertising agency services. However, the Cloud and AI Infrastructure sub-segment grew 83.1% year-over-year to RMB 59.1 million, becoming the dominant driver within this segment.

• Cloud and AI Infrastructure: Management expects gross billings for this segment to exceed RMB 2 billion in 2026, representing over 100% year-over-year growth.
• Revenue Projection: Related revenue from Cloud and AI infrastructure is expected to exceed RMB 200 million in 2026, indicating year-over-year growth of over 59%.
• Robotics Trajectory: While no specific revenue guidance was given for Robotics, management emphasized a step-by-step approach to reach breakeven, focusing on reliable product delivery and customer trust before scaling aggressively.

• Advertising Agency Decline: Revenue from advertising agency services dropped 17% year-over-year due to changes in review policies by a major global advertising platform, negatively impacting total revenue and bottom line.
• Robotics Commercialization Risks: The Robotics segment continues to incur losses as it invests in development. Regulatory certifications, particularly for overseas markets, and channel establishment pose operational challenges.
• Valuation Gap: The company's market cap currently trades below net asset value, creating pressure regarding investor perception of its high-growth AI and robotics businesses.
• Execution Risk in New Markets: Expanding into new geographic markets (Europe) and verticals (healthcare/mobility) requires navigating local standards and building trust with new customer bases.

Q: Jefferies asked about the smart wheelchair product plans and sales potential.

A: Management explained that the smart wheelchair is treated as a mobile robot leveraging their embodied intelligence tech. It features assisted driving, lightweight carbon fiber design, and foldability for air travel. Sales have started overseas, but revenue disclosure is withheld due to early stage. They partner with top traditional manufacturers and view the high-end market as worth over USD 100 million, focusing on cost-effective intelligent features rather than just hardware accumulation.

Q: Guoyuan Securities inquired about competitive advantages in AI infrastructure and sustainability of growth.

A: Management cited customer-oriented service as the key differentiator, using AI training courses to find and train clients. Unlike pure resellers, they offer end-to-end implementation, including coding tools and organizational AI diagnosis. Deep relationships with AWS and Google allow them to provide superior deployment support. They believe demand remains robust as Chinese enterprises seek to globalize and utilize AI for productivity.

Q: Haitong International asked if the company would consider strategic investments or spin-offs to address the valuation gap between stock price and business value.

A: Management acknowledged the valuation discrepancy and maintains an open attitude toward external financing, strategic investors, or independent capital operations if conditions align. However, no specific transactions are planned. The immediate priority is to drive growth in cloud/AI and robotics while improving transparency to help the market better understand the underlying business performance.

Q: An analyst asked when the Robotics business will achieve profitability, comparing it to other profitable robotics firms.

A: Management stated that direct comparisons are difficult due to different product types (commercial robots vs. consumer mobility aids). While individual robotic arms are profitable, the broader segment incurs losses due to R&D and sales team expansion. They prioritize single-product gross profit and market volume over short-term quarterly profits, aiming for sustainable user growth first.

Q: An analyst asked about the strategy for 2C AI agent products like EasyCode versus focusing on B2B.

A: Management affirmed that B2B is the primary revenue driver due to higher enterprise demand for productivity tools. For 2C, they are adopting a 'special forces' approach with small, agile teams to build lightweight, AI-native products. Success criteria rely on organic word-of-mouth and user retention rather than aggressive advertising, testing viability through rapid, low-cost iterations.