JPMorgan: Cheetah Mobile 'Just Starting' Mobile Monetization Ramp-Up

In a report published Monday, JPMorgan analyst Alex Yao maintained an Overweight rating on Cheetah Mobile Inc CMCM, while raising the price target from $30 to $40.

Analyst Alex Yao expects Cheetah to be able to increase its overseas mobile revenue run rate by 8-9x over the next three years. This growth is likely to be driven by:

• 2x MAU growth
• 2x ads inventory generation capability
• 2x revenue generation capability per MAU

Comparing the development of Cheetah's mobile monetization drivers to those of Facebook Inc FB highlight that there is "still ample room to improve mobile monetization capability as Cheetah deepens cooperation with Facebook" over the next 2-3 years. Yao added that Cheetah’s monetization capability could increase by another 2-3x, as the company shifts from selling traffic to monetization engine as a publisher to monetizing its own inventory via in-house monetization engine.

Although the company may face margin pressure in the near term due to an accelerated user acquisition strategy, the longer term EPS estimate has been raised to reflect "a more positive view on the long term monetization capability," Yao said.

The EPS estimate for 2016 has been raised from RMB8.50 to RMB8.90.