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Why Cheetah Mobile, Inc. Stock Jumped 13.9% Today

Close-up on a handshake between two men in business suits.

What happened

Shares of Cheetah Mobile (NYSE: CMCM) , a Beijing-based maker of mobile apps and global advertising platforms, gained as much as 13.9% Wednesday morning, reaching that apex at 11:35 AM EST. The company signed a two-part deal with Chinese news aggregator Bytedance, injecting a $50 million investment into one of Cheetah's operations and kicking off a strategic cooperation between the two companies.

Close-up on a handshake between two men in business suits.

Image source: Getty Images.

So what

Privately held Bytedance is making a $50 million investment in Cheetah's Live.me video streaming platform, taking that business one step closer to a stand-alone future as a separate company. Bytedance's cash infusion will be used to accelerate Live.me's growth via increased marketing budgets and back-end technology improvements.

In a separate announcement, Bytedance and Cheetah Mobile announced a long-term strategic cooperation deal. Under this agreement, Cheetah will use Bytedance's personalized content delivery tools to monetize its mobile utility products more effectively. In return, Bytedance gets access to Cheetah's global user base. Furthermore, Bytedance is buying Cheetah's news aggregating service, News Republic, for $86.6 million. This platform will keep its current branding, adding an international news service to Bytedance's Chinese-only Toutiao service.

Now what

The News Republic deal makes Cheetah a leading owner of Bytedance, which appears to be preparing for an IPO of its own in the near future.

For Cheetah Mobile shareholders, today's price jump ran just a couple of percent ahead of the two combined investments from Bytedance. The stock has been trading largely sideways in 2017 and way down since its IPO in 2014 . Cheetah is barley profitable and the fantastic revenue growth of its early days hit a brick wall in 2016. Trading at just 18 times forward earnings, Cheetah shares could soar if the company can widen its margins or restart the stalled growth engine -- or preferably both.

The Bytedance deals may be a step in the right direction, but I'm happy to stay on the sidelines until Cheetah shows that it's ready to run again.

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Anders Bylund has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy .

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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