Prospectus Summary
PROSPECTUS SUMMARY The following summary is qualified in its entirety by, and should be read in conjunction with, the more detailed information and financial statements and the related notes appearing elsewhere in this prospectus. In addition to this summary, we urge you to read the entire prospectus carefully, especially the risks of investing in our ADSs discussed under “Risk Factors,” before deciding whether to buy our ADSs.Overview
Our mission is to make the internet and mobile experience faster, safer and easier for users worldwide. To achieve this mission, we have developed a platform that offers mission critical applications for our users and global content distribution channels for our business partners, both of which are powered by our proprietary cloud-based data analytics engines.
For our users, our diversified suite of mission critical applications optimizes internet and mobile system performance and provides real time protection against known and unknown security threats. We had 329.5 million monthly active users for all of our applications in December 2013 and our applications have been installed on 346.6 million mobile devices as of December 31, 2013. See “Conventions Which Apply To This Prospectus” for the definition of “monthly active users.”
Set forth below is a brief description of our core applications for users.
For our business partners, our platform provides them multiple user traffic entry points and global content distribution channels capable of delivering targeted content to hundreds of millions of people. Our business partners share revenues with us and promote our products and services. We have benefited significantly from our cooperation with over 380 online marketing business partners in 2013, including major Chinese internet companies Alibaba, Baidu and Tencent.
Set forth below is a brief description of our core platform products for business partners.
Our proprietary cloud-based data analytics engines are the core of our platform. For our users, the data analytics engines perform real time analysis of mobile applications, program files and websites on their devices for behavior that may impair system performance or impose security risks. For our business partners, the data analytics engines help create user interest graphs according to a number of dimensions such as online shopping, gaming and frequently used applications, thus facilitating targeted content delivery.
Although substantially all of our applications are free to our users, our massive user base has created ample monetization opportunities for us and our business partners. We generate revenues from our online marketing services by referring traffic from our platform to e-commerce companies and search engine providers and by selling advertisements. We generated 73.8% and 81.7% of our revenues from online marketing services in 2012 and 2013, respectively. We also generate revenues by providing internet value-added services, or IVAS, currently mainly from online games.
We have achieved significant growth in recent years. Our revenues increased from RMB140.1 million in 2011 to RMB287.9 million in 2012, representing a 105.6% growth, and to RMB749.9 million (US$123.9 million) in 2013, representing a 160.5% growth. Our net income was RMB62.0 million (US$10.2 million) in 2013, a 530.0% increase over our net income of RMB9.8 million in 2012, compared to a net loss of RMB30.2 million in 2011.
Our Strengths
We believe the following competitive strengths have contributed to our growth and created significant barriers to entry for our competitors:
Our Strategies
We aim to make the internet and mobile experience faster, safer and easier for users worldwide. To achieve this mission, we intend to:
Our Industry
The global mobile internet industry is developing rapidly with the continuous enhancement of infrastructure, and the increasing use of smartphones and other mobile devices which have become more affordable. According to IDC, an independent market research firm, global mobile internet users totaled approximately 1.0 billion in 2012, representing a 36.5% increase over the user base in 2009, and are expected to reach approximately 2.3 billion in 2017, representing a five-year CAGR of 15.8%. The Android operating system has become the world’s most commonly used operating system for smartphones. According to IDC, Android-based smartphones are expected to have approximately 78.6% market share of global smartphone shipments in 2013, compared with 15.2% market share for iOS-based smartphones and other mobile devices, and are well positioned to maintain a strong leadership position for the foreseeable future.
Mobile apps have become a popular means of engaging end users and delivering digital content and services. According to App Annie, there were more than 1.1 million apps available on Google Play worldwide, and 1.0 million apps available in the Apple App Store as of December 31, 2013. This massive amount of mobile apps creates a challenge for efficient application discovery and distribution in app stores. The lack of application discovery capability calls for an industry wide solution, and gradually alternative application discovery and distribution channels emerge and become popular, including recommendation engines of super apps and mobile browsers. There are only eight non-game applications with over 50 million cumulative downloads on Google Play worldwide in the second half of 2013, including Facebook, WhatsApp and Clean Master. Such applications are commonly referred to as “super apps.” Super apps are ideal channels for application distribution because they have a combination of critical factors that enable an application to identify its potential audience in a targeted way. We believe the global mobile internet industry is still at an early stage and is poised for significant growth and monetization opportunities.
In China, the numbers of internet users is expected to continue to grow in the foreseeable future. According to the China Internet Network Information Center, or CNNIC, a not-for-profit organization, the number of internet users in China reached 618 million as of December 31, 2013, making China the largest internet market in the world based on the number of users. According to iResearch, the number of internet users in China is expected to increase to approximately 850 million in 2017. Meanwhile, the mobile internet population in China has grown substantially. According to CNNIC, the number of mobile internet users in China reached 500 million as of December 31, 2013 and is expected to increase to 745 million in 2017, representing a four-year CAGR of 10.5%. As Chinese users have continued to embrace the internet, mobile devices and internet and mobile applications, they have encountered an increasingly complex internet experience. As a result, the internet security and system optimization market in China has grown significantly over the past five years, reaching 493 million users, or 80% of the online population in 2013.
Established internet companies are likely to benefit from the increasing user traffic migration from internet to mobile internet due to multiple competitive advantages in establishing and growing their mobile internet presence, including recognized brand names, large and loyal user base, robust technology infrastructure, as well as proven monetization capabilities and strong connections with other business partners. Therefore, established internet companies are well positioned to offer their products services on both internet and mobile internet platforms to serve their large and loyal user base and monetize their user base.
Our Challenges
Our ability to achieve our goal and execute our strategies is subject to risks and uncertainties, including but not limited to those relating to our ability to:
In addition, we face risks and uncertainties related to our compliance with applicable PRC regulations and policies, particularly those risks and uncertainties associated with our control over our variable interest entities, which is based on contractual arrangements rather than equity ownership.
Please see “Risk Factors” and other information included in this prospectus for a detailed discussion of the above and other challenges and risks.
Corporate Information
Our principal executive offices are located at 12/F, Fosun International Center Tower, No. 237 Chaoyang North Road, Chaoyang District, Beijing 100022, People’s Republic of China. Our telephone number at this address is +86-10-6292-7779. Our registered office in the Cayman Islands is located at the offices of Maples Corporate Services Limited at PO Box 309, Ugland House, Grand Cayman, KY1-1104, Cayman Islands. Our agent for service of process in the United States is Law Debenture Corporate Services Inc., of 4th Floor, 400 Madison Avenue, New York, New York 10017.
Investors should contact us for any inquiries through the address and telephone number of our principal executive offices. Our website is http://www.ijinshan.com. The information contained on our website is not a part of this prospectus.
Corporate History and Structure
Our company was incorporated in Cayman Islands in July 2009 by Kingsoft Corporation Limited, or Kingsoft Corporation, a company listed on the Hong Kong Stock Exchange (Stock Code: 3888). In August 2009, we established our wholly owned subsidiary in Hong Kong, Kingsoft Internet Security Software Corporation Limited, and renamed it as Cheetah Technology Corporation Limited, or Cheetah Technology, in September 2012. Subsequent to our incorporation, Kingsoft Corporation initiated a series of restructuring transactions in 2009 and 2010. As a result of this restructuring, Zhuhai Juntian Electronic Technology Co., Ltd., or Zhuhai Juntian, an entity previously wholly owned by Kingsoft Corporation that was incorporated in China, became wholly and directly owned by Cheetah Technology in December 2009. Beijing Kingsoft Internet Security Software Co., Ltd., or Beijing Security, was incorporated in November 2009 in China as a wholly and directly owned subsidiary of Zhuhai Juntian.
Beike Internet (Beijing) Security Technology Co., Ltd, or Beike Internet, was incorporated in April 2009 and subsequently became a subsidiary of a variable interest entity of Kingsoft Corporation in August 2010. Beike Internet became one of our VIEs in January 2011 through restructuring.
In October 2010, we acquired 100% equity interest in Conew.com Corporation, which was incorporated in the British Virgin Islands. As part of the acquisition, we acquired 100% equity interest in Conew Network Technology (Beijing) Co., Ltd., or Conew Network, and obtained effective control over Beijing Conew Technology Development Co., Ltd., or Beijing Conew, one of our VIEs, through contractual arrangements. Conew Network was incorporated in China in March 2009, and Beijing Conew was incorporated in China in December 2005. Beijing Conew offered internet security services starting in May 2010 but has been dormant since our acquisition of Conew.com corporation.
Our other three VIEs, namely, Beijing Kingsoft Network Technology Co., Ltd., or Beijing Network, Beijing Antutu Technology Co., Ltd., or Beijing Antutu, and Guangzhou Kingsoft Network Technology Co., Ltd., or Guangzhou Network, were incorporated in China in July 2012, June 2013, and September 2013, respectively. Suzhou Jiangduoduo Technology Co., Ltd., a subsidiary of Beike Internet, was incorporated in China in January 2014.
Due to certain restrictions under PRC laws on foreign ownership and investment in value-added telecommunications services in China, we conduct our operations in China principally through contractual arrangements with our VIEs in China and their respective shareholders. Each of our VIEs and their respective shareholders entered into contractual arrangements with either Beijing Security or Conew Network, our wholly owned subsidiaries. See “Corporate History and Structure—Corporate Structure—Contractual Arrangements with Our VIEs” for details. The VIEs contributed 16.2%, 65.3% and 91.0% of our total consolidated revenues for the years ended December 31, 2011, 2012 and 2013, respectively.
Our contractual arrangements with each of our VIEs and their shareholders enable us to:
The following diagram illustrates our corporate structure as of the date of this prospectus:
Our Dual Class Share Structure
Upon completion of this offering, we will have a dual class ordinary share structure. Our ordinary shares will be divided into Class A ordinary shares and Class B ordinary shares. All of our outstanding ordinary shares prior to this offering will be re-designated as Class B ordinary shares and all of our outstanding preferred shares will be automatically converted into Class B ordinary shares immediately prior to the completion of this offering. All share-based compensation awards, including restricted shares, regardless of grant dates, will entitle holders to purchase Class A ordinary shares once the vesting and exercise conditions on such share-based compensation awards are met. Holders of Class A and Class B ordinary shares will have the same rights, including dividend rights, except that holders of Class A ordinary shares will be entitled to one vote per share, while holders of Class B ordinary shares will be entitled to ten votes per share, and Class B ordinary shares may be converted into the same number of Class A ordinary shares by the holders thereof at any time, while Class A ordinary shares cannot be converted into Class B ordinary shares under any circumstances. Upon the transfer of any Class B ordinary share, such Class B ordinary share will be automatically and immediately converted into one Class A ordinary share. Each ADS being sold in this offering represents Class A ordinary shares. See “Description of Share Capital—Ordinary Shares” for more details regarding our Class A ordinary shares and Class B ordinary shares.
After the completion of this offering, Kingsoft Corporation will continue to retain a majority of our aggregate voting rights due to its equity interests in our company and our dual-class share structure. Kingsoft Corporation will hold Class B ordinary shares, representing % of our aggregate voting rights, immediately after the completion of this offering, assuming the underwriters do not exercise their option to purchase additional ADSs. Our directors are not subject to a term of office and hold office until such time as they resign or are removed from office by special resolutions or the unanimous written consent of all shareholders. After the completion of this offering, we will be a controlled company as defined in the NYSE Listed Company Manual, and we intend to rely on the “controlled company” exemption from the corporate governance requirements of NYSE.
Implications of Being an Emerging Growth Company
As a company with less than US$1.0 billion in revenue for our last fiscal year, we qualify as an “emerging growth company” pursuant to the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. An emerging growth company may take advantage of specified reduced reporting and other requirements that are otherwise applicable generally to public companies. These provisions include exemption from the auditor attestation requirement under Section 404 of the Sarbanes-Oxley Act of 2002, or Section 404, in the assessment of the emerging growth company’s internal control over financial reporting. The JOBS Act also provides that an emerging growth company does not need to comply with any new or revised financial accounting standards until such date that a private company is otherwise required to comply with such new or revised accounting standards. However, we have elected to “opt out” of this provision and, as a result, we will comply with new or revised accounting standards as required when they are adopted for public companies. This decision to opt out of the extended transition period under the JOBS Act is irrevocable.
We will remain an emerging growth company until the earliest of (a) the last day of our fiscal year during which we have total annual gross revenues of at least US$1.0 billion; (b) the last day of our fiscal year following the fifth anniversary of the completion of this offering; (c) the date on which we have, during the previous three-year period, issued more than US$1.0 billion in non-convertible debt; or (d) the date on which we are deemed to be a “large accelerated filer” under the Securities Exchange Act of 1934, as amended, or the Exchange Act, which would occur if the market value of our ADSs that are held by non-affiliates exceeds US$700 million as of the last business day of our most recently completed second fiscal quarter. Once we cease to be an emerging growth company, we will not be entitled to the exemptions provided in the JOBS Act discussed above.