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Executives

Jay Chang – CFO

Wang Leilei – CEO

Analysts

Andrey Glukhov – Brean Murray

Adam Krejcik – Roth Capital Partners

Nan Li [ph] – SIG

KongZhong Corporation (KONG) Q4 2010 Earnings Conference Call March 2, 2011 7:30 PM ET

Operator

Good day, ladies and gentlemen, and welcome to the fourth quarter 2010 KongZhong Corp. earnings conference call.

My name is Jeremy and I will be your operator for today. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session. (Operator Instructions).

I would now like to turn the conference over to Mr. Jay Chang, Chief Financial Officer. Please proceed, sir.

Jay Chang

Thank you, operator. This conference call may contain forward-looking statements. Although such statements are based on our own information and information from other sources we believe to be reliable, you should not place undue reliance on them.

For additional discussions of risks and uncertainties relating to forward-looking statements and other factors, please see the documents we file from time to time with the Securities and Exchange Commission. We assume no obligation to update any forward-looking statements, which apply only as of the date of this conference call.

Thank you for your interest in KongZhong.

I will first go over our fourth quarter and full-year 2010 results before handing over the call to our CEO, Mr. Wang Leilei.

Total revenues for the fourth quarter of 2010 were $36 million, a 4% sequential decrease and a 5% increase from the same period last year.

As we continue to transition our business to become a cross-platform digital entertainment company, mobile game revenues made up 35% of total revenues, while internet games contributed another 16%, and combined mobile and internet games made over half of our fourth quarter revenues.

Total gross profit was $16 million compared to $15.6 million in 3Q, while gross margins improved to 44% compared to 41% in the third quarter, due to the improved contribution from internet games.

If excluding a provision for impairment of goodwill and intangibles due to the change in the file consideration for Dacheng, total operating expenses were $11 million compared to $14.4 million in 3Q, due to the efforts we undertook in the second half of 2010 to streamline our WVAS and wireless internet service business lines, which were combined in the third quarter into a single WVAS reporting line.

Fourth quarter net profit was $5 million compared to $1.2 million in 3Q and $2 million in the same period last year.

Non-GAAP net profit was $7.3 million, compared to $4.1 million in 3Q and $5.4 million in the same period last year. Fourth quarter net profit and non-GAAP net profit was the highest since our CEO, Mr. Wang Leilei, joined the company in late 2008.

Based on 37.31 million basic and 39.03 million fully diluted ADS outstanding at the end of 4Q, net profit per basic ADS was $0.13, net profit per diluted ADS was $0.13 and non-GAAP net profit per diluted ADS was $0.18.

At the end of fourth quarter, our cash and cash equivalents were $157 million, equivalent to $4.21 per basic ADS, as we improved year-end accounts receivables collection and cash flow improve based on the fourth quarter net profit.

For the full-year 2010, total revenues were $149.6 million, a 14% year-over-year increase, of which, WVAS was $83.3 million, mobile games was $49.2 million, and internet game revenues were $17.1 million.

Full-year gross margin was 44%, of which, WVAS gross margins were 40%, mobile game gross margins were 38%, and internet game gross margins were 82%.

Full-year net income was $11.9 million compared to previous year’s $12.6 million, while full-year non-GAAP 2010 net income increased to $22.9 million or an increase of 13% compared to 2009’s full-year non-GAAP net income of $20.2 million.

Now, I’d like to turn to each business units’ financial performance namely mobile games, internet games, and WVAS.

Total mobile game revenues in 4Q were $12.8 million compared to $13.9 million in the third quarter, an 8% decrease, but still a 74% increase from the same period last year. Revenues from downloadable mobile games were $12.3 million, representing an 89% increase from the same period last year, but a decrease of 6% from 3Q. Fourth quarter downloadable mobile game revenues were impacted by the ongoing reduction in marketing activities by our mobile operator partners, as well as year-end subscriber confirmation notices, which led to slightly higher than prior period churn rates.

In 4Q, average monthly mobile game subscribers were maintained at roughly 2 million per month at a similar level compared to 3Q. Revenues from online mobile games were $0.45 million, a decrease of 49% from 3Q and 46% from the same period last year. All three of our online mobile games experienced a sequential decline in revenues due to product lifecycle and competitive issues. Revenues from downloadable mobile games made up 97% of total mobile game revenues compared to 94% in the 3Q.

Mobile games gross profit in 4Q was $4.5 million, a 21% increase compared to the same period last year, but a 12% decrease from 3Q, while our 4Q mobile game gross margin was 35% compared to 36% in 3Q. We had previously expected mobile game gross margins to improve during the fourth quarter, but the higher margin distribution channels that we had expected to promote our mobile game services through during the period were impacted by certain mobile operator policies and churn rates.

Now turning to internet games, internet games revenues were $5.92 million in the fourth quarter, a 100% increase from the third quarter. Net game revenue is out performing our expectations due to the strong performance of Shengmo, our self-developed 3D MMORPG and also from the licensing of our online games to overseas markets such as Southeast Asia, Hong Kong, Korea, Japan and North America. During the quarter, licenses from Loong, Xiakexing and Shengmo, all contributed to overseas revenues. Total overseas revenues as a percentage of total net game revenues in the fourth quarter were 39% compared to 18% in the third quarter.

During the fourth quarter, Mainland China online game operation achieved average concurrent users of 81,000 compared to 69,000 in the third quarter, and aggregate paying accounts or APAs of a 120,000 with quarterly ARPU of RMB201 compared to 69,000 APAs with quarterly ARPU of RMB240 in the third quarter.

Net game gross profit in the 4Q was $4.79 million, a 124% increase sequentially from the third quarter. Net game gross margin was 81% compared to 72% in the 3Q. Net game gross profit improved due to the better than expected performance of Shengmo and higher contribution from overseas licenses which we recognized during the quarter.

Now turning to WVAS, WVAS in 4Q total revenues were $17.32 million, a 17% decrease from 3Q, and a 36% decrease from the same period last year. WVAS revenues declined due to the ongoing implementation of WVAS policy restrictions from our mobile operator partners. Relative to our prior $18.5 million guidance for WVAS revenue, the shortfall was due to a slightly more restrictive policy environment than we had previously estimated. However, we now expect a recovery in our WVAS business in the coming quarters as the WVAS operating environment has stabilized. In 4Q, 2G revenues made up 89% of total WVAS revenues, while 2.5G services made up only 11% of total WVAS revenue.

WVAS gross profit in the fourth quarter was $6.71 million, a 20% decrease from 3Q, and a 44% decrease from the same period last year. 4Q WVAS gross margins were 39% compared to 41% in the third quarter, as ongoing policy measures let us to rely more on higher cost distribution channels as a percentage of total WVAS revenues compared to prior periods.

Total operating expenses were $19.8 million, but included an $8.7 million provision for impairment of goodwill and intangible associated with the change in the total value of the final consideration for Dacheng. Excluding this provision, total OpEx has decreased 23% quarter-over-quarter to $11 million, as we undertook efforts in the second half of 2010 to streamline our WVAS and WIS teams which resulted in ongoing cost savings for the company.

Also during the quarter, the company deemed its investment in Xin Chuang Hang Yuan Technology to be impaired and recognized a $1.5 million investment impairment loss. This investment was originally made in May of 2008.

Now turning to our acquisition of Dacheng; as announced on December 15th, 2009 and closed in January 2010, the company entered into a transaction to acquire Shanghai Dacheng, where the total consideration price at that time was estimated to be $75.2 million. However based on Dacheng’s actual 2010 performance, a revised consideration for Dacheng was re-calculated downwards to $64.3 million. As a result, there were adjustments in both our contingent payable and the goodwill and intangibles associated with Dacheng.

Based on the revised final consideration price, we recognized a $10.9 million change of contingent payable as well as a provision for impairment and goodwill intangibles to $8.7 million in the fourth quarter.

The final payments of the shareholders of Dacheng is now expected to be $40.16 million. Of this amount, $25.6 million worth of Kong shares and $14.6 million in cash will be paid. The final payment is expected to be made by the end of the first quarter of 2011 and a number of shares to determine by the 30-day historic trading average of our shares at that time. The cash component will be paid by cash on hand.

Supplement to this, we recently also announced that we had prepaid 70% of the five-year senior convertible notes from Nokia Growth Partners for $9.3 million plus any accrued interest, which if 70% of the five-year convertible notes were converted that have represented 1.33 million ADS or roughly about 3.6 million total shares outstanding as of our share register at the end of 2010. This prepayment will also be paid by cash on hand.

Now turning to 1Q 2011 guidance. We expect total revenues for the first quarter of 2011 to be within the range of $38.5 million to $39.5 million, with business unit revenues at the midpoint expected to roughly consist of WVAS revenues of $20.3 million, mobile game revenues of $13.5 million, internet game revenues of $5.2 million.

We expect total gross profit to be within the range of $15.5 million to $16.5 million, total operating profit to be between $4 million to $5 million, net profit to be between $2 million to $3 million, but this includes an estimated $1.6 million noncash expense related to the early extinguishment of our partial payment of the convertible notes from Nokia Growth Partners. And we expect non-GAAP net profit to be between $6 million to $7 million.

Now I would like to turn the call over to our CEO, Mr. Wang Leilei, to discuss our fourth quarter business highlights and recent business developments.

Wang Leilei

Thank you, Jay. I’m pleased to report that our company achieved our highest quarterly net profit and the non-GAAP net profit since 2008, driven by our diversification into internet games and the cost efficiency stabilizing WVAS market.

In WVAS, although 4Q revenues declined from 3Q, we now expect WVAS revenues to improve in the coming quarters, as the overall WVAS policy environment has stabilized, allowing us to resume more normal operation strategy. In addition through the combination of KongZhong.net [ph] our modern on a worldwide platform Zhulang.com and our WVAS team, we have become one of the key partners for China Mobile in the world platform and we expect mobile revenues to be a key driver of growth in our WVAS business for this year.

For mobile games with the development of the 3G market, we are optimistic on the continued growth potential of our mobile game business, which has about 25% market share in China Mobile game market and also we expect to see continued growth in this business after the slowdown in the second half of 2010. While we still expect that China Mobile games is the main driver of the mobile game market in China in 2011, we also have recently shifted our [inaudible] development stuff from our Java game team to iPhone and Android platforms. We expect to see strong growth potential for this mobile game platforms in China market over the next 18 months.

Now, turning to the internet games, in 4Q we launched Shengmo our self-developed 3D MMORPG game with a Western-style fantasy theme. Shengmo outperformed our expectations due to two key important factors, which I believe will support our future game pipeline.

Firstly, our operations team has improved a lot over the past year as we have gone from one game in operation to four games at the end of 2010. I’m proud of my team’s accomplishments and I’m very confident that we will continue to see improvements in our online game platform as we launch at least two new games in this year.

Secondly, our product strategy has been to introduce more console games quality, action special effects into our games, helping our games differentiated ourselves from other Chinese games. In China, most of 2.5D and 3D games has very limited fighting or action special features effects compared to this from in the popular PS3 or Xbox critical games. For example, technical Chinese MMORPG might have a large number of missions or achievements, but only one or two fighting effects [inaudible] across the entire games.

In Shengmo, we introduced more complex action special effects to improve the overall game play experience reaching out it to better player acceptance and contention. Our strategy to combine action with RPG will be a key focus and differentiated strategy for Kong as we launch two self-developed games later this year, Kung Fu Hero in 3Q of this year and Emofaze 2 by the end of this year.

Now turning to the World of Tanks or WoT, over the past few months, we have been running WoT in closed beta testing for the past few months. And due to the strong response from Chinese gamers we have moved up the open beta testing of the game to the mid of March. At the end of February, World of Tanks in China had over 900,000 registered users and over 90,000 peak concurrent users on two sever clusters, where a single server cluster can support over 100,000 peak concurrent users.

We believe the success that WoT has achieved in home market as well as the top online games in Russia, shows the potential for success in China as we commercialize the game later this month. In Russia, with the total online game users based only 12 million to 15 million online gamers compared to nearly 300 million online gamers in China, WoT has over 1 million registered users and the game is operating with peak concurrent user over 120,000.

Based on the user feedback we have received during the closed beta testing period, we believe World of Tanks has potential to be one of the top online team-based shooters games in China market and that significantly contributed to our company’s profits beginning in the second quarter of 2011.

Operator, I’d like to open the call to questions now.

Question-and-Answer Session

Operator

(Operator Instructions). Our first question comes from the line of Andrey Glukhov with Brean Murray. Please proceed.

Andrey Glukhov – Brean Murray

Yes, thanks so much for taking the question. Congrats on a solid quarter guys. Three things if I may. First, to the extent you have a Q launch with World of Tanks at the end of 1Q, how do you think about sort of the marketing spend around that and maybe any kind of innovation around the just game introductions that you’re planning on since it’s going to be a relatively crowded season for new game introductions?

Jay Chang

Hi Andre. I mean one other things that we found with the game is we actually – well, first of all, as you know our team is, over the past year has learned a lot of, I guess, more guerilla marketing tactic such that we don’t expect to spend a significant amount in terms of cash. But in terms of the overall market resources, actually it still I think will be competitive.

That said the game itself is actually fairly differentiated in the market today. And with somewhat limited cash spend, although it’s in terms of resources it’s quite significant, the game now is already top 30, I think, on the Baidu keyword search as well as already top 10 in terms of casual games in China. And we intend to spend more after we obviously go to open beta on a cash basis, but not so much that it would be a huge significant difference from kind of our previous spend maybe where our OpEx was in the middle of 2010, although we’re still obviously very cognizant and try to manage our OpEx quite efficiently going forward.

Andrey Glukhov – Brean Murray

Great.

Jay Chang

But I think the key thing is, I think, it is fairly differentiated. But it is getting out on its own in a fairly credit market.

Wang Leilei

All our marketing campaign for the promotion of WoT is most for online promotions. For example, we have bought a lot of Baidu keywords and also we’ll do a promotion for 17173.com, the biggest online game portal. And we believe our marketing is more efficient and the marketing strategy differentiated, if compare with our promotion with regular MMOs in China, because it is the first shooting game and the most – the user acquisition is coming from the word of mouth from old users to the new users.

And also we believe that our marketing promotion budget is coming from maybe 5% or 10% of the monthly revenue of WoT and we’re continuing to do the rolling marketing campaign mostly for WoT for the next few months.

Jay Chang

The other thing we’re seeing – yes so the other thing we’re also seeing is the retention rate for this game is multiple tiered and traditional MMORPG. So any spend that we have tends to the ROIC. Although we haven’t commercialized the game yet, we’re expecting it’ll be much higher than the traditional MMO also based on the marketing spend.

Andrey Glukhov – Brean Murray

That helps. Now another thing that was sort of stood out in this quarter, you guys had a very strong contribution in the online games business from overseas licensing, obviously high margin revenue. How do you expect that revenue component to trend over the next few quarters?

Jay Chang

I mean based on our guidance for the first quarter of 2011, there is a small decline and that’s primarily driven by less overseas revenues being recognized in the first quarter compared with 4Q. The primary reason for that is in 4Q we launched a number of new markets both for Loong, Xiakexing as well as Shengmo. And in the first quarter of this year we’re really only seeing some revenues from Shengmo and Emofaze 1, and those are kind of smaller content than some of the larger markets like Taiwan and Korea that we saw in the fourth quarter. So that’s – we will see at least $1 million decline quarter-over-quarter in overseas revenues in 1Q compared to 4Q.

Andrey Glukhov – Brean Murray

Okay. And then, lastly, you talked about the macro environment on the WVAS side getting better. Do those comments also extend to the mobile game side and are you seeing a little bit more cooperation from your – or your Telco partners on your efforts around downloadable bundles and managing the churn with the downloadable bundles?

Jay Chang

So the churn that we saw in the fourth quarter for mobile games was basically that was a year-end policy for the China Mobile to send out a notice just so that they looked good going into the 2011 with a somewhat cleaner kind of subscriber base. That impacted us not significantly, but it also was an industry-wide phenomenon. So I think the overall mobile game revenues in 4Q for industry in China actually declined slightly.

Our guidance for 1Q for mobile games is only roughly about 5% to 6% quarter-over-quarter growth, but that’s just because of the Chinese New Year period and then really wrapping back up to marketing again is not going to happen until the current months right after Chinese New Year. So in a kind of the tone that we’re hearing from the operator on a more kind of normalized WVAS operating environment, yes we do believe mobile games have potential to also benefit from a more normalized WVAS environment going after the Chinese New Year period.

Wang Leilei

And also, we believe we have the communications with the local carriers in China, and they just doubled their mobile games target – revenue target for 2011 compared with 2010. And KongZhong has almost 25% of the market share for the mobile gaming revenues in China, and we believe the carriers poise the way of more positive and the support of the mobile gaming development in China especially for the carrier of mobile gaming market.

Andrey Glukhov – Brean Murray

Okay, thank you. Congrats on the quarter.

Jay Chang

Thank you.

Wang Leilei

Thank you.

Operator

Our next question comes from Adam Krejcik with Roth Capital Partners. Please proceed.

Adam Krejcik – Roth Capital Partners

Yes, hi guys. Just a follow-up on the mobile game side of the business. Specifically you’re starting to provide some metrics in terms of monthly active subscribers. I think you said it was pretty stable at 2 million these past two quarters. Is that where the growth is coming from in terms of the guidance – the sequential growth in Q1 for the mobile game business, or is it coming from higher ARPU through those subscribers?

Jay Chang

Obviously it’s coming from growth in the monthly active – monthly subscribers as well as just as the market normalizes, we’re able to go out to different like WAP channels, other kind of mobile ad sense channels to market, both our own – standalone downloadable games as well as the subscription package. So it’s a reflection of actually the overall market kind of becoming more normalized versus in the second half or early part of 2010 where everything was you had to be very, very sensitive to any promotion just because China Mobile was watching everything just to adhere to all those, because these are very strict policies that are still in place, but things are normalized now.

Adam Krejcik – Roth Capital Partners

Okay. And can you remind us just what the rough estimate are sorted between games being downloaded on traditional 2G or 2.5G handsets versus 3G now, and then maybe your expectations for what that might look like by the end of the year?

Jay Chang

I mean the next for 3G it’s still fairly small. I think on China Mobile it’s roughly only about 5% of total sets of 3G, “3G”. But the majority of our businesses as we mentioned in our prepared remarks will still be Java on 2.5G GPRS enabled phones for bulk of 2011 today.

Adam Krejcik – Roth Capital Partners

Okay. And then in terms of the online mobile games, pretty steep decline. Is there anything you can do there to reverse that trend or is that not really an area of focus going forward?

Jay Chang

It’s not a steep, it is very small component of our overall business today that the bulk of the growth we’re seeing based on the carrier strategy this really push downloadable games in partnership with them as they credit their own kind of app store platforms. As those platforms become total [ph] especially kind of China Mobile’s MM or their app store itself, we would seek to promote our self-developed online mobile games. But as it stands today, it’s not a significant driver for our business in the near term.

Adam Krejcik – Roth Capital Partners

Got it. And then turning to the internet game business, how much of a – I guess what are your expectations here in terms of ACU, APA growth versus ARPU. Do you think there is going to be ARPU dilution as you introduce some new games or they’re going to stay relatively stable as you add on incrementally new users?

Jay Chang

In the first quarter, we see fairly stable domestic performance, just because we’re not launching any new games, and Shengmo will have a little bit of a spike given its launch in fourth quarter. Really, our focus for the rest of this year is, as we move into the second quarter or the end of March to launch WoT, which we think has potentials to beat hundreds of thousands APU type of quality games. And then we just are doing the technical closed beta test of Kung Fu Hero, which the feedback so far from the users is as positive or better than Loong, when we first at the same stage back in early or middle 2009, and we plan to launch Kung Fu Hero sometime in the third quarter of this year.

So for us, really the focus is on new game launches and significant content. We never actually believed that Shengmo was going to be a huge – will be a huge content launch, as it’s kind of more supplementary to be the same platform and we still believe that. But the big two launches for us this year will be WoT, which will be in the middle of March and we should expect to see some monetization towards the end of March, but that’s only a few days in the quarter. And then, obviously, full contribution in the second quarter and then 3Q, 4Q from Kung Fu Heroes as well as hopefully continued growth in WoT as the game, we mentioned, move forward, we believe it’s very differentiated from many thing in the market. And we’re seeing more content introductions from our – from Wargaming, our Belarusian partner.

Adam Krejcik – Roth Capital Partners

Got it, that’s helpful. And just on WoT, in terms of what’s a good comparison for ARPU, perhaps for some of the games here in the market, do you have a sense yet for what level of player spending would be like in this game?

Jay Chang

We don’t have any – I mean we have an internal idea, but externally I think we’ll wait to see after we commercialize it. But just one thing in terms of our strategy is we are focusing this as a male-only game, this is crossfire or counter strike with tanks, that’s our marketing premise. We want to find high ARPU users and we think those potential we could have much higher ARPU than many of the FPS team-based shooters or MMORPGs in the marketplace. But I think until we actually get it out and commercialize and have the few months of numbers, I think right now, I think we’ll leave it to the strategy we have, and then we’ll let the results hopefully speak for themselves.

Adam Krejcik – Roth Capital Partners

Got it. And then just two quick questions; on the balance sheet, the DSOs were down pretty dramatically down here in the fourth quarter. Is that a good run rate to user going forward or was there some seasonal factors there?

Jay Chang

Some seasonal at the year-end. We work with China Mobile in certain provinces where we had little bit longer DSO outstanding to do that collection at the year-end, which improved our overall cash balance. I think going forward, it probably did a base scenario is probably a mix between the third quarter and fourth quarter levels in terms of DSOs. And then your other balance sheet question?

Adam Krejcik – Roth Capital Partners

Just in terms of the cash payment, so Dacheng payment $14.6 million you expect by the end of Q1; and then Nokia Growth Partners repayment $9.3 million, is that also going to be here in Q1?

Jay Chang

Yes.

Adam Krejcik – Roth Capital Partners

Okay. And so roughly $24 million which if I back-off your current cash position, gets you around the $133 million. Any kind of other plans, uses of cash, or focuses going forward with that $100 plus million?

Jay Chang

I mean part of it obviously we want to prepay the Nokia notes which in our opinion is basically doing a share buyback off the market, given those notes rights to be converted almost 3.5% or over 3.5% of our shares outstanding. So we will continue to look at those opportunities where we can and where we believe there is value to shareholders.

Adam Krejcik – Roth Capital Partners

Got it. Congrats on a good quarter. Thanks guys.

Jay Chang

One other thing I would note that your calculation also wouldn’t include additional free cash flow that we would generate in the first quarter also, but yes the overall calculation you mentioned is correct.

Operator

(Operator Instructions). Our next question comes from Nan Li [ph] with SIG. Please proceed.

Nan Li – SIG

Good morning, everyone. Thank you for taking my questions. And I’m just wondering if you can give us some color on the macro environment in terms of WVAS action, like how should we look at the 2011? I see you had a sequential growth – you guided sequential growth of 19% in the first quarter. Just I wonder how we should look at exactly in 2011?

Jay Chang

Well, 2009 was a fairly challenging year in WVAS. And the reason there was at the end of 2009, as everybody knows, there are a number of policies which were introduced in the market which limited all the SP’s ability to developing products, market products, work with the operator, work with different channel partners, like TV channels, WAP sites, so on and so forth to do business.

And over the course of 2010, there continued to be a rolling introduction or a tightening of those policies which we were always playing a running game to try to keep up with policy changes. As we exited 2010 and going into the first quarter of this year, the policy environment I wouldn’t say has loosened, but we are not running to catch-up to policy changes any longer, things are basically in place, and I think we’re now more normalized.

In a more normalized environment we are able to talk to handset partners, we are able to talk to development products to do things that we would generally normally do increase our team versus trying to catch-up with policy changes, and I think that’s really the big change in the first half of 2011.

Going into the second half there is potential that things could loosen as the market continues to consolidate into a few large players like ourselves. I think on a overall market share basis now we are besides we are the number one wireless service provider in China today or number two if you exclude Dacheng. And we feel that position has a lot of benefit over the next two to three years as China Mobile and the other operators speak to deploy billing solutions for Android, stores, 3G application, so on and so forth.

But I think at least in the first half of this year, it’s more of a things we’re not catching – we’re not running to catch-up on policies any longer, they’re in place and we can go back to more normalized operation, and that’s reflected in our first quarter guidance.

Nan Li – SIG

Thank you, that’s very helpful. My other question, can you give us the breakdown in terms of net revenue between internet – wireless internet portal and 2G product, WVAS?

Jay Chang

One other things we did in the third quarter was integrate our WIS team and services into WVAS, just because there is a lot synergies. For example, one of the key growth drivers for 2011 for China Mobile and ourselves is the mobile novels or mobile books platform. And that cooperation requires not only our wireless internet portal team and the content we have on Zhulang.com, but also our marketing resources billing team in the WVAS.

So at the moment – and so that we’ve historically broken out as WVAS, and prior to that we had mobile advertising. But going forward, mobile advertising is not a significant driver for us. And mobile novels, books are integrated part of WVAS. So at this point, we’re not breaking that out.

Nan Li – SIG

Okay, I understand. Thank you, congratulations on a strong quarter.

Jay Chang

Thank you.

Operator

(Operator Instructions). Sir, at this time, there are no further questions.

Jay Chang

Okay. If there aren’t any further questions, I appreciate everybody’s attention and interest in KongZhong and look forward to speaking to you over the next few weeks or months. And if you have a chance to come visit Beijing, please let us know we’ll be happy to see you. So thank you very much.

Operator

Ladies and gentlemen, that concludes today’s conference. Thank you for you participation. You may now disconnect. Have a great day.

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