Hurray! Misses By $0.02; 2G and SMS Post Solid Growth; 2.5G Weak; Stock Up 2% in After-Hours Trading (HRAY Q305 Earnings)

Hurray! (ticker: HRAY) reported Q3 2005 earnings results that missed consensus EPS estimates by $0.02. Key stats from the quarter:

Q3 Results
(all percentage changes and comparisons are year on year, unless stated otherwise, assumes RMB 8.0920 : US $ 1)

• Total revenue rose 30.8% to $16.5 million, and rose 9.9% sequentially. Consensus estimate of $16.18 million.
• 2.5G revenue rose 14.6% to $9.2 million, and rose 4.7% sequentially.
• WAP revenue rose 9.4% to $8.8 million, and rose 1.5% sequentially.
• 2G revenue rose 76.4% to $5.9 million, and rose 29.8% sequentially.
• SMS revenue rose 14.5% to $3.3 million, and rose 56.2% sequentially.
• IVR revenue fell 3.5% sequentially to $2.3 million
• Software and system integration services revenue rose 11.6% to $1.3 million, but fell 18.7% sequentially.
• Gross margin was 51.1% vs 61.1%, and vs 59.7% in Q2. The decrease in gross margin due to 2G services and the upfront cost associated with increased alternative marketing effort for SMS and IVR services and the launch of CRBT services.
• Total operating expenses rose 40.3% to $4.1 million, but fell 8.5% sequentially (decrease in consulting fees).
• Product development expenses rose 16.1% to $693,000.
• Sales and marketing expenses rose 31.2% to $2.5 million.
• General and administrative expenses rose 121.5% to $866,000.
• Operating income fell 9.0% to $4.4 million.
• Operating margin was 26.5% vs 38.1%.
• Net income rose 6.2% to $5.0 million, and was flat sequentially.
• Net margin was 30.5% vs 37.6%, and vs 33.4% in Q2.
• Diluted EPS of $0.22 vs $0.29. Consensus estimate of $0.24.

Balance Sheet
(as of September 30, 2005, assumes RMB 8.0920 : US $ 1)

• Cash and equivalents of $77.96 million.

QD Wang, Chairman and Chief Executive Officer of Hurray!

"We are pleased with our operating results during the third quarter of 2005 despite continued short-term weakness in the 2.5G market due to slow CDMA user growth experienced by China Unicom. We are particularly pleased with the progress in expanding our customer reach, wireless value-added service platforms, and marketing and distribution channels. It is great to see that Hurray! is growing again."

HRAY chart.