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KongZhong (ticker: KONG) reported Q3 2005 earnings results today that missed consensus EPS estimates by $0.04. Key stats from the quarter:

Q3 Results
(all percentage changes and comparisons are year on year, unless stated otherwise, assumes RMB 8.1391 : US $ 1)

  • Revenue rose 63.9% to $20.3 million, and rose 10% sequentially. Consensus estimate of $19.5 million.
  • 2.5G revenue rose 36.5% to $14.4 million, and rose 6% sequentially (on growth in Java and MMS).
  • WAP revenue rose 60% to $9.54 million, but fell 2% sequentially (due to China Mobile policy change).
  • MMS revenue fell 14% to $3.75 million but rose 14% sequentially.
  • Java revenue rose 442% to $1.07 million and rose 135% sequentially.
  • 2G revenue rose 219.7% to $5.9 million, and rose 22% sequentially.
  • SMS revenue rose 186% to $4.11 million and rose 30% sequentially.
  • IVR revenue rose 291% to $1.41 million and rose 4% sequentially.
  • Gross margin was 59.9% vs 65.0%.
  • Operating expenses rose 212.0% to $9.2 million (including one-time litigation provision of $3.6 million).
  • Product development expenses rose 99.6% to $2.3 million.
  • Sales and marketing expenses rose 94.1% to $1.3 million.
  • General and administrative expenses rose 89.9% to $1.9 million.
  • Operating income fell 43.1% to $2.9 million.
  • Operating margin was 14.2% vs 41.0%.
  • Net income fell 35.7% to $3.4 million.
  • Net margin was 16.9% vs 43.1%, and vs 36% in Q2. (Excluding one-time provision net margin would have been 35%.)
  • Diluted earnings per ADS of $0.10 vs $0.15. Consensus estimate of $0.14.
  • Note: If the Company had not incurred the one-time $3.5 million provision and $129,000 in legal expense related to the class action settlement, the diluted earnings per ADS would have been $0.20.

Balance Sheet
(as of September 30, 2005, assumes RMB 8.1391 : US $ 1)

  • Cash and equivalents of $111.7 million.

Cash Flow

  • Cash flow from operating activities totaled $10.62 million in 3Q05 vs $0.74 million in 3Q04 and $6.11 million in 2Q05.

Q4 Guidance
(assumes RMB 8.1391 : US $ 1)

  • Revenue of $21 - $22 million. Consensus estimate of $21.49 million.

Yunfan Zhou, Chairman and Chief Executive Officer:

''We are very pleased that we had another record breaking quarter. Our Java game revenue surpassed the $1 million mark for the first time and grew by more than 135% from the second quarter. We believe, in terms of revenue, we continue to be the No. 1 player in the 2.5G wireless valued added services (WVAS) space in China. In the coming months, we will focus on gaining market share and investing in our product development capabilities, KongZhong brands, and new products.''

KONG chart.

Source: KongZhong Misses By $0.04; Revs Beat Consensus Powered By SMS and MMS Growth; Guides In-Line; Stock Down in Early Trading (KONG 3Q05 Earnings)