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KongZhong on the WVAS market, competition and near-term strategy (KONG 2Q05 conf call)

Aug. 17, 2005 7:00 AM ETKZ, LTON, TOMOY
Ezra Marbach profile picture
Ezra Marbach

KongZhong (ticker: KONG) reported Q2 2005 earnings results yesterday. Key points from management's earnings results conference call:

Q3 Guidance

  • Revenue of $19.0 - $19.5 million.
  • Expect WAP revenue to decline slightly from Q2.
  • SMS revenue growth to slow as KONG cuts back on SMS promotions.
  • Expect flat IVR growth.
  • Expect other 2.5G and 2G service revenue to grow.

Future Guidance

  • 2.5G and 2G revenue will likely generate 70% and 30% of revenue respectively.
  • Effective tax rate by the end of year to be no higher than 5%.
  • China Mobile's (ticker: CHL) new WAP policies will continue to negatively affect WAP revenue in Q3 and Q4.
  • Expect net margin to decline 1% for the next couple of quarters.
  • Net margin to stabilize in mid-30s.

WVAS Market

  • Seeing increasing stabilization in WVAS sector.
  • After stabilization will see growth.


  • Heavily investing in product development.
  • Acquiring and developing new content.
  • Recently acquired Mammoth, a top game developer in China.
  • Focusing on growth of Java games. KONG is enthusiastic about Java growth but not sure if Q2 Java game revenue growth can be sustained.
  • More handsets are being approved by China Mobile to run Java games.
    Market dominated by downloadable games (that you play against the
    computer). 3G will provide a faster network to support mobile online
    games that consumers can play against the masses.
  • Believe that mobile games have mass market appeal that PC games do not.
    "Mazhong" game with cooperation from Disney (ticker: DIS) is attracting
    many female users.
  • Will continue to partner with handset providers which while expensive
    provides benefits to KONG from co-branding and acquisition of new
    customers to new distribution channels.
  • Trying to diversify away from China Mobile (ticker: CHL) -- 98% of KONG's revenue from CHL. Difficulty is that CHL dominates the WVAS market.

This article was written by

Ezra Marbach profile picture
Ezra Marbach is a former investment banker who lived in Beijing in 2002-03 where he studied Mandarin Chinese and worked for a venture capitalist. Ezra previously worked for Internet-based venture capital firm UniversityAngels.com. Prior to that, he worked in the corporate finance department of Gerard Klauer Mattison, a NY-based boutique investment bank. Ezra graduated from Cornell University.

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