KongZhong (ticker: KONG) reported Q2 2005 earnings results yesterday. Key points from management's earnings results conference call:
- 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.
- 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.
- 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.
- KONG is the leader in 2.5G -- but lags in 2G.
- Big players doing well. Smaller players suffering due to gov't policy changes, and various increasing costs including distribution costs in local markets.
- Expect there to be 3 - 4 major WVAS players in the future.
- There are 3X the number of wireless users as Internet users in China.
- KONG believes Chinese consumers will use mobile device to access info, games, entertainment more than PCs in the future.
- Advertising, commerce, auctions, portal, and search revenue opportunities will present themselves for mobile devices.
- China Mobile recently began allowing its pre-paid user base to access 2.5G services.
- Many rural provinces are rolling out 2.5G services - but currently giving them away for free.
- Expect to generate revenue in the future.
- China Assets is 100% owner of Global Lead Technology. Global Lead Technology owns shares of KONG. China Assets is seeking approval from its shareholders (China Assets is a publicly-traded company on the Hong Kong Stock Exchange trading under the symbol 0170.HK) to sell what amounts to 9.1% of KONG's outstanding shares. The circular was released in February. No word yet on any outcome.
Not subscribed to The China Stock Blog? You can get updated headlines for free by adding The China Stock Blog to your My Yahoo page. Just log into your My Yahoo
page, then go to The China Stock Blog and click on the "+ My Yahoo"
button on the top right of your screen. You can do the same for other sites, such as The Internet Stock Blog, ETF Investor, and Sound Money Tips.
This article was written by