In 4Q05, Tom Online stabilized revenue growth. Its promotion of music website and entertainment content will increase brand awareness and revenues to wireless internet services. Recent acquisition of the largest original literature writer website www.hjsm.net in China strengthened its entertainment content. Company has balanced and diversified revenues from each wireless VAS sectors, and is well positioned for further solid growth.
.....estimated valuation of $32.3 per share, we recommend BUY.
Balanced and Diversified Segment Revenues
Revenues from different Wireless Internet services stabilized in 4Q. SMS is a more mature business line for TOM Online, Company believes it will continue to be a core contributor to its overall wireless Internet business for the foreseeable future. WAP revenues from China Mobile in 4Q were stable as strong product cycles, including song downloads from new Jay Chou album on the operator's Monternet platform, were offset by continued "silent user" clean-up activities.
Revenues from IVR and CRBT accounted one-third of total WVAS revenues and IVR will be a key driver of its overall business in 2006.
Skype JV Update
At the end of February, Company had more than 9 mn registered TOM- Skype users, up from over 5.2 mn registered users at the end of October 2005. Company continues to work with Skype to co-develop more local features and services for the mainland China market as well as premium services over the TOM-Skype platform. It is hoped that some of the services will be commercially launched in late 2006.
UMPay Alliance Update
Company continues to work with UMPay to develop China's mobile payment market as a longterm opportunity. UMPay will continue to build the infrastructure and platforms to support mobile payments which is integrated with the banking sector. It is also working on linking the UMPay system to support online payments. At the end of 2005, UMPay had about 6.0 mn subscribers and over 200 merchants on their platform.
Strengthened Entertainment Platform
In 4Q, Company partnered with Intel to jointly promote Internet cafe initiatives and "Wanleba". Audio contained over one-third of its total revenues, and mobile music will continue to be an important driver for its growth in 2006. Company also intends to develop sports content and alliances in 2006 to take advantage of FIFA World Cup in Germany. On March 13, Tom Online announced its acquisition of the largest original writer website www.hjsm.net in China. The addition further strengthened its digital entertainment content.
Merge of Sina.com and Tom Online
It was recently reported that Sina.com and Tom Online are in talks about a merger. Sina has the leading online advertising business in China, while Tom Online has built its leading wireless value added services in China as well. The merging of both companies will generate synergy of two business segments, Internet content and advertising revenues from Sina and wireless VAS from Tom Online, but more concerns come from comparable culture. Departure of Sing Wang, CEO of Tom Group, who was credited for the rise of Tom Group as multi-media company, is a loss to the company.
Weathering Bad Business Environment
In 4Q05, wireless value added services industry was still in a difficult operational and regulatory environment due to new policies and the platform switch from China Mobile. Major service providers, such as Linktone, and Sina, declined revenues from the segment. Tom Online’s capability of weathering bad business environment and keeping stable revenue growth comes from its business model. Its combination of traditional media, with a new service channel, mobile, provides content and leverage from different sources and most importantly stability in an unstable industry. We believe company will further benefit from this model and provide rich content and new products in 3G.