KongZhong Q3 2010 Profit Down 74% YoY
KongZhong PR, 11/23/10
Chinese mobile Internet and online gaming company KongZhong (Nasdaq: KONG) has announced its unaudited financial results for the third quarter ended September 30, 2010. Total revenues for Q3 2010 increased 7% year-over-year to USD 37.67 mln, exceeding KongZhong's Q3 2010 revenue guidance range of USD 35 mln to USD 36 mln.
Net income in Q3 2010 was USD 1.17 mln, in line with KongZhong's Q3 2010 guidance range of USD 1.0 mln to USD 1.5 mln and down 74% YoY.
Wireless value-added services (WVAS) revenues in Q3 2010 were USD 20.78 mln, a 14% increase from Q2 2010 but a 23% decrease from the same period last year. WVAS revenues declined over the same period last year due to the ongoing implementation of WVAS policy restrictions from mobile operators. In Q3 2010, KongZhong consolidated the majority of its Wireless Internet Services (WIS) business line into its WVAS business line to reflect the ongoing changes in the wireless services industry which have negatively impacted the WIS business. More importantly, a key revenue driver for the WIS business going forward is expected to be KongZhong's partnership with China Mobile's (NYSE: CHL; 0941.HK) mobile literature platform. This new revenue stream relies on significant resources from KongZhong's WVAS business to operate, and, as such, KongZhong believes it is more appropriate to combine WIS into its overall WVAS business line. In addition to using WVAS resources, KongZhong's mobile literature business also leverages its ct.cn platform (WAP-based mobile literature site) and Zhulang.com (online literature platform) which had previously been under WIS.
Excluding WIS from WVAS, WVAS revenue would have been USD 19.17 mln, up 10% from Q2 2010 but down 25% from the same period last year. The sequential increase reflects some seasonal marketing activities (Chinese student summer holidays and related color ringback tone ("CRBT") promotions. WIS revenues prior to consolidating into KongZhong's WVAS business line were USD 1.6 mln in Q3 2010, an 81% increase from Q2 2010 and a 7% increase from the same period last year. The sequential growth in WIS is due to KongZhong's mobile literature business in partnership with China Mobile's mobile literature platform.
Total mobile gaming revenues in Q3 2010 were USD 13.93 mln, a 70% increase from the same period last year and a 7% increase from Q2 2010. Revenues from downloadable mobile games were USD 13.06 mln representing an 84% increase from the same period last year and an increase of 6% from Q2 2010. In Q3 2010, growth in KongZhong's downloadable mobile game business (primarily mobile game monthly subscriptions) decelerated from previous period growth levels due to a moderation in promotional activity from its mobile operator partners. In Q3 2010, average monthly mobile game subscribers were roughly 2.0 mln per month, at a similar level compared to Q2 2010. For the remainder of 2010, KongZhong expects its mobile operator partners to continue to decrease their mobile game package marketing activities, limiting the near-term ability to grow the mobile game business, but expect marketing activities to resume sometime in 2011.
Revenues from mobile multi-player online games were USD 0.87 mln, an increase of 34% from Q2 2010, but a decrease of 22% from the same period last year. In July 2010, KongZhong launched "Fantasy Tian Jie" a new mobile online game, whose revenues accounted for about 26% of KongZhong's online mobile game revenues in Q3 2010. Revenues from "Tian Jie" accounted for another 18% of KongZhong's online mobile game revenues while revenues from "Feng Shen" accounted for the remaining 56%, compared to 51% in Q2 2010. Revenues from downloadable mobile games made up 94% of total mobile game revenues compared to 95% in Q2 2010. Revenues from online mobile games made up roughly 6% of total mobile game revenues compared to 5% in Q2 2010.
Online gaming business revenues were USD 2.96 mln in Q3 2010 or a 26% decrease from Q2 2010. Online gaming revenue underperformed expectations as the launch of 3D martials arts MMORPG Xia Ke Xing (open beta in August) failed to meet targets and the commercial launch of Loong in the South Korean market was delayed until Q4 2010. However with the launch of Loong in Korea and other overseas markets in Q4 2010 and the launch of a new online game, 3D MMORPG Trinity Blood in October in mainland China, KongZhong expects its online gaming business to rebound in Q4 2010. Total overseas revenues as a percentage of total online gaming revenues in Q3 2010 were 18% compared to 37% in Q2 2010. For the Q3 2010 3-month period, mainland China online game operations achieved average concurrent users ("ACUs") of 69,000, aggregate paying accounts of 68,000 with quarterly ARPU of RMB 240.
KongZhong expects total revenues for Q4 2010 to be within the range of USD 35.5 mln to 36.5 mln, with business unit revenues at the mid-point expected to roughly consist of WVAS revenues of USD 18.5 mln, mobile gaming revenues of USD 13 mln and online gaming revenues of USD 4.5 mln. Non-GAAP net profit is expected to be roughly USD 5.5 mln to USD 6.5 mln.
To view KongZhong's full earnings report, please click here.
Keywords: Tian Jie 2 Trinity Blood Xia Ke Xing Loong mobile gaming online gaming ARPU guidance Internet mobile literature profit revenue wireless WVAS Kongzhong KONG mobile Internet Feng Shen Zhulang Q3 2010 fiscal report ringback tone Fantasy Tianjie Reincarnation ACU
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