KongZhong (KONG) announced its third quarter 2004 financial results. Under US GAAP, diluted earnings per ADS was $0.15, up from a diluted earnings per ADS of $0.02 in the same period of the previous year and down from a diluted earnings per ADS of $0.19 in the second quarter of 2004 (2Q04). Net income in the third quarter was $5.33 million, an increase from $0.51 million in 3Q03 and $5.30 million in 2Q04.
As part of the Company's initial public offering, 8 million American Depositary Shares were issued in early July. Using the enlarged share count, the Company's earnings per ADS in 1Q04, 2Q04, and 3Q04 would have been $0.09, $0.15, and $0.15 respectively.
Commenting on the results, the Company's Chairman and CEO, Yunfan Zhou, said, "In the third quarter, the wireless value-added services market faced a number of challenging issues, including the transition of SMS services to the MISC service management platform, changes in billing centers for MMS, a tightening of regulations governing wireless value-added services by mobile operators, and increased competition in general. These factors caused our top-line growth to slow considerably compared to prior periods. We believe these factors will continue to pose challenges in the fourth quarter for us and other service providers in this market. Nonetheless, we are confident of the 2.5G market's long-term prospects, as Chinese consumers continue to migrate from 2G to 2.5G mobile phones. As a leading 2.5G service provider in China, we believe we are well positioned to capture this long-term potential."
Revenues for the quarter totaled a record $12.36 million, up 509% from the same period of the previous year and up 3% from 2Q04. By platform, revenues from 2.5G wireless value-added services accounted for 85% of total revenues and revenues from 2G wireless value-added services represented the remaining 15%, compared with 80% and 20%, respectively, in 2Q04.
Revenues from 2.5G services, which include services delivered using wireless access protocol (WAP), multimedia messaging service (MMS), and Java technology, grew 556% from 3Q03 and 10% from 2Q04 to $10.53 million in 3Q04. Growth in WAP revenues accounted for the largest increase in 2.5G revenues. Revenue from 2G services, which include short messaging service (SMS), interactive voice response, and color ring back tone (CRBT), grew 330% from 3Q03 but decreased 22% from 2Q04 to $1.83 million in 3Q04. The sequential decline in 2G revenues resulted from a decrease in SMS revenue, which was mainly caused by mobile operators' transitioning SMS services to the MISC service management platform in a number of provinces.
By type, revenue from monthly subscriptions accounted for 92% of total revenue, and revenue from downloads accounted for the remaining 8%. During the quarter, the number of monthly subscriptions grew by 21% from 2Q04 to 15.48 million, and average revenue per subscription fell by 14%.