Telecom & Wireless

China's Mobile Aspirations Disappoint As KongZhong Posts Annual Results, Gains Nokia Investment

Chinese wireless value-added service firm KongZhong Corporation reported its unaudited fourth quarter 2008 financial results and showed a negligible quarterly profit and overall net loss for 2008.

While the company gleefully proclaimed that quarterly revenues exceeded guidance, with total revenues for the fourth quarter of 2008 increasing 34% year-over-year and 7% quarter-over-quarter to USD26.74 million, net income was only USD0.52 million. The USD0.52 million net income in the fourth quarter was an increase compared with the third quarter of 2008, which incurred a devastating loss of USD21.57 million, including USD21.62 million of provision for the impairment of goodwill.

Total revenues for the full year of 2008 were USD96.69 million. Of that total, WVAS revenues were USD86.91 million, total mobile games revenues were USD7.74 million and total mobile advertising revenues were a ridiculously small USD2.04 million. Net loss for the year was USD20.66 million.

The company's chairman and CEO, Wang Leilei, attempted to put a good spin on the company's oppressive year in a statement: "I'm very pleased with the performance of our team in the fourth quarter and in the full fiscal year 2008. Since I assumed the position of KongZhong's CEO a few months ago, I and my team have begun to implement various measures to improve the performance of our WVAS segment. More importantly, we have begun to invest more efficiently in our mobile games and Kong.net areas. The strong year-over-year growth in mobile games and KONG.net and improved gross margins across all of our business lines reflect some of the early results of these initiatives. I look forward to building upon these gains in 2009 and beyond as we seek to become the pre-eminent leader of the mobile Internet industry in China."

As of December 31, 2008, the company had USD136.05 million in cash and cash equivalents. Cash in-flows from operating activities totaled USD12.52 million in the twelve months of 2008.

With all the dread of reporting its annual numbers, KongZhong also says it has reached a non-binding agreement with Nokia Growth Partners to receive an investment of about USD6.8 million in 5-year convertible senior notes. NGP would also receive warrants to purchase an additional 2.0 million American Depositary Shares at USD5.0 per ADS, exercisable within five years.

"I'm truly pleased to welcome Nokia Growth Partner's investment in KongZhong. As we prepare for 3G in the China mobile market, we are seeking to enhance our strong existing mobile operator channels with equally powerful non-operator channels," stated Wang.

The convertible senior notes would initially pay an annual interest of 8% subject to reduction to 6% based on the financial performance of the company.

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