KongZhong Makes Strategic Moves

Kongzhong Corp (KONG - Snapshot Report), a leading provider of mobile Internet value-added services in China, has decided to acquire Simlife International Inc, a Chinese mobile game developer with a portfolio of more than 200 3D mobile games.

We consider this is a strategic move as Kongzhong has become the largest mobile game developer in China ahead of its competitors Hurray! Holdings (HRAY - Analyst Report), Linktone (LTON - Analyst Report) and />Shanda Interactive Entertainment (SNDA - Snapshot Report). The company has taken a strategic decision to focus on two key areas. These are (1) Develop its mobile games business as the main growth driver and attain the largest share in this segment (2) Transform its Kong.net portal into a wireless based social gaming and community platform.

According to various industry estimates, the Chinese wireless value-added services market may generate up to $11.5 billion of revenue by 2010. The mobile game business is likely to account for a significant part of this market opportunity. At the end of April 2009, China had 671 million wireless subscribers and penetration is approximately 45% in the country. It is estimated that the number of mobile users in this region may surpass 750 million by 2010. The on-line mobile game developers in China are therefore, looking at significant growth potential.

In the first quarter of 2009, mobile game contributed 17% of total revenue compared to 10% in the previous quarter and only 6% in the year-ago quarter. This segment is expected to generate 25% of KongZhong’s total revenue in fiscal 2009. The company continues to enhance its in-house mobile gaming development capabilities. As of now, over 150 mobile game titles of Kongzhong are commercially available across all major mobile game channels. This includes China’s first flash-lite mobile game community and first mobile social game called “Nong Chang Da Heng”.

We remain bullish on KongZhong, Hurray! Holdings and Linktone.