KongZhong's Earnings Got Game

Chinese mobile content king KongZhong reported strong Q2 2009 earnings yesterday, with revenue jumping 37% from the same period last year, beating analyst expectations. Q3 guidance of between $34-$35mil was also higher than consensus. Much of the growth was attributable to the mobile games business, which the company grew 368% to $6.8mil (now 21% of their revenues). It's critical that the company continues to grow this component in the interest of realizing higher margins, diversifying beyond its traditional role as a content service provider to China Mobile and developing revenue outside of its domestic market. Two of the most intriguing components of KongZhong's mobile games business are; 1) that they are beginning to see meaningful revenue streams from the sale of in-game virtual items (a trend we're yet to see develop in mobile in US/Europe); and 2) the company is putting a lot of resources behind the development of mobile social networking games. The company believes that they will be well positioned for the launch of the iPhone in China (particularly by virtue of their recent Simlife acquisition)...but they don't think it will be a meaningful device in the short-term outside of wealthier communities in Shanghai & Beijing.

No doubt these numbers are impressive...but, my concerns about the company's exposure to government regulation and China Mobile linger.