Tuesday, July 28, 2009

Is KongZhong Spicy or Dicey?

I'm keeping a close eye on major Chinese mobile content service provider (SP) KongZhong (KONG) in anticipation of their Q2 2009 earnings conference call scheduled for Aug 10th. The company is ostensibly on fire, having experienced 5 consecutive quarters of solid revenue growth, with plenty of cash in the bank and a stock up 136% in the quarter (including a 52week high in the last week). Investors clearly believe that KongZhong is one of the best positioned companies to take advantage of the amazing growth potential of the Chinese mobile content market as its carriers roll out 3G. However, the ability to realize that potential has everything to do with staying in the good graces of notoriously skittish operators and regulatory authorities...as UK personalization outfit MonsterMob (now part of Zed) learned the hard way back in 2007. For that reason I was very interested to read a rumor posted on the website of Chinese telco consulting firm Marbridge (attributed to internet portal Netease) on July 17th claiming that KongZhong has been aggressively buying stored value from TD-SCDMA (Chinese 3G standard) test accounts in the interest of "self hitting"... which is, basically, buying their own products with those subsidized operator credits from China Mobile, to either arbitrage the spread with their generous 85% revenue share, or in the interest of manipulating the ranking of their content on the carrier deck. That speculation, coupled with the company's sudden announcement last week that President, CTO & Co-founder Nick Yang had resigned and Morningstar's abrupt announcement yesterday that it was going to drop coverage of KongZhong have got me super-extra-vigilant.

1 comment:

  1. "self hitting" as you name it is normal at all big publishers. boosting the titles to the top10 or even top50 on some big portals. The same is done on iphone with a lot of content. Mainly the first reviews are 5 out of 5 stars.

    As long revenue counts more than profit companies will always try to cheat that way. On the other site it seems to work out.