Kongzhong Corporation's (Kongzhong) 1Q 09 revenues surpassed Management guidance for the quarter with robust y-o-y growth driven by strong uptake of its Mobile Games services. However, despite the better-than-expected 1Q 09 performance and a healthy outlook for 2Q 09, we remain cautious as the ADR is trading at its 52-week high which prompts us to maintain our limited upside outlook for the stock....

To leverage high growth opportunities from the growing mobile game market in China, we expect the company to focus more on its Mobile Game business, which accounts for 10.1% of total revenues. Kong expects the revenue contribution from the Mobile game segment to increase exponentially in the range of 20-25% in FY 2009 supported by its new partnerships and recently launched 3G services in China, boosting the number of mobile Internet users....

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While Kongzhong Corporation’s (Kongzhong) 3Q 08 top-line exceeded our expectations and Management guidance, earnings were significantly below our expectations due to lower than expected interest income. While revenues grew modestly q-o-q and reported healthy y-o-y growth, higher cost of operations negatively impacted operating performance. During the quarter the Wireless Value Added Services (WVAS) business experienced strong yo- y growth....