Here's Why Kongzhong Shares Dropped, Then Recovered

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of KongZhong (NASDAQ: KZ  ) quickly plunged more than 10% Tuesday morning before recovering those losses to trade slightly in positive territory after the Chinese mobile and Internet game maker reported second-quarter results.

So what: Going into the report, the KongZhong stock had risen more than 30% over the past month alone, so it's easy to understand investors' initial apprehension after the company said net income actually declined 4.3% from the first quarter of 2013 to $6.51 million, or $0.16 per share. On an adjusted basis, net income also declined 12.1% from last quarter to $7.82 million, or $0.18 per diluted share. Meanwhile,  revenue decreased 12.8% to $43.58 million over the same period.

However, the revenue number was actually in line with the company's own guidance of $43.5 million to $44.5 million. What's more, both earnings numbers exceeded the company's guidance for GAAP net income of $5.5 million to $6.5 million, and adjusted net income from $6.5 million to  $7.5 million.

Now what: Going forward, KongZhong expects next quarter's revenue to be $43 million to $44 million, and net profit in the range of $0.5 million to $1.5 million as the company ramps up sales and marketing activities for the company's eight new smartphone and Internet games to be either commercially launched or entering beta testing during the second half of this year. 

At 25 times last year's earnings and 17.2 times next year's estimates, the stock doesn't look particularly expensive given its long-term growth prospects in Chinese mobile gaming. That said, if shareholders want to see those earnings and revenue numbers return to growth, investors had better hope those new games catch on.

In the meantime, if you're looking to invest in larger technology businesses, the tech world has been thrown into chaos as the biggest titans invade one another's turf. At stake is the future of a trillion-dollar revolution: mobile. To find out which of these giants is set to dominate the next decade, we've created a free report called "Who Will Win the War Between the 5 Biggest Tech Stocks?" Inside, you'll find out which companies are set to dominate and give in-the-know investors an edge. To grab a copy of this report, simply click here -- it's free!

Read/Post Comments (0) | Recommend This Article (2)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2602501, ~/Articles/ArticleHandler.aspx, 9/29/2016 8:21:47 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated Moments ago Sponsored by:
DOW 18,143.45 -195.79 -1.07%
S&P 500 2,151.13 -20.24 -0.93%
NASD 5,269.15 -49.39 -0.93%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

9/29/2016 3:59 PM
KZ $6.72 Down +0.00 +0.00%
KongZhong CAPS Rating: *