In most cases, investors would expect the mixture of three tantalizing ingredients -- wireless, China, and advertising -- to result in hockey stick stock charts. But in the case of several companies providing wireless value-added services (WVAS) in China, the recipe is causing more cases of indigestion, with many stocks down 50% or more so far this year.
China's WVAS market is made up of companies such as KongZhong
While many competitors have already turned in retreat, KongZhong believes that the wireless Internet holds great potential and is still in its early stages in China. The company recently reported earnings that were largely in line with expectations, commenting that WVAS revenues were flat on a sequential basis. With leading wireless operator China Mobile
Still, KongZhong is working to develop a wireless advertising business line to make up for an uncertain future in the wireless services segments. The company has so far had success courting customers such as Nike
Even online media purveyor SINA
Either way you slice it, there's a lot of regulatory and market uncertainty for third parties focused on wireless value-added services in China. Investors should be wary of companies heavily dependent upon this segment and adjust their risk accordingly.
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Fool contributor Dave Mock believes ear biting, eye poking, and wedgies are far outside the standard rules of engagement. He owns no shares of companies mentioned here. He is the author of The Qualcomm Equation. Baidu.com is a Rule Breakers recommendation. The Fool's disclosure policy is value-added content, no matter how it's delivered.