Tag Archives: Kongzhong

Malaise continues to inflict the overheated Chinese Internet realm, with veteran new media firm Kongzhong (Nasdaq: KONG) falling into the loss column and newly listed children’s website Taomee (Nasdaq: TAOM) reporting a shrinking profit, as both fell victim to stiff competition. I won’t go too much into the reports of these two companies, but Kongzhong reported a $17 million loss, compared with a profit a year earlier, as its Internet games business saw an especially sharp drop. (company announcement) Likewise, Taomee, whose shares have lost about half their value since its June IPO, saw its third-quarter profit shrivel by about a third as it opted to focus on customer loyalty over profits. (company announcement) Meantime, Chinese media are reporting that another small firm, online shoe retailer Letao, has slashed its marketing budget by 80 percent as competition erodes its bottom line as well. (English article) What all this tells me is that China’s long-awaited Internet bubble is finally starting to burst, as these kinds of small- to mid-sized companies are typically the first to feel the pinch when a correction starts to hit an overheated sector like this. By comparison, bigger companies like Baidu (Nasdaq: BIDU) and Sohu (Nasdaq: SOHU) continue to report relatively healthy growth in both sales and profits, though even they are seeing profits come under pressure amid rising costs in the face of fierce competition. Look for more suffering among mid-sized Internet firms like Taomee and Kongzhong in the months ahead, with many likely to get purchased, merge with similar-sized rivals or simply go out of business in the next 12-18 months. In a rare piece of good news from the space, faded new media firm Linktone (Nasdaq: LTON) has announced that it escaped a potential de-listing by managing to get its stock price above the $1 threshold demanded by the Nasdaq. (English article) Indeed, the company’s shares have been above $1 for 15 days now, though such an accomplishment is hardly cause of celebration for a company whose shares have mostly moved lower in its turbulent history as a publicly traded company.

Bottom line: The latest gloom from Kongzhong, Taomee and Letao show mid-sized Internet firms are suffering as China’s Internet bubble starts to burst, with bigger pain ahead in the next 12-18 months.

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