EXHIBIT 99.1
(LINKTONE LOGO)
LINKTONE REPORTS STRONG FIRST QUARTER 2004 RESULTS
SALES LOCALIZATION, MARKETING CHANNEL DIVERSIFICATION
& UNIQUE SERVICES PORTFOLIO
DRIVE ROBUST USER, REVENUE AND PROFIT GROWTH
(2003,5,10)
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SHANGHAI, CHINA - MAY 10, 2004 - Linktone Ltd. (NASDAQ: LTON), a leading
provider of wireless value-added services to mobile phone users in China, today
reported strong results for the first quarter ended March 31, 2004. All currency
figures are reported in U.S. dollars.
FINANCIAL HIGHLIGHTS FOR Q1 2004
o Gross revenue grew 440% from the first quarter of 2003 and 41% over the
fourth quarter ended December 31, 2003 to $9.4 million
o Gross margin further improved to 65% compared to 57% in the fourth quarter
of 2003
o Net income increased 2618% from the first quarter of 2003 and 74% from the
fourth quarter to $2.8 million. Net income takes into account non-cash
stock-based compensation expense of $0.4 million
o Positive cash flow from operations reached $1.1 million.
"We're extremely pleased with Linktone's robust operational performance in the
first quarter, which reflects the strength of our unique wireless focus and
expertise," said Raymond Yang, Chief Executive Officer of Linktone. "Our
localized approach to sales, our diversified marketing and distribution channels
and our product tailoring were key contributors to the Company's strong
performance this quarter. We believe these results validate our strategic plan
as a pure-play wireless value-added service (VAS) provider in the world's
largest wireless market and our efforts to drive top-line growth by both
attracting new users and by migrating existing users to premium services."
Yang added, "Linktone's sales localization strategy and expanding penetration of
China's less established wireless VAS markets, coupled with successful user
acquisition initiatives such as our partnership with McDonald's and the
development of strategic marketing and distribution channels, have helped us
significantly increase our revenues and distinguish us from many of our
competitors. We believe these initiatives will continue to support Linktone's
growth, as we maintain our focus on the fundamentals of our wireless business,
including rolling out new and more targeted products to our growing base of
approximately six million average monthly paying users in the first quarter."
FINANCIAL RESULTS
For the first quarter of 2004, Linktone reported record gross revenues of $9.4
million, an increase of 440% over first quarter 2003 revenues of $1.7 million,
and a 41% increase over revenue of $6.6 million for the previous quarter. The
Company's gross margin for the first quarter of 2004 increased to 65%, up from
59% in the first quarter of 2003 and 57% in the fourth quarter of 2003.
Operating expenses for the first quarter of 2004 totaled $3.3 million, compared
to first quarter 2003 operating expenses of $0.9 million and $2.2 million the
previous quarter. The increase in operating expenses was primarily due to the
overall expansion of Linktone's business, and more specifically, to increased
investment in additional marketing and distribution channels as well as the
development of voice-entertainment services and next generation services such as
MMS and WAP.
Net income for the first quarter of 2004 was $2.8 million, or $0.19 per ADR,
representing an improvement of 2618% from net income of $0.1 million, or $0.01
per ADR, for the same period in 2003. Sequentially, first quarter net income
increased by 74%, compared to net income of $1.6 million, or earnings per basic
ADR of $0.16 in the fourth quarter of 2003.
The EPS for the first quarter was diluted by the new issuance of 51.5 million
ordinary shares and the conversion of the Company's 101.2 million preferred
shares to ordinary shares (equivalent to 10.12 million ADRs) at Linktone's
initial public offering. ADRs outstanding for the quarter ended March 31, 2004
was 14.4 million, which was used for the EPS computation.
Net income is net of non-cash stock-based compensation expense for the quarter
of $0.4 million, or $0.03 per ADR.
BUSINESS HIGHLIGHTS
Linktone's user base continued to expand, with an average of 6.0 million users
per month during the first quarter of 2004, compared to an average of 4.5
million users per month for the quarter ended December 31, 2003. The first
quarter of 2004 saw the highest quarter-on-quarter paying user growth in
Linktone's history and is the fifth consecutive quarter that the Company has
achieved a sequential revenue growth rate in excess of 30%. This growth was
mainly driven by Linktone's successful customer acquisition strategy - a key
area in which the Company is outperforming many of its competitors.
As new users were added during the first quarter, Linktone saw particularly
strong growth in SMS products such as the newly tailored ringtone and icon
subscriptions, the multi-player, interactive Endless Battle Space game and joke
services. The Company also continued to see growth in the popularity of services
such as Mobile Pet, Treasure Island and the "Love" Horoscope community.
In addition to strong growth in SMS based products, the Company's non-SMS
offerings, such as voice entertainment services, MMS and WAP services, saw
increased user subscription. Linktone expects both voice entertainment services
and 2.5G services to gain in popularity and materially contribute to revenues in
the second half of the year.
During the quarter, Linktone announced that it had entered into partnership
agreements with two leading Chinese mobile handset manufacturers, Bird and
EastCom. Linktone's wireless value-added services will be embedded in the two
handset vendors' products for end-users' easy access. Similar contracts were
signed during the quarter with other handset vendors such as Legend Mobile, the
mobile handset arm of Legend Group.
Furthering its content partnership strategy, the Company established
partnerships with international game developers such as Macrospace, and Korean
and Japanese game distributors such as SoKorea. Linktone has already begun to
aggregate, localize, market and distribute these partners' gaming products for
Chinese language users.
Another highlight was the launch of two new wireless voice entertainment
services, "Story Teller" and "Mobile Voice Greetings." Both services are
distributed over China Mobile's interactive voice response (IVR) system, which
allows mobile phone users to access information and services by interacting with
a pre-programmed voice response system. These two services, which enable
customers to access audio dramas and to send and receive pre-recorded
personalized messages, are another building block in Linktone's growing voice
entertainment services portfolio.
In the first quarter, Linktone was ranked by China Mobile's subsidiaries as the
number one wireless value-added service provider in Liaoning and Henan and one
of the top three service providers in other developed provinces such as Shanghai
and Jiangsu. The ranking is based on revenue contribution and customer
satisfaction.
The first quarter also marked an important milestone in Linktone's history, with
the Company's global IPO and concurrent listing on the Nasdaq National Market on
March 4, 2004. The Company plans to use the proceeds of $67.1 million from the
offering for general corporate purposes, including investing capital for
expansion of its operations in China, enhancing its technology platform to
support the development of next generation services, and funding strategic
acquisitions.
PRODUCT PIPELINE
Linktone continues to expand and enhance its product portfolio. SMS services
recently launched, or under development, include:
- - Crystal Ball - A fortune telling game launched at the end of the first
quarter of 2004 where users send information such as their names, mobile
numbers, dates of birth and favorite colors to the Company's database
platform and then receive daily fortunes;
- - Raider's Ransom - A game in which players hunt for virtual riches and
compete for other players' possessions by creating pitfalls and obstacles
for rivals. The product is scheduled to be launched in the second half of
2004; and
- - Enhancement of existing products - The Company is currently in the process
of tailoring its WonderWorld services to meet specific local preferences
and expects that the upgraded version will be rolled out in the second
quarter. Linktone also continues to enhance its Endless Battle Space
adventure game and expects to roll out the next generation of this highly
popular game before year-end.
Linktone's development of 2.5G services also continues to progress, with several
new MMS and WAP services being planned for rollout during the year. For example,
the Company continues to expand its library of MMS magazine products, covering
over a dozen topics such as sports and fashion. Linktone also plans to launch
new MMS event-related services such as news updates for the Euro Cup soccer
tournament and for the Athens Olympics. To enrich the Company's WAP offerings,
Linktone is rolling out polyphonic ringtone and enhanced icon downloads, mobile
novels, a wireless game "city", wireless avatars and community services.
"With a proven business model and a growing reputation in the wireless VAS
marketplace for product innovation, a strong distribution network and superior
customer service, we believe that Linktone is well positioned to take advantage
of the growing demand for wireless data services in China across current and
future technology platforms. We look forward to gaining more market share and
building on the consistent track record of growth Linktone has maintained since
launching services in 2000," said Yang.
BUSINESS OUTLOOK
Linktone expects to achieve 20-25% revenue growth and 20-25% net income growth
sequentially in the second quarter of 2004.
CONFERENCE CALL
As previously announced, the Company will host a conference call to discuss
first quarter results at 7:00pm Eastern Time on May 10, 2004 (4:00pm Pacific
Time on May 10, 2004 and 7:00am Beijing/Hong Kong Time on May 11, 2004). The
dial-in number for the call is 888-560-1989 for U.S. callers and 973-582-2830
for international callers.
A replay of the call will be available from May 10, 2004 until June 7, 2004
Eastern Time. To access a replay of the call, U.S. callers should dial
877-519-4471 and enter PIN number 4668368; international callers should dial
973-341-3080 and enter the same PIN number.
Additionally, a live and archived web cast of this call will be available on the
Linktone web site at http://english.linktone.com/aboutus/index.html#.
ABOUT LINKTONE LTD.
Headquartered in Shanghai, Linktone Ltd. is a leading provider of wireless
value-added services to mobile phone users in China. Working in close
partnership with China's mobile operators, China Mobile and China Unicom,
Linktone provides a diverse portfolio of wireless content and applications, with
a particular focus on media, entertainment and communications. Through in-house
development and alliances with local and international content partners, the
Company develops, aggregates and distributes innovative and engaging products
for its growing user community.
* * *
This press release contains statements of a forward-looking nature. These
statements are made under the "safe harbor" provisions of the U.S. Private
Securities Litigation Reform Act of 1995. You can identify these forward-looking
statements by terminology such as "will," "expects," "anticipates," "future,"
"intends," "plans," "believes," "estimates" and similar statements. The accuracy
of these statements may be impacted by a number of business risks and
uncertainties that could cause actual results to differ materially from those
projected or anticipated, including risks related to: the risk that Linktone's
current or new services will not be popular for whatever reason; our ability to
maintain and increase our customer base over China Mobile's and China Unicom's
networks; the risk that our use of the proceeds of our initial public offering
may not effectively enhance our business and increase the trading price of our
American Depositary Shares; the risk that the cost of continuously developing
new services to compete in the rapidly developing VAS market in China will
adversely affect our profitability; the success of the phones which embed our
services which is beyond our control; the risk that users purchase such phones
but are unwilling or unable due to cost concerns or other reasons to purchase
our wireless value-added services; the possibility that the Chinese wireless
market will not continue to grow or that we are not able to offer services which
are compatible with the most popular wireless technologies in China; our ability
to maintain our existing content partnerships and to enter into new successful
partnerships; the risk that the trading price of our American Depositary Shares
may decrease for a variety of reasons, some of which may be beyond the control
of management; and other risks outlined in our filings with the Securities and
Exchange Commission, including our registration statement on Form F?1. We do not
undertake any obligation to update this forward-looking information, except as
required under applicable law.
LINKTONE LTD.
CONSOLIDATED BALANCE SHEETS
(IN U.S. DOLLARS, EXCEPT SHARE DATA)
<Table>
<Caption>
DECEMBER 31, MARCH 31,
Note 2003 2004
---- ------------ ------------
(AUDITED) (UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents 5,612,893 73,455,044
Accounts receivable, net 3,092,619 5,357,647
Deposits and other receivables 554,300 595,784
------------ ------------
TOTAL CURRENT ASSETS 9,259,812 79,408,475
Property and equipment, net 450,238 552,848
------------ ------------
TOTAL ASSETS 9,710,050 79,961,323
============ ============
LIABILITIES, REDEEMABLE EQUITY AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Tax payable 986,748 1,181,488
Accrued liabilities and other payables 919,222 2,394,921
Due to related parties 13,792 13,792
------------ ------------
TOTAL CURRENT LIABILITIES 1,919,762 3,590,201
------------ ------------
TOTAL LIABILITIES 1,919,762 3,590,201
------------ ------------
Series B redeemable convertible preferred shares ($0.01 par value; 66,172
shares authorized, issued and outstanding as of December 31, 2003) 583,672 --
Series C redeemable convertible preferred shares ($0.01 par value; 245,203
shares authorized, issued and outstanding as of December 31,2003) 2,000,000 --
Series E redeemable convertible preferred shares ($0.01 par value; 101,570
shares authorized, issued and outstanding as of December 31, 2003) 999,997 --
SHAREHOLDERS' EQUITY
Ordinary shares ($0.0001 par value; 500,000,000 shares authorized;
97,390,000 shares issued and outstanding as of December 31, 2003;
250,129,200 shares issued and outstanding as of March 31, 2004) 9,739 25,013
Series A convertible preferred shares ($0.01 par value; 386,848 shares
authorized, issued and outstanding as of December 31, 2003) 1,624,732 --
Series B convertible preferred shares ($0.01 par value; 110,287 shares
authorized, issued and outstanding as of December 31, 2003) 900,656 --
Series D convertible preferred shares ($0.01 par value; 101,570 shares
authorized, issued and outstanding as of December 31, 2003) 1,000,000 --
Additional paid-in capital 5,811,354 78,255,208
Deferred stock-based compensation (4,691,825) (4,273,164)
Statutory reserves 500,000 500,000
Accumulated other comprehensive loss (411) (821)
Retained earnings/(accumulated deficit) (947,626) 1,864,886
------------ ------------
TOTAL SHAREHOLDERS' EQUITY 4,206,619 76,371,122
------------ ------------
TOTAL LIABILITIES, REDEEMABLE EQUITY AND SHAREHOLDERS' EQUITY 9,710,050 79,961,323
============ ============
</Table>
LINKTONE LTD.
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(IN U.S. DOLLARS, EXCEPT SHARE DATA)
<Table>
<Caption>
QUARTER ENDED
----------------------------------------------
MARCH 31, DECEMBER 31, MARCH 31,
NOTE 2003 2003 2004
---- ------------ ------------ ------------
Gross revenues 1,739,112 6,639,626 9,388,572
Business tax (108,542) (465,849) (492,512)
------------ ------------ ------------
Net revenues 1,630,570 6,173,777 8,896,060
Cost of services (607,277) (2,394,666) (2,804,412)
------------ ------------ ------------
Gross profit 1,023,293 3,779,111 6,091,648
------------ ------------ ------------
Operating expenses:
Product development (135,983) (249,832) (509,659)
Selling and marketing (411,981) (716,037) (1,194,506)
Stock-based compensation * -- (553,909) (418,661)
Other general and administrative (377,625) (641,819) (1,145,240)
------------ ------------ ------------
Total operating expenses (925,589) (2,161,597) (3,268,066)
------------ ------------ ------------
Income from operations 97,704 1,617,514 2,823,582
Interest income 6,797 12,640 17,136
------------ ------------ ------------
Income before tax 104,501 1,630,154 2,840,718
Net income 104,501 1,630,154 2,840,718
------------ ------------ ------------
Accretion on Series B redeemable preferred share (34,682) (39,890) (28,206)
------------ ------------ ------------
Net income attributable to ordinary shareholders 69,819 1,590,264 2,812,512
============ ============ ============
Other comprehensive income:
Foreign currency translation adjustment 152 378 (410)
------------ ------------ ------------
Comprehensive income 104,653 1,630,532 2,840,308
============ ============ ============
Earning per ordinary share
1
- -Basic 0.00 0.02 0.02
============ ============ ============
- -Diluted 0.00 0.01 0.01
============ ============ ============
Earning per ADS
- -Basic 0.01 0.16 0.19
============ ============ ============
- -Diluted 0.01 0.07 0.12
============ ============ ============
Weighted average number of ordinary shares
outstanding
- -Basic 97,390,000 97,390,000 144,413,658
============ ============ ============
- -Diluted 198,555,000 221,075,850 241,892,075
============ ============ ============
Weighted average number of ADS outstanding
- -Basic 9,739,000 9,739,000 14,441,366
============ ============ ============
- -Diluted 19,855,500 22,107,585 24,189,207
============ ============ ============
</Table>
* Stock-based compensation is a component of general and administrative
expenses.
Note 1: For the quarter ended June 30, 2004, the Company will adopt the
consensus reached in EITF 03-06, "Participating Securities and the
Two-Class Method under FAS 128," which provides further guidance on the
definition of participating securities and requires the use of the
two-class method in calculating earnings per share for enterprises with
participating securities. Upon adoption of EITF 03-06, earnings per
share for prior periods will need to be restated, if different from
that previously reported. The Company determined that all its preferred
stock outstanding through quarter ended March 31, 2004 qualified as
participating securities. Prior to EITF 03-06, the Company's policy was
to allocate earnings to participating securities under the two-class
method only after there were no more accumulated losses. EITF 03-06
requires that each period's income be allocated to participating
securities notwithstanding the existence of accumulated losses from
prior periods. As such, the Company expects that its earnings per share
will be restated as follows:
<Table>
<Caption>
THREE MONTHS ENDED
-------------------------------------------------------------
MARCH 31, 2003 DECEMBER 31, 2003 MARCH 31, 2004 YEAR 2003
-------------- ----------------- -------------- ---------
Basic earnings per share $ 0.00 $ 0.01 $ 0.01 $ 0.02
Basic earnings per share - as reported $ 0.00 $ 0.02 $ 0.02 $ 0.04
Basic earnings per ADS $ 0.01 $ 0.08 $ 0.13 $ 0.18
Basic earnings per ADS - as reported $ 0.01 $ 0.16 $ 0.19 $ 0.40
Diluted earnings per share $ 0.00 $ 0.01 $ 0.01 $ 0.02
Diluted earnings per share - as reported $ 0.00 $ 0.01 $ 0.01 $ 0.02
Diluted earnings per ADS $ 0.01 $ 0.07 $ 0.11 $ 0.16
Diluted earnings per ADS - as reported $ 0.01 $ 0.07 $ 0.12 $ 0.20
</Table>
Income has been allocated to the common and preferred stock based on their
respective rights to share in dividends. Shares of convertible preferred stock
were not included in diluted EPS under the if-converted method because to do so
would have been antidilutive.