Linktone, Ltd., (LTON-NSDQ), is a provider of wireless interactive entertainment services for mobile telephone users and advertising services to enterprises in China. The company's services are offered through two wireless service operators China Mobile and China Unicom, plus two operators of fixed line and personal handy-phone systems (a short range wireless solution), China Telecom, and China Netcom. Linktone offers a variety of short messaging services (SMS) over second generation (2G) wireless networks. Additionally, it also offers multimedia messaging services (MMS) over the more advanced 2.5G networks and audio-related services. Services offered include: ring tones, icons, screen savers, interactive messaging during certain television programs, games, horoscopes, entertainment, news, and other content. Users can purchase the services on a per-use basis or, in most cases, on a subscription basis with a one- or two-year contract through the service provider.
Linktone's revenue for the third quarter exceeded the market consensus while EPS missed market expectations. The Chinese wireless value-added services market has seen increasingly intense competition, and the policy changes from Chinese telecom operators and regulation changes from Chinese government have great effects on Linktone's business. However, two companies have stated intentions to purchase a stake in Linktone at a premium within three days, which drove up its stock price. Overall, we think current stock price fairly represents the company's short-term prospects. Therefore, we are maintaining our Hold recommendation on Linktone's stock.
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