TOM Online Reports 2006 Net Profit of US$28.66 mn

TOM Online Reports 2006 Net Profit of US$28.66 mn

March 15, 2007

    HONG KONG, March 15 /Xinhua-PRNewswire/ -- TOM Online
Inc., (Nasdaq: TOMO; Hong Kong GEM: 8282) ("TOM
Online" or the "Company"), a leading
wireless Internet company in China, announced today its
financial results for the fourth quarter and full year
ended December 31, 2006.

    Fiscal 2006 Financial Highlights:
    -- Total revenues for the year ended December 31, 2006
grew by 0.2% from 
       2005 to US$168.37 million ("mn").
    -- Revenues from wireless Internet services were
US$152.64mn for the year,
       representing a decrease of 3.3% from 2005.
    -- Advertising revenues rose to US$13.28mn in 2006, up
44.2% from 2005.
    -- Net income was US$28.66mn for the year, down 36.3%
from 2005.
    -- US GAAP basic earnings per American Depositary Share
("ADS") were 
       US$0.539 for the full year and US$0.536 fully
diluted earnings per ADS 
       for the full year.

    Fourth quarter 2006 Financial Highlights:
    -- Total revenues were US$33.62mn, a decrease of 28.5%
from the same 
       period last year and a decrease of 11.1% from the
previous quarter.  
       Total revenues exclude results from our Indiagames
subsidiary as it has
       been separately reported under discontinued
operations. 
    -- Wireless Internet revenues were US$29.60mn,
representing a 32.0% 
       decrease from the same period last year and a 11.9%
decrease from the 
       previous quarter due to the impact from operator and
government 
       policies.  Wireless Internet revenues made up 88.0%
of total quarterly 
       revenues. 
    -- Online advertising revenues were US$3.16mn,
representing a 1.3% 
       decrease from the same period last year and 10.6%
decrease from the 
       previous quarter.  Online advertising revenues made
up 9.4% of our 
       total quarterly revenues.
    -- Net loss was US$0.51mn, a decrease of 109.6% from
the last quarter and 
       a decrease of 104.0% from the same period last year
due to the 
       provision for goodwill impairment of US$4.63mn for
Indiagames under 
       discontinued operations. 
    -- Excluding share-based compensation ("SBC")
expenses of US$0.82mn and 
       goodwill impairment charge on Indiagames of
US$4.63mn, Non-GAAP net 
       income was US$4.94mn.
    -- Fully diluted loss per ADS was US$0.96 cents or
US$0.01 cents per 
       common share.
    -- Excluding SBC expenses and goodwill impairment
charge on Indiagames, 
       Non-GAAP fully diluted earnings per ADS was US$9.28
cents per ADS or 
       US$0.12 cents per common share.
    -- Our balance of cash and cash equivalents and
short-term bank deposits 
       was approximately US$136.61mn at the end of 2006.

    BUSINESS REVIEW

    The Company's unaudited consolidated revenues for the
three months ended December 31, 2006 were US$33.62mn, a
decrease of 28.5% year on year ("YoY") and a
decrease of 11.1% quarter on quarter ("QoQ").   

    Our 4Q06 total revenues exclude the revenue of our
Indiagames subsidiary due to the re-classification of this
business as "held-for-sale" at the end of 2006
and the associated profits and losses from Indiagames
during the period presented are now separately reported
under (losses)/income from discontinued operations in the
consolidated statements of operations.  If we were to
include Indiagames fourth quarter revenues as part of total
revenues (Non-GAAP presentation), total revenues for 4Q06
would have been US$34.69mn.

    Wireless Internet revenues were US$29.60mn,
representing a 32.0% decrease from the same period last
year and a 11.9% decrease compared to the previous quarter
due to the impact from operator and government policies. 
Wireless Internet revenues made up 88.0% of our total
revenues in the fourth quarter compared to 88.8% in the
third quarter.

    Online advertising revenues were US$3.16mn,
representing a 10.6% decrease QoQ and 1.3% decrease YoY. 
Online advertising revenues made up 9.4% of our total
quarterly revenues, up slightly from 9.3% in the third
quarter.

    Gross profit was US$11.37mn representing a decrease of
45.5% compared to the same period last year and a 7.8%
decline QoQ.  Gross margins improved slightly to 33.8% in
4Q06 compared to 32.6% in 3Q06.  The small improvement in
4Q06 gross margins from 3Q06 was mainly due to lower
sequential rich media costs in our advertising business as
wireless Internet gross margins remained flat QoQ.

    Total operating expenses were US$8.30mn in 4Q06, 3.0%
higher than 3Q06 but down 3.9% compared to the same period
last year.  The slight QoQ increase in 4Q06 operating
expenses was mainly due to an increase in year-end
marketing activities.  In addition, during 4Q06, the
Company recognized US$0.82mn in SBC expenses which are
excluded in our non-GAAP presentation of earnings. 

    Operating profit was US$3.08mn, down 74.9% from the
same period last year and 28.2% from the previous quarter. 
Excluding SBC expenses, Non-GAAP operating profit would have
been US$3.90mn.  Operating margins were 9.2% in 4Q06,
compared to 11.3% in the previous quarter.

    4Q06 EBITDA ("Earnings before Interest, Taxes,
Depreciation and Amortization") were US$5.50mn, a
decrease of 61.4% YoY and 18.7% QoQ.  EBITDA margins were
15.8% for the quarter compared to 17.3% in 3Q06.  Excluding
SBC expenses, 4Q06 adjusted EBITDA was US$6.32mn. 

    Net loss was US$0.51mn, a decrease of 104.0% YoY and
109.6% QoQ primarily due to a goodwill impairment charge of
US$4.63mn associated with the decision to sell substantially
all our interest in Indiagames. 

    Excluding SBC expenses and goodwill impairment charge
on Indiagames, Non-GAAP net income was US$4.94mn, a
decrease of 61.2% YoY and 18.0% QoQ. 

    US GAAP basic loss per ADS was US$0.96 cents for the
quarter.  US GAAP basic loss per Hong Kong ordinary share
was US$0.01 cent for the quarter. Shares used in computing
US GAAP basic loss per ADS were 53.25mn and shares used in
computing US GAAP basic loss per Hong Kong ordinary share
were 4,259.63mn.

    Excluding SBC expenses and goodwill impairment charge
on Indiagames, Non-GAAP basic earnings per ADS were US$9.28
cents and Non-GAAP basic earnings per Hong Kong ordinary
share were US$0.12 cents for the quarter.  Shares used in
computing basic earnings per ADS were 53.25mn and shares
used in computing basic earnings per Hong Kong ordinary
share were 4,259.63mn.

    US GAAP diluted loss per ADS was US$0.96 cents for the
quarter. US GAAP diluted loss per Hong Kong ordinary share
was US$0.01 cent for the quarter. Shares used in computing
US GAAP diluted loss per ADS were 53.25mn shares and shares
used in computing US GAAP diluted loss per Hong Kong
ordinary share were 4,259.71mn.

    Excluding SBC expenses and goodwill impairment charge
on Indiagames, Non-GAAP diluted earnings per ADS were
US$9.28 cents and Non-GAAP diluted earnings per Hong Kong
ordinary share were US$0.12 cent for the quarter.  Shares
used in computing diluted earnings per ADS were 53.25mn and
shares used in computing diluted earnings per Hong Kong
ordinary share were 4,259.71mn.

    Our balance of cash and cash equivalents and short-term
bank deposits was approximately US$136.61mn at the end of
2006.

    Wireless Internet Services

    Total wireless Internet service revenues were
US$29.60mn for the fourth quarter of 2006, a decrease of
11.9% QoQ and 32.0% YoY.  Wireless Internet revenues
accounted for 88.0% of our total revenues in the quarter
compared to 88.8% in 3Q06.

    As we had previously discussed, our Infomax subsidiary
generated a significant portion of its revenues in 3Q06
from CCTV-2's "Dream China" show which aired
during the August and September time frame.  As such, a
primary factor for the QoQ decline in wireless Internet
business was due to this seasonal factor.  If we were to
exclude Infomax from our quarterly comparison, total
wireless Internet revenues would have been US$25.52mn in
4Q06 and US$ 26.64mn in 3Q06, representing a decrease of
4.2% QoQ.

    On July 7, 2006, TOM Online issued a press release
relating to policy changes on China Mobile's Monternet
platform.  The changes, which have been implemented under
the policy directives of China's Ministry of Information
Industry ("MII"), aim to address a number of
issues, including reducing customer complaints, increasing
customer satisfaction and promoting the healthy development
of Monternet.  In addition, under the same MII policy
directives, China Unicom has also implemented similar
policies to that of China Mobile during 3Q06.

    These policies had a significant negative impact to our
wireless Internet business in the second half of 2006. 
Moreover, excluding the contribution from our acquisition
of Beijing Infomax in the middle of 2006, our wireless
Internet business would have declined even more from 2005
levels on a YoY comparison.

    Looking forward, we continue to believe that our mobile
operator partners will consolidate their value added service
business towards a smaller group of large scale wireless
Internet service providers which will benefit our business
in the long run.

    SMS ("Short Messaging Service") revenues in
4Q06 were US$9.44mn, down 33.6% QoQ and 47.0% YoY.  SMS
revenues made up 31.9% of our total wireless Internet
revenues for the quarter.  The primary factors for the
steep QoQ decline in our SMS business were ongoing
implementation of new operator policies towards the tail
end of the quarter as well as significantly reduced
contribution from Infomax's SMS business due to the
seasonality of the "Dream China" show.

    MMS ("Multimedia Messaging Service") revenues
for 4Q06 were US$2.38mn, up 14.4% QoQ but down 45.8% YoY. 
MMS revenues made up 8.0% of our total wireless Internet
revenues in the quarter.  As discussed before, we continue
to believe that MMS is a transitory product category and do
not expect MMS to be a key business driver to our overall
business in coming years.

    WAP ("Wireless Application Protocol")
revenues for 4Q06 were US$7.32mn, representing a 1.1%
decrease QoQ and 9.3% decrease YoY.  WAP revenues made up
24.7% of our total wireless Internet revenues in the
quarter.  Our WAP business stabilized from the previous
quarter as we continued to shift the bulk of our WAP
business to usage-based services compared to subscription
based services to mitigate ongoing impact from operator
policies.

    IVR ("Interactive Voice Response") revenues
in 4Q06 were US$7.92mn, down 2.8% QoQ and 27.2% YoY. IVR
revenues made up 26.8% of our total wireless Internet
revenues in the quarter.  Our IVR business continued to
decline QoQ due to the impact of cross-selling restrictions
and other operator policy factors.  As of January 1, 2007,
our IVR operations were transitioned to China Mobile's
centralised IVR platform.

    CRBT ("Colour Ringback Tones") revenues in
4Q06 were US$2.30mn, up 42.6% QoQ and roughly flat YoY. 
CRBT revenues made up 7.8% of our total wireless Internet
revenues in the quarter.  There was a rebound in our CRBT
business due to year-end promotional activities with mobile
operators and continued declines in the average unit price
of CRBT which have stimulated incremental end-user demand.

    Other wireless Internet revenues were US$0.24 mn,
representing 71.2% increase QoQ and 205.1% increase YoY. 
Other wireless Internet revenues made up 0.8% of our total
wireless revenues.  Other wireless Internet revenues
consist mainly of Java-based mobile game download services.


    Historically, we included revenues from our Indiagames
subsidiary as part of other wireless Internet revenues. 
However, due to the re-classification of Indiagames as
"held-for-sale" at the end of 2006, the
associated (losses)/income of Indiagames have been
separately reported as (losses)/income from discontinued
operations below our (losses)/income from continuing
operations line.

    Online Advertising and Portal

    Online advertising revenues were US$3.16mn in 4Q06,
representing a decrease of 10.6% QoQ a decrease of 1.3%
YoY.  Whilst our portal remains an important business area
for the Company, we are facing competitive pressures for
share of advertiser budgets allocated towards our target
audience, the young and trendy demographic.  In 4Q06 this
was compounded by a reduction in e-commerce advertisers ad
spend on our site.  As such, on both a QoQ and YoY basis,
our online advertising business performance lagged our
peers. 

    During the period, we continued to improve our back-end
editorial and content publishing systems to provide better
user-experience and support Web 2.0 features with the aim
to increase our share in online entertainment and sports
audiences.  

    As we continue to transition the current wireless
Internet operating environment, the Company's management
will continue to increase its efforts on developing our
portal business.  In particular, the portal strategy will
be aligned to best position the Company for the
introduction of 3G wireless services in the Mainland China
market.

    NEW BUSINESS OPPORTUNITIES 

    TOM Eachnet

    At the end of 2006, we announced a joint venture
agreement with eBay / Eachnet to combine their respective
expertise to build a new China marketplace business in
2007.  We are optimistic that through the combination of
eBay's global e-commerce knowledge and our solid local
market expertise and online assets that there is an
opportunity to create an attractive and profitable online
marketplace for mainland Chinese buyers and sellers. 
Moreover, we believe the joint venture will benefit from
our strong position in the Chinese wireless Internet market
in developing new mobile commerce ("m-commerce")
opportunities.

    TOM-Skype JV and UMPay

    At the end of January 2007, we had over 31.5mn
registered TOM-Skype users, up from over 23.5mn registered
users at the end of October 2006, or an increase of over
8.0mn new registered users.  The growth in TOM-Skype users
is due to sustained marketing activities surrounding the
voice and community functions of the TOM-Skype service as
well as the scale of the user base continuing to exhibit
positive network effects.

    Regarding our alliance with UMPay, the Company
continued to work closely with UMPay on micropayments
services.  The Company continues to work as UMPay's
exclusive business partner to develop China's mobile
payment market as a longer term opportunity for the
Company.

    Proposed Conditional Possible Privatisation of TOM
Online

    On March 9, 2007 the respective directors of the
Company and TOM Group Limited ("TOM") jointly
announced that on March 3, 2007, a letter was sent by TOM
to inform the Company that TOM was considering making a
proposal to take the Company private by way of a scheme of
arrangement ("Proposal") under Section 86 of the
Cayman Islands Companies Law.  On March 9, 2007 TOM
requested the board of directors of TOM Online to put
forward the Proposal to TOM Online's shareholders.  The
Proposal will be made only if the Proposal and the
transactions contemplated thereunder have first been
approved at an extraordinary general meeting of TOM
("TOM EGM").  Accordingly, there is no assurance
that the Proposal will be made.  An announcement will be
made by TOM in relation to the voting results of the TOM
EGM.  For further details of the Proposal, please see the
joint announcement of the Company and TOM which was posted
on the website of the Growth Enterprise Market of the Stock
Exchange of Hong Kong on March 12, 2007 and filed with the
U.S. Securities and Exchange Commission under Form 6K on
March 12, 2007.

    Forward Looking Statement

    This document contains statements that may be viewed as
"forward-looking statements" within the meaning of
Section 27A of the United States Securities Act of 1933, as
amended, and Section 21E of the United States Securities
Exchange Act of 1934, as amended.  Such forward-looking
statements are, by their nature, subject to significant
risks and uncertainties that may cause the actual
performance, financial condition or results of operations
of the Company to be materially different from any future
performance, financial condition or results of operations
implied by such forward-looking statements. Such
forward-looking statements include, without limitation,
statements that are not historical fact relating to the
financial performance and business operations of the
Company in mainland China and in other markets, the
continued growth of the telecommunications industry in
China and in other markets, the development of the
regulatory environment and the Company's latest product
offerings, and the Company's ability to successfully
execute its business strategies and plans.

    Such forward-looking statements reflect the current
views of the Company with respect to future events and are
not a guarantee of future performance. Actual results may
differ materially from information contained in the
forward-looking statements as a result of a number of
factors, including, without limitation, any changes in our
relationships with telecommunication operators in China and
elsewhere, the effect of competition on the demand for the
price of our services, changes in customer demand and usage
preference for our products and services, changes in the
regulatory policies by relevant government authorities, any
changes in telecommunications and related technology and
applications based on such technology, and changes in
political, economic, legal and social conditions in China,
India and other countries where the Company conducts
business operations, including, without limitation, the
Chinese government's policies with respect to economic
growth, foreign exchange, foreign investment and entry by
foreign companies into China's telecommunications market.
Please also see "Item 3 -- Key Information -- Risk
Factors" section of the Company's 2005 annual report
on Form 20-F to be as filed with the United States
Securities and Exchange Commission

    Non GAAP Financial Measures

    To supplement the financial measures prepared in
accordance with US GAAP, the Company uses Non-GAAP
financial measures including EBITDA, Adjusted EBITDA,
Non-GAAP Net Income, Non-GAAP basic and diluted EPS which
are adjusted from results based on US GAAP in analyzing its
financial results.  The use of Non-GAAP measures is provided
to enhance the reader's overall understanding of the
Company's current financial performance and its prospects
for the future. Specifically, the Company believes the
Non-GAAP results provide useful information to both
management and investors by excluding certain items that
are not expected to result in future cash payments. 

    In calculating the EBITDA, depreciation and
amortization expenses have been excluded from the total
operating profit.  In calculating adjusted EBITDA, the
share-based compensation expense has been further excluded
from EBITDA to derive at the adjusted EBITDA.  In addition,
share-based compensation expense and goodwill impairment
charge on Indiagames have also been excluded from the Net
Income/(Loss) Attributable to Shareholders to derive at the
Non-GAAP Net Income.  The reason for excluding share-based
compensation expense to arrive at the adjusted EBITDA and
Non-GAAP Net Income is that the Statement of Financial
Accounting Standard 123R "Share-Based Payment"
was only adopted by the Company since January 1, 2006 and
the Company believes that the exclusion of such expense
could enhance the comparability of its current operating
results to those of prior periods.  As the goodwill
impairment charge on Indiagames is a non-recurring and
non-cash item, the Company believes that the exclusion of
such expense could enhance the investors' overall
understanding of the Company's current financial
performance and future prospects. Correspondingly, the
Non-GAAP basic and diluted earnings per share data were
calculated based on the Non-GAAP Net Income as shown below.
 The number of shares used in the calculation has been
disclosed in note 4 to the audited consolidated financial
statements. 

    Although the Company has historically reported US GAAP
results to investors, the Company believes the inclusion of
Non-GAAP financial measures provides further clarity in its
financial reporting.  These Non-GAAP financial measures may
be different from Non-GAAP financial measures used by other
companies, and should be considered in addition to results
prepared in accordance with US GAAP, but should not be
considered a substitute for or superior to US GAAP
measures. 

    About TOM Online Inc. 

    TOM Online Inc. (Nasdaq: TOMO, Hong Kong GEM: 8282) is
a leading wireless Internet company in China providing
value-added multimedia products and services.  A premier
online brand in China targeting the young and trendy
demographics, the Company's primary business activities
include wireless value-added services and online
advertising. The company offers an array of services such
as SMS, MMS, WAP, wireless IVR (interactive voice response)
services, content channels, search and classified
information, and free and fee-based advanced email.  As at
December 31, 2006, TOM Online is the only portal in China
that enjoyed a top three ranking in every wireless Internet
segment.