Chinese Web security firm NQ Mobile stumbled last year in the
wake of fraud allegations from a U.S. short-selling firm, but has
since announced several international mobile partnerships. Word
of them has helped the stock recover some lost ground.
) makes mobile software and has dual headquarters in Beijing and
The company's signature product is mobile-security protection
for smartphones, many of which run theGoogle (
) Android operating system. NQ's product works like a software
skin, essentially taking over and securing a smartphone against
threats. A user unlocking his phone will see NQ's software along
with the phone's other apps.
The software has several built-in security features. Say, for
example, that someone steals your phone -- NQ's software will
take a picture of the thief when the person tries to unlock it,
then email that photo to you.
Customers And Questions
At the close of NQ's last reported quarter, ended Sept. 30,
2013, the company boasted that it has some 427 million registered
security software users, about 133 million of whom are active
The company also has other products, including mobile gaming
apps. Of NQ's 98 million mobile gaming users, about 19 million
play each month, NQ says.
As China's younger Internet-using population shifts to mobile
handsets for gaming -- instead of using desktops -- NQ's going to
be competing for users against heavy hitters such asBaidu (
), Tencent andQihoo 360 Technology (
), another Web security firm.
NQ stock had a tough run last fall, when U.S.-based
short-selling firm Muddy Waters published research alleging as
much as 72% of NQ's revenue was "fraudulent."
"NQ is a massive fraud," said the research published by the
firm, which is run by Carson Block, a well-known short seller.
"Our research estimates that NQ's real market share in China is
only 1.5%, versus the approximately 55% it reports."
That initial Muddy Waters Research report drove NQ's stock
down by more than 47% in a single day, Oct. 24. The stock touched
an all-time high of 25.90 on Oct. 21 and lost more than 70% of
its value in days, touching 7.58 on Oct. 28.
NQ executives in Dallas and Beijing held a conference call to
address the allegations and released details on the amount of
cash in company bank accounts.
"We welcome investors and analysts and partners to do due
diligence on our business, our products and our strategy," Matt
Mathison, NQ's vice president of capital markets, told analysts
at the time.
The company also formed a special committee to investigate the
allegations made by Muddy Waters. That committee hasn't yet
reported its findings.
Progress With Partnerships
NQ stock has since rebounded, at least in part because NQ
executives have pushed for new high-profile partnerships,
including a deal announced Jan. 15 with U.S. service
). Under the partnership, NQ's software will be sold
pre-installed on some Sprint smartphones that run Android.
That deal might weigh on NQ's profit margin in coming
quarters, but it's seen boosting revenue, according to Canaccord
Genuity analyst Michael Walkley. He rates NQ stock a buy with a
price target of 29.
"Further, we believe Sprint's agreement to utilize NQ Live
across its Android portfolio provides a compelling endorsement of
the technology that could help drive additional deals," wrote
Walkley, citing the conversation he had with NQ executives at the
Mobile World Congress in Barcelona, Spain, in February.
NQ stock ended 2013 at 14.70 and is up about 27% this year
(through Tuesday's close), though it hasn't yet broken into
NQ and other Chinese tech companies, including Baidu, Qihoo
andNetEase (NTES), have lost ground this week after Chinese
customs officials over the weekend reported a drop in the
country's February exports. Following a 7% drop Monday, NQ stock
closed off about 3% Tuesday at 18.61, on a down day for major
The Sprint deal is one among a spate of partnerships announced
in late 2013 and early 2014. Another is with Samsung. Announced
Feb. 24, that deal is aimed at enterprise smartphone users. NQ
Mobile and Samsung Knox mobile security features have been
combined to create "bulletproof mobile device management and
security protection," NQ Mobile says.
NQ's 2013 revenue is expected to come in up 109% at $192
million, according to analysts polled by Thomson Reuters. Wall
Street sees a 53% climb to $294 million in 2014.
Part of that expected gain is seen coming from the company's
mobile gaming business, which "remains strong" with more than
half a dozen games launched between December and January,
according to Wedge Partners analyst Jun Zhang.
"We expect mobile game revenue will grow over 60% year over
year in 2014," Zhang wrote in a February research note.
The Short Interest
Toro Investment Partners, a California-based investment firm
that holds a 5% stake in NQ Mobile, sees a strong future in the
stock. The investment partnership says the short-selling effort
has essentially weeded out a lot of short-term holders.
By Toro's analysis, about 74% of NQ's stock float is with
institutional holders that "are not trading their shares, which
makes the actively traded float around 8 million."
"With the 74%+ reduction of actively traded float, NQ has
quickly become one of the most dangerous stocks to short on the
entire NYSE," Toro wrote in a blog post.