China's NQ Mobile Sees Shares Rise On Growth Outlook

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After watching its stock price go sideways during its first two years on the NYSE, China's NQ Mobile seems to have finally caught Wall Street's attention.

The company has seen its shares spike in recent weeks, thanks to events that have underscored its growth potential.

NQ ( NQ ) provides mobile security and productivity software as well as mobile gaming and enterprise solution products.

Its NQ Mobile Security product is designed to protect users' mobile voice and data from malicious software, data theft and privacy intrusion.

Another product, NQ Mobile Vault, ensures users' digital privacy through active control and on-device encryption of content and communication.

The company also offers mobile games, Interest-based community applications, advertising services and enterprise mobility solutions.

NQ's stock price touched a record high of 15.08 Tuesday, continuing a run that has seen shares double in a month.

For that, NQ can thank a greater awareness among investors of its growth potential, says Frederick Ziegel, analyst at Topeka Capital Markets.

Accelerating Partnerships

"NQ is really accelerating its partnerships and geographies across all business units, and they've really broadened their addressable market," Ziegel said. "What you've seen over the last three to four weeks is an extremely undervalued company become less undervalued."

One positive recent development was NQ's July 15 announcement that it was raising its second-quarter revenue guidance to above $40 million from its prior forecast of $38.5 million to $38.8 million. Last year it reported Q2 revenue of $20 million.

The company has delivered eight straight quarters of triple-digit sales growth since its shares debuted on the NYSE in May 2011.

NQ is due to report Q2 results during the week of Aug. 12-16. Analysts polled by Thomson Reuters expect earnings of 20 cents a share, up from 14 cents the previous year.

The same day it raised its revenue guidance, NQ entered into a share purchase agreement to buy the remaining 45% stake in its Beijing NationSky Network Technology unit and fully consolidate the two businesses. The deal is expected to be immediately accretive to earnings.

NationSky provides mobile service to more than 1,000 enterprises in China, including in managed mobile, mobile device management ( MDM ) and mobile Software as a Service (SaaS).

Global Growth

NQ announced its original investment in NationSky last year as a way to address the enterprise MDM market. Since then, NQ has integrated mobile device applications with mobile device security to differentiate itself from rivals, analyst Ziegel says.

In a statement, NQ Co-Chief Executive Omar Khan said NationSky is "well positioned to leverage the explosive global growth in enterprise mobility solutions."

He added: "Mobility trends are changing the way enterprises work, (and) NationSky has successfully positioned itself in targeting the enterprise mobility market. The NationSky business has exceeded our expectations."

NQ shares got another boost on July 23, when the company's Beijing Feiliu Jiutian Technology subsidiary signed an agreement withBaidu ( BIDU ), owner of China's most popular search engine.

Under terms of that deal, Baidu's Duoku website will become the exclusive publisher of a Beijing Feiliu-developed mobile game, "The Martial Arts Champion," on the Android platform in China.

FL Mobile has been the exclusive publisher of the game on the iOS platform since February. Since then, the game has ranked among the top 30 grossing games on iOS and reached a ranking in the top 8 at one point.

And on July 30, Beijing Feiliu announced it will be the game content provider forChina Mobile 's ( CHL ) Game Center.

NQ is no stranger to partnerships with high-profile clients. In March, it said it will provide its products to subscribers ofAmerica Movil ( AMX ), the Mexican wireless giant that ranks as Latin America's biggest telecom group in terms of equity subscribers.

Mobile With Movil

Under terms of that deal, America Movil will offer NQ Mobile's products for security, privacy and family protection to its 262 million subscribers in Latin America.

NQ has also announced deals withU.S. Cellular (USM) and retailers ofVerizon Communications (VZ) products, among other well-known companies.

One benefit of these partnerships, beyond the extra business they bring in, is they expand NQ's geographic footprint.

Prior to 2012, most of NQ's international business came from Southeast Asia and Eastern Europe, Ziegel says.

"But beginning in 2012 they launched a focus on developing partnerships in North America, Central/South America and Western Europe," he said. "The developed countries are still a reasonably small part of the business, so they have that to look forward to in terms of growth."

International markets accounted for 43% of NQ's sales in 2011. The company's website did not provide a breakdown for 2012.

During this year's first quarter, international markets accounted for 56% of total consumer mobile security revenue.

Overall revenue for the quarter more than doubled from the prior year to $33 million, slightly above consensus analyst views. Earnings gained 46% to 19 cents a share, in line with estimates.



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Investing Ideas

Referenced Stocks: AMX , BIDU , CHL , MDM , NQ

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