Editor’s note: Part 3 of the SludgeReport (SR) interview with NQ Mobile has been re-edited before publication. Recent news and an October 21st follow-up meeting with Matt Mathison, Vice President of Capital Markets, preceded publication of the original article.
Mathison’s manner and good nature shone through again in yesterday’s follow-up meeting. He’s a no-holds barred, down to earth guy, who tells it like it is! SR was likewise impressed with his calm demeanor considering the short storm still circling his gulf region. While not dismissive of the shorts and their allegations, SR walked away with the impression NQ considers them a bit ridiculous and would rather talk about the business that’s growing!
While NQ Mobile admits that hindsight is 20/20, they also rightfully acknowledge there is no preparation that can be done to avoid a short attack. There is no playbook or training that can prepare an organization for where an attack’s focus may be.
Communication is key to ensure shareholder’s are informed and NQ feels they performed with respect to the original allegations.
The recent delay in filing the 20f is a different topic though and not related to the short’s allegations. While shareholders may feel there is a communication gap occurring, NQ remains focused on meeting the 20f deadline of November 15th and filing the 2014 quarterlies.
Until those are completed, no amount of press releases concerning partnerships and deals are relevant.
NQ Mobile was on an acquisition spree in 2013 that may have confused some at the time, but a year later NQ’s foresight into the hyper-growth mobile landscape now makes sense.
NQ’s platform strategy for the consumer and enterprise business are all mobile facing and either drive traffic, engagements, or help monetize those through advertising and other services.
NQ Mobile is really a holding company not unlike Alibaba, Baidu, and Tencent, which all own multiple subsidiaries that provide value and synergy to the parent organization.
SR wondered how these acquisitions add synergy though and decided to research some of them. SR recommends shareholders visit their sites for more information.
NQ Mobile KK (NQ Japan) is a direct subsidiary of NQ Mobile with in country resources to bring the full product range to Japan; MDM, security products, games, internet advertising, business development, and more.
Beijing Tianya Co., Ltd provides data analytics to app stores, search engines, and was mentioned in relation to mobile healthcare applications, which other NQ subsidiaries are currently developing and deploying.
Beijing Century Hetu Software Technology Co., Ltd is a mobile game developer that released games such as First Empire and Pocket Dream.
Chengdu RuiFeng Technology Co., Ltd recently launched a mobile health platform.
Shanghai Yinlong Information and Technology Co., Ltd developed music search technology used in NQ Mobile’s Music Radar app.
Special thanks to Surendar for his assistance researching this section.
Advertising Revenue and Margins
Advertising revenue has been under scrutiny with the NQ shorts, however the stated 50% target for consumer side revenue is easy to see given the subsidiary’s specialties.
Mathison pointed out that core productivity app monetization has moved more towards advertising according to a plan laid out to investors more than two years ago. He went on to explain that even in 2013 Q4, advertising already accounted for 40% of the consumer side revenue, so a 50% target isn’t unreasonable and may be considered conservative.
NQ also has numerous emerging products; NQ Live, Music Radar, and iSMS, that will provide additional revenue in the second half of 2014. NQ expects these to improve margins in the second half as they continue to be monetized, Mathison stated.
Editor’s Note: Last minute update, recent Music Radar news. Right click in your browser and select translate.
The Audit Committee and Board of Directors are actively working with firms to conduct a talent search for the right candidate. Logistically NQ is not rushing, but rather they are focused on finding the top candidate. In the meantime Vincent Shi, COO, is filling the role. Shi has been running the company from a day to day operations standpoint, including finance, from NQ’s very foundation and is “very comfortable” with the CFO role.
Summary and SR take-aways
Outward appearances may be clouded by short’s propaganda but SR is confident NQ Mobile has their business well in hand.
Shareholders should consider the risks to ensure they are managed short term. However considering the recent fire sale short’s have provided, SR feels there is deep value that will be unlocked in the near and long term and therefore is maintaining the 2015 price targets established September 7th, 2014.
Investors not familiar with heavily shorted stocks should be prepared for volatility. Whether that means ensuring their position is weighted appropriately in their portfolio, they are hedged against short term fluctuations, and/or they are confident with their own due diligence and avoid using stop losses that can result in loss of profit or shares.
SR’s price targets for 2015 will be re-evaluated when NQ files the first three quarters of 2014.
This concludes the article series. SR will continue with more research and news as it is readied for publication.
Thank you NQ Mobile for your time in helping provide shareholders with this information.