Hey NQ, so what about these shorts? (and other topics)

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!

NQ Shorts

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.

Subsidiaries

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.

Best Partner Ltd (WAPS)  provides advertising services for mobile internet platforms including NQ advertising subsidiary Adnovo which opened a new office in San Francisco in March 2014.

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 Fanyue (Sail Wyatt ) is an internet venture firm subsidiary of FL Mobile, headquartered in Beijeng.   They provide mobile internet advertisement integration and marketing solutions.

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.

NQSky is focused on enterprise solutions and has been discussed in Part 1 and 2 of this article series.

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.

CFO Search

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.

 

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10 thoughts on “Hey NQ, so what about these shorts? (and other topics)”

  1. SR – Thank you for taking time to arrange for this meeting, querying NQ management, rolling up the answers, and cautioning shareholders how they can help to minimize a repeat of yesterday’s knee-jerk reaction to a fallacious management resignation comment (see Maxdad’s post 10/21).
    Your findings not only support ongoing DD but continue to support previous comments by management reported on this blog and elsewhere.
    Jim Long

    Liked by 1 person

  2. IMO – another joke, it says nothing, just like matthison said to me when I PERSONALLY talked to him, NOTHING, but a bunch of political mumbo jumbo , “oh yes we are doing everything we can to make the deadline” blah blah blah, imo there is zero chance they make the deadline, they would have already released it, stock tanks on release or non release, Lin spouting projections from somewhere in china is suppose to make us feel good? This company is an embarrassment, khan has no b*lls and no clue on how to fight for shareholders. its called “man up” omar. the whole too cool for school lets just hide with our head in sand and pray the boogie man goes away is not working. get your ass out of hiding and FIGHT! cant believe all the above SR ass kissing comments. fact: October 2014 – and nothing. Fact : omar hasn’t said sh*t cuz he has nothing good to say. Fact: it doesn’t take 4 months to do a 20f. Fact – companies 50 times this size have done them in half the time MBP has taken. Something egg rotten in Denmark – IMO

    Like

      1. so kind. say hi to Matt for me. Tell him thanks for the non-disclosed dilution he didnt care to mention in one of your little “chats” oh and that when i talked to him he sounded like a used car salesman completely full of sh*t.

        Like

  3. “Something rotten in Denmark” is one of the most recognizable lines in all of Shakespeare’s works, but “stock tanks on release” that was all me. I was spot on. See you at $5.50 by Friday until a positive earnings quarterly is released no one on street cares about fraud or no fraud, its earnings that tanked NQ and will continue to unless they show a profit.

    Like

    1. Yet “something egg in Denmark” cannot be found in any works of Shakespeare.

      Lest you forget that you aren’t on Yahoo, or wherever you came from, SR has Dec 2015 price targets and is long biased.

      Recommendations to buy in the first two articles were still well below the current PPS.

      Recommendations to short term hedge in the third, came after a run up in the share price leading to the 20f.

      While SR is long biased and firmly stands by the Dec 2015 targets, SR recognizes short term price volatilty in heavily shorted stocks.

      Perhaps you should reread the articles but make sure you don’t get “egg” on your face while doing so.

      Like

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