Telecom & Wireless

NQ Scandal Continues Through Earnings Report

China
Source: Thinkstock
NQ Mobile Inc. (NYSE: NQ) reported fiscal third quarter 2013 earnings after markets closed on Tuesday. The Chinese mobile Internet carrier posted adjusted diluted earnings per American Depositary Share (ADS) of $0.28 on revenues of $54.2 million. In the same period a year ago, the company reported earnings per ADS of $0.26 on revenues of $41.4 million.Third-quarter results compare to the Thomson Reuters consensus estimates for earnings per ADS of $0.28 and $51.2 million in revenues. One ADS is equal to five ordinary shares.

In case you’ve been living in a cave for the past few weeks, what’s interesting about NQ Mobile is the attack launched against the company by short selling firm Muddy Waters LLC. The company’s share price tumbled from a 52-week high of $25.90 to less than $9.00 following the short seller’s report that accused NQ Mobile of various shenanigans. The mobile carrier has fought back, but the stock price has not managed to recover more than about $5 of its lost value.

NQ Mobile said that it expects fourth quarter revenues in the range of $62 to $63 million and it raised its full-year net revenue guidance from a prior range of of $184 to $188 million to a new range of $191 to $192 million. The consensus analyst estimate calls for third quarter earnings per ADS of $0.32 on revenues of $62.84 million and full-year earnings per ADS of $1.04 on revenues of $187.68.

The company’s CEO said, “The realization of our platform business model is showing up in tangible ways. We are now not only generating consumer security subscription revenues, but also significant gaming, advertising and enterprise mobility revenues as well.”

NQ Mobile recently announced a deal with China Mobile Ltd. (NYSE: CHL) and launched a mobile game for the iPhone the same day. The company has also made several fund transfers totalling approximately $103 million from its deposits in a Chinese bank to a new account at Standard Chartered plc and authorized the British-based bank to verify the deposits and to make details of the accounts known to investors.

The company claims cumulative registered user accounts now number 525 million, up from about 460 million sequentially and 242 million in the same period a year ago. Active monthly user accounts total 152 million, up from 138 million in the second quarter and 84.5 million a year ago. Total premium accounts now number 14.8 million, up sequentially from 11.3 million.

NQ Mobile has also formed a special committee of its board to conduct an independent review of the charges made by Muddy Waters. An outside law firm and financial advisory firm have been retained to advise the special committee. Until the company can either clear its name or succumb to charges it will remain a highly volatile stock.

The company’s shares closed at $14.31 today in a 52-week range of $5.07 to $25.90. Shares are down more than 7% in after-hours trading at $13.27. Thomson Reuters had a consensus analyst price target of around $27.00 before today’s report.

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