NQ Mobile (NQ, Financial) has depreciated approximately 55% in the past 12 months. There are multiple factors affecting the stock price such as delay in reporting financials, declining trend in earnings per share, accused of overstating its revenue and regular changes in the board of directors. Let us have a brief look at its recently reported financials for the last three quarters of fiscal 2014.
The mobile-security company for the third quarter posted revenue of $81.2 million, an increase of 50% from $54.2 million in the same quarter a year ago. However, its net loss grew wider to $17 million or earnings of $0.04 per share from $2.4 million or earnings of $0.01 per share.
For the second-quarter, its revenue grew about 97.2% to $81.6 million as against $21.3 million in the same period last year. However, its net loss expanded to $16.8 million or earnings of $ 0.04 per share from net income of $1.9 million or earnings of $0.04 per share a year earlier.
For the first quarter, its revenue rose approximately 140.1% to $79.8 million as compared to $33.2 million in the first quarter 2013. However, its net loss widened to $21.7 million or loss of $0.08 per share as against net income of $2.9 million or earnings of $0.01 per share in the same period a year earlier.
Turnaround on the way
NQ Mobile is fighting back against these ongoing difficulties. The company is executing several strategic initiatives that could possible bring stability in its business and deliver returns to its shareholders in the future. The Mobile internet services company has changed its board of directors and management at the top level.
It has appointed Justin Chen, Max Yao and Roland Wu as independent directors. The former two will be members of the audit committee. It has appointed Dr. Vincent Shi as its new chairman along with Zemin Xu as its new co-CEO. The management at the same time revealed that this team is committed to regaining compliance status with regulators. Also, the team remains on track to file its annual report and financials on a timely basis going forward.
It has recently announced a share buyback program. It is expected to repurchase approximately $80 million of its share over the next 12 months. NQ plans to fund these repurchases from its existing cash balance that stands at $283.05 million. The company said that it will execute share repurchase from time to time on the open market in privately negotiated transactions, in block trades or through other legally permissible means, depending on market conditions and in accordance with applicable rules and regulations.
In addition, the company remains close to sell its FL mobile game unit for about $630 million to Hong Kong-listed Tack Fiori International Group Ltd. It is offering 100% of the equity interest of NQ Mobile in FL Mobile. The company will become the controlling stockholder of Tack Fiori after selling this division. However, the FL Mobile transaction remains non-public. NQ is at present engaged with the selling process and soon will finalize and close the deal. This transaction should help the company to invest more on its mobile security business and enterprise business and be benefited from these businesses.
Its enterprise and mobile security business is gaining traction in the market. It has experienced more consumer engagement for these businesses. Moreover, the company is scaling other products such as music, image search, NQ-live and Showself. These toppers of scaling products should generate incremental revenue for the company in the future and deliver handsome returns to shareholders in the long-run.
Furthermore, it is bringing in compelling contents on home screens or mobile desktop using NQ live such as music search, social entertainment, gaming, messaging. NQ Live remains promising in the future. It has seen greater level of excitement from OEMs, Carriers and content owners for NQ Live technology platform. NQ Live have been shipped to 95 million devices with monthly active users of around 32.9 million. Also, it has approximately 13.6 million daily users.
Apart from these its social entertainment platform or Showself are growing at a healthy pace of 5X from the time of acquisition. This represents tremendous growth for the company and remains pretty good in the future. Its social entertainment platform reached over 2 million monthly active users in the most recently third-quarter. Also, its music radar has joined the club that has about 8.8 million monthly active users.
It’s online and offline advertisement business also looks quite appealing. It enjoys more than 500 million unique users. This platform is gaining more and more applications that reached over 75,000 in the third-quarter. Its mobile advertisement is gaining market share on both android and iOS devices.
Final words and valuation
NQ looks pretty good with its enterprise and mobile security businesses. The analysts expect its earnings to grow at CAGR of 40.00% greater than average industry CAGR of 20.29% for the next five years. Also, its short term returns look attractive with earnings growth of 60.00% by next year. It is trading at the forward P/E multiple of 8.40 along with PEG ratio of 0.36 that support its profit in the long-run. Its balance sheet carries total cash of $283.05 million, which is quite enough to cover its total debt that stands at $172.50 million. It has operating cash of $24.27 million and levered fee cash flow of $56.23 million.
