Why NQ Mobile Shares Sank (Again)

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of NQ Mobile (NYSE: NQ  ) plunged more than 15% during intraday trading Friday, extending yesterday's harrowing 54% drop, after the Chinese mobile Internet services company was accused of fraud by noted short-seller Muddy Waters.

So what: Specifically, Muddy Waters published a scathing 80-page report on Thursday asserting that, among other claims, "at least 72% of NQ's purported 2012 China security revenue is fictitious," and that "NQ's cash balances are highly likely not to be real."

NQ Mobile fired back on Friday, threatening legal action, and saying it believes the allegations are "false and inaccurate and contain numerous errors of facts, misleading speculations and malicious interpretations of events." Nonetheless, NQ also stated it has formed a special committee of four independent directors to investigate the claims.

In addition, NQ issued a follow-up press release Friday containing what it described as a "table of major term deposits in cash as of today," with the total amounting to roughly $124 million.

Now what: Considering today's drop, NQ's quick response obviously didn't seem to appease skittish investors, who remain leery of the stigma which arose from previous cases of alleged fraud by Chinese companies. Of course, if NQ mobile can successfully defend itself, steel-nerved investors could certainly stand to reap significant rewards on any potential rebound. However, I think this is one risky, speculative bet I wouldn't be willing to take.

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Comments from our Foolish Readers

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  • Report this Comment On October 25, 2013, at 4:59 PM, joelthecarman wrote:

    Thanks for the article Steve but it fell short in offering any further insight into today's NQ activities. Felt like you took today's headlines and pasted them in a post.

  • Report this Comment On October 25, 2013, at 10:35 PM, TMFSymington wrote:

    @joelthecarman, Thanks for the feedback, but remember these shorter "What, So what, Now what" articles are actually part of our "10% Promise" series," (you can see them near the bottom of the front Fool.com page everyday), with which we strive to provide our readers a quick explanation of why any given stock has risen or fallen 10% in a single day.

    That said, given the gravity of the drop and the extensive list of allegations by Muddy Waters, I'd be amazed if one of my Foolish colleagues wasn't already working on a more comprehensive piece to explain what's going on -- if not, I'll be more than happy to dig deeper myself.

    Fair enough?

    -

    Steve

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