Why NQ Mobile Inc Shares Plunged Today

Is NQ Mobile's drop meaningful? Or just another movement?

Apr 11, 2014 at 5:17PM

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 Inc (NYSE:NQ) plummeted more than 20% Friday after the company turned in mixed fourth-quarter results.

So what: Quarterly revenue rose 126% year over year, to $67.9 million, which translated to 20.8% growth in adjusted net income, to $14.9 million, or $0.22 per diluted share. By contrast, analysts were expecting significantly higher adjusted earnings of $0.32 per share on lower revenue of $62.83 million.

For the current quarter, NQ expects revenue to arrive in the range of $75 million to $76 million. It also raised both the top and bottom ends of its full-year 2014 net revenue guidance by $15 million to a range of $320 million to $325 million. Analysts, on average, were looking for first-quarter and full-year sales of $65.5 million and $293.9 million, respectively.

Now what: NQ's top-line growth remains solid, but its margins and cost of revenue skyrocketed, primarily thanks to increased hardware procurement costs for NationSky's Enterprise Mobility business.

Also, given yet-to-be-resolved accusations of fraud leveled late last year by noted short-seller Muddy Waters against NQ, the market remained skittish after NQ disclosed a historical accounting error. This error involved overstating share-based compensation expenses by almost $370,000 for the unaudited financial results for the three and nine months ended Sept. 30, 2013. However, NQ insists it was simply a result of two clerical mistakes, and its correction involved decreasing NQ's general and administrative expenses for the period in question.

In the end, though, and especially as the market resets its expectations for NQ Mobile's profitability, I still prefer waiting on the sidelines until the dust settles.

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