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Paulo Santos, Think Finance (377 clicks)
Long/short equity, arbitrage, event-driven, research analyst
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On Thursday, I published an article showing how NQ Mobile's (NQ) cash position has raised doubts, and how the steps taken to confirm said cash position might be insufficient, in light of what happened with Longtop Financial. This article spurred some controversy.

This is normal. Even I would have to ascribe a given chance to the cash being real, say 60%. But that's besides the point here. What really surprised me regarding NQ Mobile ended up being something else.

Background

NQ Mobile is a rather unknown Chinese internet services company. This company has just $810 million in market capitalization - a very small capitalization. Small caps like this usually have small followings as well. Few people know such small companies or invest in them.

The NQ Mobile TTM revenues paint the same picture. Although NQ Mobile is growing quickly, it's still a very minor company at under $160 million in revenues. Again, not much reason to believe everyone's eyes would be on this company.

And then you have the Muddy Waters allegations of fraud. So this is a very small Chinese company with fraud allegations to boot. Never mind if they are real or not.

This is where the surprise hits

In light of NQ Mobile being so small, so hidden from view and with fraud allegations to boot, I had to be surprised when my article surpassed 178 comments. The comments just poured in, overwhelmingly defending NQ Mobile.

178 comments in an article is Tesla territory. You know Tesla, the revolutionary EV company with a massive loyal following and trading for a market capitalization of $15 billion? My article just prior to the NQ article was on Tesla, and at this point it had drawn 188 comments. So very nearly the same as the NQ Mobile article!

Given the disparity of size and visibility between these two companies, this is quite incredible. One of the most speculated, most visible, companies in the U.S. market, Tesla, was being matched in investor interest by the little unknown Chinese NQ Mobile! This is very surprising.

Conclusion

Given the surprising outpouring of support for NQ Mobile, the sheer size of the reaction, it seems to me that NQ Mobile must be an incredibly crowded trade on the long side. I am not taking any positions, but it's wildly surprising to see a $810 million Chinese company draw as much support as the massively speculated $15 billion Tesla.

In short, it seems to me that NQ Mobile is massively crowded on the long side. That does not bode well.

Source: Is NQ Mobile Incredibly Crowded?