Over the last couple of months, Hedge Funds and Institutions have been on a spending spree with NQ Mobile (NQ). It seems that funds cannot get enough shares of the Company, as new filings appear to show up on a daily/weekly basis.
In just the last two weeks, several funds (Morgan Stanley, Altimeter and Kylin Management) have increased their holdings in NQ Mobile as they show their continued belief in the Company, as well as its future.
Kylin Management was the latest to disclose a 6.2% stake in NQ Mobile. This represents a huge increase from what the Company originally had just a couple of months ago.
So who is Kylin Management? According to Bloomberg, Kylin Management is a Hedge Fund that invests in public equity markets of Asia, and is based out of New York City. The firm typically invests in value stocks, employs bottom-up fundamental analysis and internal research to make its investments.
One of the biggest things that jumped out to me is that the firm invests in the equity markets of Asia. Why is this a big deal for me, you might ask? Does the Muddy Waters fiasco ring a bell to anyone?
Kylin is well-versed in the Asian markets and the companies that do business in that region. Seeing firms that specialize in that region is a huge plus for me. Just look at some of their biggest holdings with Qihoo (QIHU), YY and Vipshop (VIPS). Clearly, they know how to invest their money and feel comfortable in their substantial position in NQ Mobile right now.
It seems like every week I'm adding funds to this list or increasing the number of shares that they own. Clearly, big money likes what they are seeing and are betting big on NQ Mobile. You don't have to take my word for it though, just take a look at the table below.
|Toro Investment Partners||11/12/13||5.0%|
|ChinaRock Capital Management||11/18/13||5.49%|
|Oberweis Asset Management||11/19/13||5.8%|
|Altimeter Capital Management||1/21/14||17.3%|
What's fascinating to me is that many of these funds have taken huge bets on the company even before the audit results are released. You would think most would take a cautious approach and wait till the results are announced to see how to play the stock. So why take such a risk? Three words; To make money.
Oberweis Management, which doubled its stake in the Company last November, talked about why it likes NQ Mobile going forward.
... "We've done our research, and we think it is a high probability that Muddy Waters is wrong, and we've placed our bet. And there is no greater vote of confidence than placing a very large bet."
In an article a couple of weeks ago by MarketWatch, Oberweis said he believes a clean bill of health on the company could provide fuel for a 40% jump in the stock price. Looking at a 40% pop right now would send shares close to $23 and put it on course to challenge the 52-week high of $25.90.
From my perspective, it looks as though many of these funds don't even feel it's a risk at this point and are taking advantage of the overblown and emotional sell-off after Muddy Waters released its "research report" on NQ Mobile last October. After that report, NQ Mobile invited all investors to come and do their due diligence. Many firms took them up on their offer and did just that.
Now, investors are starting to see the fruits of Muddy Water's labor, as NQ Mobile has just broken a record for most institutional support since going public in 2011. I caught up with Matt Mathison, vice president of NQ Mobile, and talked with him about this matter. Here is what he had to say:
"A number of major investors have validated NQ Mobile by taking significant positions in the company. As important as this validation from investors is, it is the validation of customers and partners that prove the value of NQ Mobile. Since late October, when malicious and false attacks were launched, NQ Mobile has reached 10 new agreements with significant partners and customers, including, Sprint in the US, Ingram Micro in EMEA, China Mobile and China Unicom in China, and Telkomsel in Indonesia. In addition to these new partnerships and product launches, the Company has also reported a strong Q3, held an Investor Meeting where we initiated 2014 revenue guidance significantly higher than the street's estimates, and received numerous product awards. Indeed, our business execution is where our focus remains and we are appreciative of these investors recognizing our great products and business positioning."
I believe Matt hit the nail on the head when he stated that although a number of major investors have validated NQ Mobile by taking significant positions in the company, it is the validation of customers and partners that prove the value of NQ Mobile. So just what kind of validation has NQ Mobile had after the Muddy Waters attack? Here are some business highlights:
October 29, 2013 - China Mobile (CHL) licenses NQ Mobile's music search technology and is using it in its music player application Migu that is preloaded on every smartphone that it sells.
October 30, 2013 - FL Mobile launches the Pocket Dream on Apple's iTunes in China and quickly breaks into the top 10 paid grossing apps.
November 5, 2013 - China Unicom (CHU) launches NQ Mobile's popular family application, Family Guardian, in China and the app makes the top apps in its Wojo App store within 2 weeks.
November 12, 2013 - NQ Mobile reports its Q3 earnings and achieves record revenues, cash flows and results, while raising guidance for Q4 and the full year.
November 18, 2013 - NQ Mobile Security is named the "Consumer Trust" winner at the prestigious MEFFYS awards.
November 19, 2013 - NQ Mobile announces a new partnership with Telkomsel - the 6th largest carrier in the world, and brings its full suite of products to this important carrier in Indonesia.
November 20, 2013 - NQ Mobile initiates 2014 revenue guidance of $305-$310 million - which is significantly higher than the street's expectations of around $275 million at that time.
November 21, 2013 - NQ Mobile and Diamond Wireless announce the hard bundling of NQ's consumer security applications with Diamond's insurance products for all Android and iOS devices it sells, marking the first foray into the complete bundling with insurance business.
December 9, 2013 - NQ Mobile announces that it is selected to provide enterprise mobility solutions to Hasegawa Kousan in Japan - marking the first NQSky enterprise win outside of China and the first publicly-announced commercial deal inside of Japan for NQ Mobile.
December 23, 2013 - NQ Mobile announces a new strategic partnership with Ingram Micro to provide its consumer security products through IM's vast distribution network across the EMEA region.
January 9, 2014 - NQ Mobile announces that NationSky has deployed its NQSky solutions on more than 500,000 devices in the largest MDM deal to date for The National Bureau of Statistics of PRC.
January 15, 2014 - NQ Mobile announces that it will be powering Sprint's new "Sprint Live" offering with the NQ Live platform.
January 24, 2014 - NQ Mobile subsidiary, FL Mobile, entered into an agreement with Ubisoft, the French multinational video game developer and publisher, for new game operations.
Big Money Isn't Done Buying NQ
If you haven't already noticed by now, funds aren't quite done buying NQ Mobile. Because of this, investors stand to profit as money will continue to flow in. So what makes me so positive about all of this? There are a couple of reasons why.
First, some investors are still on the sidelines due to corporate policies. Investors should know that some funds cannot buy battleground stocks. NQ Mobile is a perfect example of a battleground stock, as institutions as well as short sellers continue to make big bets on the Company.
Second, short sellers will have no choice but to cover positions as institutions continue to buy shares at a rapid rate. With more than 38% of the float still short, another big buyer or two could send shares soaring. Not to mention many other catalysts (clean audit report and reinstatement of coverage by Piper Jaffray) that could be on the way very shortly.
Lastly, several large funds that I have been in contact with have told me that they are already planning to increase their holdings to full size once the audit report comes back clean. With several funds already purchasing large stakes and several more waiting in the wings, short sellers are really playing with fire here.
As always, I'm providing you with my track record and other particular stocks that I recommend. The link provided will show you all of my picks, how they have fared and where I think they will be going in the near future. I think you will find my track record to be very impressive and useful.
In conclusion, I will leave you with a quote from Yang Liu, chief investment officer of Atlantis, after the Hong Kong-based firm purchased approximately 2.5M shares (ADSs) on the open market last summer.
"After extensive due diligence on the industry, the Company and the management team, we believe NQ Mobile represents an attractive investment opportunity for our investors to enjoy the value created by the fast-growing mobile Internet industry in Asia and globally. We look forward to continued strong execution by the NQ Mobile management team and their delivery of great results for the Company's shareholders."
Disclaimer: Investors are always reminded that before making any investment, you should do your own proper due diligence on any stock mentioned in this article. Have a great day and as always, I look forward to hearing your thoughts or questions that you might have.