All the hype right now in NQ Mobile (NYSE:NQ) is about the prized audit, expected to either eviscerate the company or exonerate it. But once the audit is over and NQ becomes a "regular" stock again, investors are sure to start focusing on "regular" things like earnings and guidance. So, how did NQ fare in 2013?
Earnings per share from NQ have been declining for the past two years. As reported by TheStreet.com, in the past fiscal year, NQ swung to a loss of 6 cents, compared to an 18-cent gain in the prior year. Most investors are so caught up in waiting for the audit results that the huge 2013 fiscal-year decline has been conveniently overlooked.
Most recently, NQ reported fourth-quarter net income of 22 cents per share. That big income miss was below the analysts' estimates of 32 cents by a whopping 31%. This was another huge miss that seemed to go unnoticed by some long investors who are fascinatingly fixated on the audit.
On June 4, NQ came out with news that the special committee hired to investigate fraud allegations had finished its work. "The investigation team did not find any evidence that the company had engaged in the fraudulent conduct alleged by Muddy Waters," NQ said in a press release. The news did send the stock up over $2, but accomplished practically nothing since the audit results were not released along with it. A $2 gain still leaves NQ more than 20% lower than where it was trading before the first delayed 20-F update on April 30. This fully shows how investors are solely focused on the audit results, not probe results by the special committee.
In summary, even positive findings by the special committee pale in comparison to the audit results. Once the highly anticipated audit results come in, NQ will either be eviscerated or exonerated. If eviscerated, then NQ becomes practically worthless. If exonerated, then NQ becomes a "regular" stock again. Then investors will begin to focus on important matters such as attaining earnings estimates and meeting forward guidance. Will NQ reward investors and reverse the losses and earnings misses from 2013? I think NQ can fly high and shake off the distractions if it can produce a clean audit. But make no mistake about it, nothing but the audit results will return NQ to the status of a "regular" stock.
Disclosure: I am long NQ. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.