NQ Mobile: The Long And Short Of It

Jun.11.14 | About: NQ Mobile (NQ)


The long & short holders of NQ stock have been battling it out for 7 months now.

No matter what news comes out, both sides pick out the parts they like & claim it is good news.

Even the special committee didn't put anything to rest because no 20-F was filed with it.

The battle between the longs and the shorts of NQ Mobile's (NYSE:NQ) stock has been going on for 7 months now. Ironically, nothing has been settled yet, and both sides seem to have plenty of ammo to back up their case. Every time any news comes out, both sides immediately start construing it in their favor. It is really very hard to discern who the winner is because both sides have valid points.

Let's look at some of the recent news and press releases concerning NQ and the way both sides spin it in their favor. First off, when NQ reported 2013 4th quarter earnings on April 10, they reported record revenue but missed the EPS estimates by 10 cents. So, a 10 cent miss on earnings per share is what all shorts focused on, and the stock got pummeled. How could a long "excuse" such a huge miss and stay positive? Easy, longs could simply claim that the growing record revenue was far more important than the EPS miss. Longs were also quick to point out that during the 4th quarter NQ forfeited 1.6 million in interest income. This was due to early termination of term deposits when NQ chose to move money to a different bank to "prove & show" that they really had money on the books. (Then shorts claimed the bank records were forged & another battle began!) Also, NQ incurred expenses of over 3 million due to costs associated with the special committee's work. So the long spin is that EPS would have been better if not for the expenses incurred battling the Muddy Waters allegations.

Let's just put all that has happened since then in one big pile and look at it in its totality. Next came April 30th, the statutory deadline by which the all important 20-F was supposed to be filed. (Omar Khan stated twice in the earnings call that NQ had planned on meeting the deadline.) The stock tanked after a press release by NQ stating they would file for an extension to May 15th. Then NQ did not file on May 15th either, simply stating that they needed more time. Lastly, the special committee results were released on Wed. June 4th, but the 20-F has still not been filed. So here we go again with the long & short of it! Of course, shorts took the 2 delays in the 20-F filing as some type of proof that something had to be wrong. The longs countered that it wasn't that big of a deal because it takes time to fully audit a year's worth of financial documents. Finally, when the results of the special committee were released, it was the longs time to see what excuses the shorts came up with to counter the findings of no fraud. The shorts did not disappoint & simply claimed that the committee was set up to find no fraud because it was made up of executives from NQ and was biased toward exonerating NQ. Shorts also claimed that without the 20-F filing, the missing files and data mentioned in the committee's report proved NQ was hiding something and that is why PWC will not sign off on the audit.

So, in summary, here we are, over a month after the statutory deadline of the 20-F and absolutely nothing has been decided. Even a few business deals by NQ in the last few days have not swayed either side. It just depends on which side you have your money as to who and what you believe. Both sides have totally valid & legitimate reasons to "ignore & discredit" all things on one side and "believe & excuse" all things on the other side. I think one thing could be agreed on by both parties, which is that this has been going on long enough and both sides are short on patience. I think this stock is a gamble at best, but so far, none of the fraudulent things that Muddy Waters has alleged have been proven. Has NQ really been hiding something and misleading investors this long? I think the odds are against fraud and instead are in the favor of NQ at this point. If you have the nerves of steel needed to play this volatile stock, then spin the wheel and put a bet in on NQ and see what happens! The payoff on a clean 20-F audit wager should be about 3 to 1, and one thing is for sure, it will never be boring!

Disclosure: The author is long NQ. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.