NQ Mobile: Despite 20-F Filing Hype, Nothing Has Changed

Aug.25.14 | About: NQ Mobile (NQ)

Summary

Numerous baseless posts on Seeking Alpha and Yahoo Finance say that NQ's 20-F filing is imminent.

Investors need to understand that nothing has changed as the company has failed to give an updated statement on the 20-F process.

Investors should be skeptical since a company that loves to put out PR releases on new partnerships has chosen to remain silent on the most critical issue at stake.

I have been troubled by what has transpired over the last few months at NQ Mobile (NYSE:NQ). Retail investors have been left to guess what's going to happen next since no amount of fundamental due diligence will reveal whether NQ is indeed a fraud or not. Only on the ground due diligence could potentially reveal anything about what is going on behind the scenes. Yet, despite the lack of available news, nothing has not stopped investors from claiming the company's 20-F is imminent, or that fraudulent charges are due any day. I felt the need to give my two cents on NQ's situation because of the fact that some Seeking Alpha members and Yahoo Finance posters continue to post speculative guesses based on no news whatsoever.

I cannot even estimate the number of times I've come across posts online claiming that NQ's 20-F filing is imminent. This is rather surprising considering the company appears to be in the longest blackout period ever and has released no news regarding the 20-F. Granted they recently hired a new auditor to review their 20-F, yet, in the past, the company had no problem releasing PR statements claiming the 20-F filing would be filed as soon as could be. Furthermore, NQ Mobile has announced in the past when they were in a blackout period, yet the company has not mentioned anything about a blackout period but still has not provided an update on the 20-F. Regardless of where the 20-F filing process stands, the company could easily give investors an update. Until then I ask that all investors refrain from speculating on the 20-F, and not to trust posters who claim that the 20-F will be filed any day.

Lack of 20-F news is also somewhat surprising considering the company has been releasing other PR statements. While I'm not suggesting these releases are distractions, I am somewhat suspicious as to why the company is remaining quiet on the 20-F. This is clearly not an issue that will disappear on its own and the fate of the stock price depends on it.

So where does that leave us? It appears we are no closer to finding out whether NQ Is legit or not than we were months ago, but that has not stopped people from speculating on the company's 20-F. What I hope investors understand is that, when a company with a long history of press releases, does not provide updates on critical matters then it will be construed by the market that something is likely to be amiss. Whether that is fair or foul is irrelevant, it is simply the truth. I ask investors to accept the fact that status quo is not in NQ's favor, despite all the social media hype, and will continue to be against NQ until NQ proves itself.

On that note, I also think the company is long overdue in updating shareholders on the current state of its proposed share buyback. Last time we heard about the buyback during Q4 2013 results in April NQ stated: "the Company has $27 million remaining on the existing $35 million authorized share buyback program." Considering the share price has declined ~57% since those earnings one would expect the company to aggressively repurchase shares. However, we have yet to hear an update on that plan.

So where do I see NQ's stock price going? I think both longs and shorts agree that NQ's fair value is either <$1 if it is indeed a fraud or >$20 if the company checks out. I think the market views NQ's current price similar to the way the market treats biotech companies. The share price is based on assigning probabilities to certain outcomes and discounting those probabilities to the present. In NQ's case, based on the share price of $6.80, it appears the market is assigning the probability of a fraudulent outcome is ~70% (.7*$1+.3*$20). I therefore expect the company's stock to trade in the $6-7 range, which would suggest the market believes the probability of fraudulent outcome is ~60-70%, until we get further clarification from the company on critical matters.

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

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.