NQ Mobile: 3 Positives (With Caveats) That You Can't Deny

Sep. 3.14 | About: NQ Mobile (NQ)

Summary

The D&T report found no fraud, but did find missing data on many devices.

NQ fired PwC, but hired a new auditor that might give them a clean 20-f.

NQ sold off 5% of Nation Sky & FL Mobile, insinuating a high valuation for the 2 companies, but both deals are contingent on them completing a qualified IPO.

Several people have challenged me to write a positive article about NQ Mobile (NYSE:NQ). I would like to bring up 3 things about NQ that can't be denied. I must add that, as a writer, I have to include the caveats associated with these positives. Otherwise it would look like I was being one-sided & ignoring the negatives. As we all should know, only taking interest in the positives of a stock & ignoring or excusing the negatives is a poor way to invest. If I have my money involved in a stock I am far more interested in the uncertainties & negatives than I am in the positives.

Therein lies the whole problem with NQ. Most of the positives surrounding NQ are contingent on another outcome having to turn out favorable before the positive ever comes to fruition.

Here are 3 examples of so-called positives for NQ that don't stand alone, but instead need another catalyst before they can be deemed as "good things."

NQ put out a press release on June 4 that stated that their own D&T committee found no fraud. Specifically this: "The Investigation Team did not find any evidence that the company had engaged in the fraudulent conduct alleged by Muddy Waters."

In the same report, the D&T committee reported that: "Despite the Investigation Team's extensive review of documents and data provided by sources both within and outside the company, the Investigation Team could not verify that the devices it collected and copied contained all responsive information at the time the copies were made. On many devices, the Investigation Team observed indications that some information might be missing, and the company's management and staff were unable to provide a credible explanation for what the Investigation Team observed."

This one is incredibly easy to deduce. D&T finding no fraud was a great thing for NQ. But in order for this to be a positive, investors have to ignore or excuse the other part of the same report about deleted data. Believe me, plenty of people are ignoring & excusing one half of the report while they laud the other half! Just look at the comments at the bottom of these NQ articles, people are posting that their whole investment in NQ is because they believe 100% in the D&T committee report finding no fraud. But they don't believe 100% in the same D&T report about deleted data! NQ has investors saying things like: "I have no problem with the part of the D&T report that I like about no fraud, but I do have a problem with the part of the same report that I don't like about missing information. It might just be a little bit of deleted data from a few cell phones."

Wow, see how the positive outcome totally depends on another as yet undecided event? And in this case the undecided event has to be that half of a report is totally valid, but the other half of the same report is invalid!

Then, on July 18, PwC requested to expand the scope of the audit because of what NQ's own D&T committee reported. PwC's statement was, "PwC advised the company and the Audit Committee that the observations referred to in the company's press release reporting on the Special Committee's Independent Investigation dated June 4, 2014 regarding questions related to electronic data collected by the Investigation Team would require it to expand the scope of its work and, if investigated further, may cause it to be unwilling to rely on management representations in connection with its audit work."

NQ hired MB&P and fired PwC for inquiring about what NQ's own D&T committee observed. But remember, this can be made positive with another caveat, so NQ firing PwC was a good thing... IF, the new auditor ignores the deleted data that PwC would not ignore! It is now September 2014 & NQ has no audited financials for 2013. The "positive caveat" here is that NQ may have hired a new auditor that may not want to investigate the missing data any further. If MB&P overlooks the D&T report & instead gives NQ a clean 20-f audit, then this is a positive catalyst that might make the stock soar!

The last positive (with a caveat) is the partial sale of Nation Sky & FL Mobile by NQ to 2 different Chinese investment companies. These 2 deals would be a spectacular event for NQ & its stock price as it puts a value of over $900 million combined on the 2 companies! BUT... You guessed it, there are stipulations to the deals! In the Nation Sky deal: "The investors have a right to demand the redemption of their shares if NationSky does not complete a qualified initial public offering, or find a third-party buyer to acquire all or part of its shares for a valuation of at least $550 million."

And along the same lines on the FL Mobile deal: "The investment has a redemption right if FL Mobile does not complete a qualified IPO within 12 months after the investment is completed."

So the positive (with a caveat) of these 2 deals is that it puts a value on just these 2 companies at a much higher price than the whole of NQ's current stock price. But the literal caveat is that, in both cases, the sales are just "paper deals" at this point & are rendered totally moot unless a qualified IPO occurs.

In summary, I am an unbiased reporter of facts. If you are on the long side of NQ, then you hope the caveats will all eventuate in your favor. If you have a short position against NQ, then you hope the positive outcomes never occur.

To buy this stock, you must not only believe these 3 things are positives, but you must also believe all the caveats & conditions will one day positively materialize. For that reason, the most I could possibly do would be to suggest that you hold the stock. If you already own NQ then you may as well gamble & hold it. At this point, why not wait & see whether or not all these stipulations really do fall into place?

Let's be honest, the only way to be positive about NQ is to ignore all the uncertainty & just flat out hope that NQ somehow digs itself out of every single hole that they have created for themselves. Either that or just blame Muddy Waters for all of it! But did Muddy Waters make NQ take 7 months to report the horrible 4th-quarter earnings miss & money loss last April? Did Muddy Waters make NQ not be able to file their 20-F in a timely fashion? Did Muddy Waters make D&T report that NQ had missing information on many devices? Did Muddy Waters make NQ have no credible explanation for what its own D&T committee reported? Of course not, NQ did all these things to itself.

When you forget about Muddy Waters & think about all the uncertainties that NQ itself has created, then to be positive you only have one choice. And that is to simply "hope" that somehow one day it all works out in your favor. A football team might complete one "hail mary pass" every five years & win one game. Why would you gamble with your money & bet that NQ can complete all these "hail mary passes" & win every outcome?

I'll just stay with the same opinion I gave over a month ago in my last article, NQ Mobile Rises 93% In One Week From Its 52-Week Low which was spot on target & is still ringing dead true:

"I will opine that the price will linger around $6.50 until stockholders once again become annoyed about no 20-F getting filed. I think investors will start getting frustrated and antsy like they did the last time no 20-F came out after the D&T investigation. When no 20-F ever came out last time, investors started selling and moved on. How long will investors wait for the 20-F to materialize this time before they begin to sell and move on?" 5 weeks later & my opinion still rings true; NQ is still lingering around $6.50.

If you choose to "hold & gamble" on NQ, then may all your "hail mary passes" be completed!

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.