Chinese mobile stocks—or not? The NQ Mobile case

By Chris Lau for Kapitall.

Hope is fading that NQ Mobile Inc. ( NQ) will report a clean bill of health with its earnings results. After nearly doubling between November 2013 and March 2014, shares continue to drift lower. Last week, the stock fell 32.25% in a single day after PwC, its auditor, said extra work was needed. With uncertainty growing, volatility in its shares are expected.

More audit work requested

NQ Mobile revealed that PwC “communicated to the Company that it would need to perform additional procedures and expand the scope of its 2013 audit work.” This note of uncertainty shook investor confidence. The news might not be all that bad, however; the accounting firm may merely want to solidify its audit work done for the company.

Board member leaves

Ms. Ying Han, the current Audit Committee Chair, announced she would step down from the board. NQ Mobile will add two board members, Max Yao and Justin Chen as independent Directors.

Alternative investments

It is not clear what NQ shares will do in the near term. Worries of accounting fraud will hurt the stock. Until the company files its annual report, the stock’s value will be based on speculation. Investors looking for exposure to the Chinese market should consider a bigger company like Baidu ( BIDU) or Renren ( RENN). These companies have a market cap of $67B and $1.2B, respectively. Baidu is the dominant search engine giant in China. Strong results helped push shares up by 114% in a one year period.

Renren operates a social networking platform in China. The firm has expertise in online video advertising and promoted news feed display.

Investors will remain in the dark with NQ Mobile in the near term, heightening risk. For now, it would be a good idea to avoid speculating in this company. There are better opportunities elsewhere.

 

Click on the interactive chart to view data over time. 

 

1. Baidu, Inc. ( BIDU, Earnings, Analysts, Financials): Provides Internet search services. Market cap at $60.36B, most recent closing price at $172.53.

 

 

2. NetQin Mobile Inc. ( NQ, Earnings, Analysts, Financials): Operates as a software-as-a-service provider of consumer-centric mobile Internet services focusing on security and productivity in the People's Republic of China and internationally. Market cap at $1.12B, most recent closing price at $19.65.

 

 

3. Renren Inc. ( RENN, Earnings, Analysts, Financials): Operates a social networking Internet platform in China. Market cap at $1.3B, most recent closing price at $3.52.

 

Kapitall Wire is a division of New Kapitall Holdings, LLC. Kapitall Generation, LLC is a wholly owned subsidiary of New Kapitall Holdings, LLC. Kapitall Wire offers free investing ideas, intended for educational information purposes only. It should not be construed as an offer to buy or sell securities, or any other product or service provided by New Kapitall Holdings, LLC, and its affiliate companies.

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