I had the pleasure of spending the day with Omar Khan (co-CEO) and much of NQ's Dallas team at their Dallas office on Dec 13th. The Dallas team is an impressive group. Omar was the CTO at Samsung Mobile. He brought over 6 other senior Samsung Mobile execs to form the core senior team in Dallas. NQ is on a mission. They see mobile security as a massive opportunity and are attacking the marketing from all sides. NQ has experienced tremendous success selling their mobile security software through retail wireless stores. The wireless salesperson explains the value of mobile security (malware protection, phishing protection, privacy protection, etc.) during the sales process around the same time insurance for the phone is discussed. The attach rate is running at 20%!! This is an extremely high number. Hence, 1 in 5 smart phone customers bought via a retail store that has NQ's product is buying NQ's mobile security software.
NQ just rolled out a new product, NQ Family Guardian, to its retail channel over the past 2 weeks. NQ Family Guardian is a parental control app that parents install on their kids’ smartphones and tablets. This parental control application, used with an online web portal, allows parents to monitor their children’s location (with geo-fencing) and smartphone usage (restricted web surfing, texting, etc.) and manage how kids use their mobile devices. Early feedback has been tremendous.
NQ is rapidly rolling out in retail wireless stores in the US. In April 2012, NQ was in zero retail wireless stores in the US. In August 2012, NQ was in 300, up to 400 in September and is currently sold in 900 retail wireless stores today. NQ will be in well over 2000 retail wireless stores by June 2013 with just its currently signed contracts. Given the high attach rates and increasing product suite (NQ Security, NQ Vault, NQ Family Guardian), there is a massive revenue uptick coming over the next 12 months from just this single channel in the US. International retail wireless penetration is not reflected in these numbers and will add to the US totals.
We spent time discussing why NQ is technologically superior to all other mobile security companies in the world. NQ detects more malware first globally than all other mobile security companies combined. This is a remarkable stat. Given NQ's global footprint (in over 150 countries) with 242M registered users and 85M active users, NQ's global reach is unmatched. NQ's highly differentiated effectiveness in malware detection was verified by the independent 3rd party testing firm Westcoast Labs. A copy of the report is here. http://ir.nq.com/phoenix.zhtml?c=243152&p=InvestorKit
NQ is in the process of hiring a full-time senior IR person in Dallas. This will help the company raise the company's US profile. I would also look for a dramatic uptick in PR starting in 3-4 weeks.
I came away from the day with high conviction that NQ should trade well over $20 within 12 months. At $6/ADR, NQ is trading at just 2.8x EV/EBITDA 2013, a 24% FCF 2013 yield (vs. EV), and 3x P/E 2013 (ex-cash). 2013 revenue will grow approx 90% over 2012. This is one of the largest disconnects I have come across in over 20 years of tech investing.
