There is an interesting discussion at the end of one of these articles:
Since you are on site, I have some questions.
1) How did xu go from an employee to owner of these companies? Seed capital came from whom? Who are the shareholders of these two entities she runs?
2) What's the revenue breakdown from these partners?
3)Why with all the growth ahead do they buy back stock?
4) Why did they choose to hold nothing in level 1? Does their cfo understand they are a growth business and not an asset mgr trying to maximize yield?
5)What exactly is the purpose of a US CEO if he doesnt know the top 4 customers?
6) What are the details of the CCTV retraction NQ put in writing occurred the very next day after it aired?
1. we are not the company's HR department, so what we say should be taken with a grain of salt, but... Our understanding of the matter is that Ms. Xu was a successful businesswoman with connections to angel investors (including Xu Zhou, who was one of the original angels for NQ, as well as H9 and YDT, later). She introduced Xu Zhou to Henry and Vincent when they needed seed capital for their business. Over time, as NQ became a successful company with more scale, Ms. Xu was asked to help out. We did not verify which exact periods, down to the exact date, corresponded to Xu the employee vs. Xu the consultant because, frankly, we really do not believe such details matter much. We understand others think it's a huge deal, but we don't (and this DD is obviously for us and our investors first and foremost). The shareholders of the two companies she currently runs are herself (majority) and minority angels (e.g Xu Zhou). However, we have not verified the official cap table for those companies because we do not have access to them (nobody but the government and the company does). The SAIC filings show no other NQ insider as shareholder.
2. Revenue breakdown is something we cannot share in detail with anyone not under NDA. We can repeat that we have confirmed that about 1/3 and as much as ~40% of quarterly revenue comes from these offline channel partners in China (varies by quarter).
3. Because it's dirt cheap and they have quite a bit of excess cash, especially after the convert proceeds are factored in. They also do not have an imminent transcation or major investment that would obviate a buyback. We know you are not a believer in these buybacks but many investors, including us, disagree with that view. We have urged the company to do some buybacks with their large cash pile.
4. Read our Part 1. We disagree with your characterization of what levels 1-2 actually mean. We completely agree with Dr. Gillis's interpretation, which we referenced in our report. Furthermore, each Big 4 accounting firm has variance even within their four walls as to how cash is categorized, which explains why different PWC clients have cash assets marked differently. Their CFO understands what you wrote but he also understands that in order to do significant business (not just participate in their app store, but rather either private-label or exclusively power certain parts of their business) with major carriers such as AMX and China Mobile, they need to hold a large net cash balance. It is required. Why hold it in anything other than what yields the most? Also, it is not accurate that they do not have cash at immediate disposal. We checked over $10 million of cash (not equivalents) in local bank accounts in Beijing and Dallas for payroll, rent, etc. How PWC marked that cash is their prerogative, not NQ's, and is a better question for them. A PWC partner told us that PWC will sometimes use a value-based rating system in which, if cash is a small (say 10%) percentage of cash + equivalents, and the remainder is classified as 1 or 2, everything will be bundled as 1 or 2. We're not saying this is the reason why, only PWC knows, but we were told this in no uncertain terms.
5. He does know the top 4 customers but chose not to share (you mean he doesn't know the top 4 cities/regions?), probably for the same reasons we are being asked not to share revenue by partner. We know of no other company in the space that discloses that information, so this is not a surprising request by NQ.
His role? To build the business globally, contribute to and co-lead corporate strategy, contribute to operating the business as a more experienced executive, help govern the company as a director on the board, mentor and manage employees, and, as the co-CEO title suggests, generally co-run the business with the other co-CEO. In our opinion, Omar and Henry have complementary skills, with Henry being the more product-focused and locally connected (obviously) of the two, while Omar is the more financially savvy and global of the two. They do not share each individual duty.