Could the NQ mobile management potentially know about the forthcoming bear raid?

[vermut]

Hello, guys! Found this forum via a link on Yahoo boards and it looks more orderly here than there

I was long NQ mobile since August. And I noticed that since September the management beceme especially enthusiastic about posting various non-essential news. All of it seriously looked like pumping and there even was an article on Seeking Alpha that the management was reposting old news and this behavior was very suspicious. More reminded stock hyping.

Then suddenly came the note offering and if the bank statements they presented yesterday were correct the company had about $130 mln in cash already. Why would they need more cash?

Also this new product presentation "NQ live" was really about nothing. They didn't really show anything. No demo. Many people didn't understand what it was. It more looked as if they made up the idea just an hour ago during a lunch break. It was something absolutely abstract and worthy of a conference. And the way Omar Khan was hyping  "NQ Live" saying that this is a game changer. I even remember he said something along the lines: "I repeat, I have never been as optimistic about our future. This will be very big".  It just sounded as amateurish pumping.

So after the recent events it seems to me that all this time they have know that shorts were preparing an attack on their stock. And I guess all these news, notes offering, a new product nobody really understood were an attempt to pump the stock in order to squeexe the shorts out. Possibly they wanted to attract more funds to trade their stock. But obviously they miserably failed as there was just 1 additional fund in Q3.

My opinion is that they handled the matter very unprofessionally. Instead of silly pumping they should have come up with prooves that they have legal business. It's not the first time that people question their revenue channels. Why not make things more trasparent and pull the rug under the shorts. They hoped to get more professional coverage through the note placing possibly. But their pumping as I see it had more detrimental effect. Many got suspicious and were getting prepared that it could be pump and dump.

What do you folks think?

[admin]

["Also this new product presentation "NQ live" was really about nothing. They didn't really show anything. No demo. Many people didn't understand what it was. It more looked as if they made up the idea just an hour ago during a lunch break."]

That sentence alone makes me already very wary of this post. Also, it was hardly a secret that the shorts were targeting the company, there were earlier reports and the short numbers were also indicative.

It's a matter of judgement where keeping shareholders in the loop ends and "silly pumping" begins but I don't feel they have crossed that line.

For the lack of transparency of the revenue channels, see:
http://shareholdersunite.com/mybb/showthread.php?tid=4964&action=lastpost

It requires some DD and understanding, needless to say..

[tradestar2012]

I'll rep for Vermut. I've seen him around on yahoo mb as a long for a while now. I do believe he was long for a while. I am not sure if he is under water or short now, but I think his questions are valid.

W/re to claims of pumping. You need to remember that they just hired Matt to be their VP of IR. Thats part of his job. To generate investor interest. I do not believe that they were just re-hashing old PR. For the PR that I thought was a re-hash, I actually contacted Matt and had a discussion with him on why they were considered new.

w/re to cash. I had a call with Matt to discuss this as well. His answers made sense. A lot of tier 1 companies in the tech space require their vendors to maintain a stellar balance sheet to ensure that the businesses stay viable during any roll-out (which could take multiple years to complete). The cash also provides them balance sheet flexibility to continue building on their platform and be opportunistic w/re to new business lines (NQ Live). I speculate however the convert was a lower cost way to sell 10-12% (im too lazy to figure out actual%) of the company to a few investors without juicing the stock price as well as get engagement by tier 1 banks to provide IB/research coverage. It was a private placement with a fairly low conversion threshold (at the time of issuance) and healthy coupon.

I too thought the NQ Live presentation was a bit light. HOWEVER, I also understood what it was meant for. To introduce the product to the investor community so that there would be a more fruitful discussion during the analyst day in November.

Regarding disclosure of their revenue channels, I think Matt and Company have challenged short attacks (FJE, Jcapital) each time within 24hrs with public statements on how revenue is generated. I suppose they could have gone into more depth, but then you run the risk of disclosing too much information to competitors. Now i suppose they dont have a choice.

[vermut]

["Also this new product presentation "NQ live" was really about nothing. They didn't really show anything. No demo. Many people didn't understand what it was. It more looked as if they made up the idea just an hour ago during a lunch break."] That sentence alone makes me already very wary of this post. Also, it was hardly a secret that the shorts were targeting the company, there were earlier reports and the short numbers were also indicative. It's a matter of judgement where keeping shareholders in the loop ends and "silly pumping" begins but I don't feel they have crossed that line. For the lack of transparency of the revenue channels, see: http://shareholdersunite.com/mybb/showthread.php?tid=4964&action=lastpost It requires some DD and understanding, needless to say..

I personally was not impressed by this presentation. The market was certainly not impressed. The comments on stocktwits from bulls also indicated that it was lackluster.

What I am trying to say is that by preannouncing a new product they created a hype and formed certain expectations. The stock went to a new high. But as the news came off it was clear that the market thought of it as a 'meh'. In the end they only did a service to the shorts and allowed them to start shorting at all time highs.

[vermut]

I'll rep for Vermut. I've seen him around on yahoo mb as a long for a while now. I do believe he was long for a while. I am not sure if he is under water or short now, but I think his questions are valid. W/re to claims of pumping. You need to remember that they just hired Matt to be their VP of IR. Thats part of his job. To generate investor interest. I do not believe that they were just re-hashing old PR. For the PR that I thought was a re-hash, I actually contacted Matt and had a discussion with him on why they were considered new. w/re to cash. I had a call with Matt to discuss this as well. His answers made sense. A lot of tier 1 companies in the tech space require their vendors to maintain a stellar balance sheet to ensure that the businesses stay viable during any roll-out (which could take multiple years to complete). The cash also provides them balance sheet flexibility to continue building on their platform and be opportunistic w/re to new business lines (NQ Live). I speculate however the convert was a lower cost way to sell 10-12% (im too lazy to figure out actual%) of the company to a few investors without juicing the stock price as well as get engagement by tier 1 banks to provide IB/research coverage. It was a private placement with a fairly low conversion threshold (at the time of issuance) and healthy coupon. I too thought the NQ Live presentation was a bit light. HOWEVER, I also understood what it was meant for. To introduce the product to the investor community so that there would be a more fruitful discussion during the analyst day in November. Regarding disclosure of their revenue channels, I think Matt and Company have challenged short attacks (FJE, Jcapital) each time within 24hrs with public statements on how revenue is generated. I suppose they could have gone into more depth, but then you run the risk of disclosing too much information to competitors. Now i suppose they dont have a choice.

Thanks for your reply. Yes I was long. And I sold my shares for some loss. I am just trying to make clear some things about the company as though I sold for a loss such events offer opportunity to get into the company at a cheaper price. Because if fundamentally nothing is wrong the panic should settle down and the market will price it fairly eventually.

So far I am inclined to believe that the only problem is their loose accounting which is characteristic of Chinese companies. I am really hoping some reputable investment banks will clear their name and the price will return back fairly soon (didn't it go to 20s from 7 in just 3 months?).

[tradestar2012]

As far as their accounting. I presume you are talking about cash recognition between lvl1 and lvl 2. Thats purely a fair value measurement standard. Both CYOU and SOHU are 100% lvl 2 cash, 0% lvl1 cash. Also, if you go to CIB's website (where NQ holds their term deposits), you can see how they define term deposits, which is consistent with what Matt described on the call
http://www.cib.com.cn/netbank/en/Corpora...posit.html

I was also doing some math on NQ's recent balance sheet numbers relative to their current cash bs as of 10/25/2013.

1Q total cash + cash equivalents + cash used in acquisitions/repos (other) = $134
$20M is cash equivalents. $110M is term + Other

2Q total cash + cash equivalents + cash used in acquisitions/repos (other) = $134M
$15M in cash equivalents. $118M is term + other

*For the "Other" calculation, I added back acquisitions/repos because that causes noise in your quarterly end cash balances if you exclude them. What I'm trying to do is back into BS cash generation without all the associated noise from capex and investments.

Disclosure on 10/25/2013
758M RMB at 6.08RMB/Dollar = $125M in Term deposits. (i excluded the convert proceeds as its not relevant to this discussion)
Cash + cash equivalents was NOT disclosed, only Term Deposits. I didnt realize this until I started doing the math and realized there was a shortfall in cash and that was because they only provided Term Deposits and not all cash. So there is likely even more cash than disclosed on 10/25/13. I do not know if they did any acquisitions/repos for 3q. The cash information they provided on 10/25/13 was labeled as "Table of Major Term Deposits:" Its consistent with what they appear to have been holding / accumulating in Term Deposits.

If they are managing cash at CIB, they're probably using one of the various cash management accounts with CIB. For example CIB's call deposit requirement for withdraw is "In terms of days for prior notification, the call deposit is divided into two types, 1-day and seven-day." thats consistent with what Matt stated on the CC. Its also consistent with their 8k. This is how their cash ($15M from 2Q) is described. "Cash and cash equivalents represent cash on hand, demand deposits and other short-term highly liquid investments placed with banks that have original maturities of three months or less and are readily convertible to known amounts of cash.
http://www.cib.com.cn/netbank/en/Corpora...posit.html

[admin]

["What I am trying to say is that by preannouncing a new product they created a hype and formed certain expectations. The stock went to a new high. But as the news came off it was clear that the market thought of it as a 'meh'. In the end they only did a service to the shorts and allowed them to start shorting at all time highs."]

It could be that the post CC decline in the share price was already part of the short attack.

I do not purport to claim here that I understood all the ins and outs of NQ live (it initially seemed akin to what HTC does with its smartphones) but I think Treasure Hunter did a decent job explaining it:

http://seekingalpha.com/article/1762832-...me-changer

But I understand not everybody was enthusiastic. My own reaction was that it was interesting, but I want to see it in action.

[quantumvibes]

Hi Tradestar - Did you read MW report and, if so, what do you think? Not everything in it was addressed on the cc, and so I'm sure there'll be additional clarification going forward on the part of mgt regarding some of the other issues it raised they weren't able to get to. I'm surprised there weren't questions posed during the cc about the accounting/tax issues raised in the hit piece. Right now it seems the debate is in a "he said, she said" stage, and it'll be a while for more independently verified facts to emerge. Obviously it's a positive that the company is taking immediate steps to encourage and facilitate third party due diligence in the face of MW's accusations.

[tradestar2012]

I did read the MW report and have provided some commentary on it on SA as well as here. Needless to say, theres a lot sensationalism and anecdotal "evidence" but nothing that would convince me of their merits. They spent 2 months investigating the company and "interviewed" 800 people (14 people per day, every day), visit 10 different cities and were able to put together an 81 page document in that time frame. How diligenced do you think that report was? I hope he had a massive team because thats a lot of ground to cover in a short amount of time.

At the end of the day, I think the key thing that matters is what PWC signs off on in terms of the cash balance. If the cash is there, as NQ has claimed, then MW's claims fall apart materially. Its hard to have phantom sales if cash is coming in the door. You can hide phantom sales via increasing DSOs but over time, you have to collect or write off those sales. From the PR on 10/25/13, its clear that term deposits increased from 2q. From the CC on 10/25/13, I think it was Matt who stated that total cash was "north of $300M". To me, that means they were collecting. We also know that 2012 20f was audited and signed off by PWC with no deficiencies noted. We also know that PWC had to provide some sort of assurance as to NQ's financials as part of the convertible bond offering. We also know that MS&DB's own auditors must have reviewed NQ's financials and diligenced their integrity. Verifying cash is basic due diligence and would have been performed by both PWC and the counterparty auditor. We also know that 3q financials are due shortly and that PWC has been part of that process as well. We also know from yesterday's Fox Business interview that PWC has been standing by NQ's side this entire time and fully aware of the situation, the legal ramifications and their reputation on the line (all the while in the middle of 3q reporting). For NQ to misstate PWC's involvement would have triggered a sharp rebuke or disclaimer from PWC.

[kshen]

Tradestar. My Question would be, Call deposits seem highly liquid and thus wouldn't it be considered a level 1 asset rather than a level 2 asset?