NQ’s reported 4Q12 sales and non-GAAP EPADS of $30M/$0.18, above our and
consensus estimates of $29M/$0.16. Sales grew 134% y/y, driven by both impressive
organic growth and contributions from recent acquisitions. Margins contracted in
4Q12 due mainly to high seasonal contributions from NationSky. We expect margins
to show q/q improvement through 2013 as overseas investments normalize and Feiliu
gains scale. Management guided to 1Q13 revenue of $32.8-33.3M and raised its 2013
revenue guidance from $150-155M to $178-183M, reflecting contributions from the
America Movil deal and the integration of Feiliu. We’re raising our sales and earnings
estimates to reflect guidance and our revised margin assumptions. Investors are likely
to react positively to NQ’s 4Q results and guidance.
■ Strong user growth: Registered accounts increased to 283.4M, up 93% y/y and
17% q/q; active accounts rose to 97.7M, up 87% y/y and 16% q/q, and paying
accounts increased to 8.9M, up 59% y/y and 9% q/q. ARPU was $2.21, up 7%
y/y but down 1% q/q.
■ NationSky’s margin impact to ease: GM contracted 11.5% y/y to 68.0%.
However, excluding the impact of NationSky, GM only contracted 100bps y/y.
Non-GAAP opex as a % of revenues declined ~115bps y/y to 41.8%. We expect
operating margins to improve q/q through 2013 as both Feiliu and overseas
business scale their operations.
■ Further expansion in US: In 4Q, NQ announced partnerships with: 1) US Cellular
to sell NQ’s Family Guardian products to its 5.9M customers; 2) 4G Wireless to sell
NQ’s mobile security products at 120 retail locations; and 3) Diamond Wireless to
sell NQ’s mobile security products at 210+ retail stores.
■ Upbeat guidance: Management guided to 1Q13 revenue of $32.8-33.3M and
raised its 2013 revenue guidance from $150-155M to $178-183M. Segment-wide,
management guided to 2013 revenue of $120-121M for its core NQ Security
business, $33-35M for NationSky and $25-28M for Feiliu.
■ Raising estimates: We’re raising our 1Q13 sales and non-GAAP EPADS
estimates to $33M/$0.18, relative to our prior and consensus estimates of
$30M/0.17. We’re raising our 2013 revenue and non-GAAP EPADS estimates
from $157M/$0.94 to $180M/$0.96, relative to consensus of $153M/$0.92.
