Supposed “Massive Fraud” NQ Mobile Surges on Partnership with Sprint

Jacob Harper  |

Chinese tech company NQ (née Netqin) Mobile (NQ) popped on Jan 15 after the company announced an impending deal with Sprint (S) to incorporate their software into Android phones. The announcement comes a scant three months after famed short-selling analysts Muddy Waters declared NQ a “massive fraud” and slapped the company with a price target of zero.

In their report, Muddy Waters asserted that “at least 72 percent of their purported security revenue is fictitious” and claimed the company overestimated domestic market share by about 35 fold. Muddy Waters was joined by FJE Research, who claimed NQ had greatly inflated their reported user base.

These claims caused investors to bet en masse on NQ’s failure, with short float on the company eventually reaching 42.14 percent. Shares of the company experienced a sharp correction, tempering a run that had seen the company’s stock price triple in four months between July and October 2013.

Despite the allegations, Sprint and Android progenitors Google Inc. (GOOG) obviously have faith in NQ. The deal will put NQ’s “skin”— software security and home screen add-ons — in Sprint’s software packages, and will introduce NQ’s products to a wide American audience.

NQ is perhaps one of the most divisive tech plays on the market. Not all analysts are as pessimistic on the stock as FJE and Muddy Waters. On Jan 15 Zack’s upgraded the stock to “neutral” and raised their price target to $14.40 a share. Some analysts are even more bullish, with Canaccord Genuity reaffirming a “buy” in October shortly after the release of the Muddy Waters allegations.

NQ has been on a wild ride the last six months. After topping $25 a share in early October the stock plummeted to under $9 in light of the fraud accusations. On the deal with Sprint the company rebounded significantly. By Jan 15’s midday trading, shares had gained 12.07 percent to hit $15.63 apiece.

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Companies

Symbol Name Price Change % Volume
S Sprint Corporation 6.07 0.06 1.00 8,620,239 Trade
NQ LKM NQ Mobile Inc. American Depositary Shares each rep n/a n/a n/a n/a
GOOG Alphabet Inc. 1,098.26 8.36 0.77 1,955,559 Trade
FETLY Far Eastone Telecommunications Co Ltd GDR Sponsored (New) 144A n/a n/a n/a 0

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