NQ Mobile Inc. (NQ:US) fell the most in more than five months after a weaker-than-forecast earnings report reignited investor concern about the company that has been the target of short-seller Carson Block since October.
The Chinese mobile-services provider plunged 21 percent to $12.70 yesterday in New York. The Beijing-based company said April 10 that earnings excluding some items for the quarter was 22 cents a share, below the average estimate of analysts surveyed by Bloomberg. It was the worst performer on the Bloomberg index of the most traded Chinese stocks in the U.S.
Yesterday’s report adds to investor unease about NQ Mobile’s business model first voiced last year by Block, the founder of Muddy Waters LLC. The shares have plummeted 44 percent since Oct. 24, when the short seller said in a report that the company inflated revenue and misrepresented cash balances, allegations that NQ Mobile has denied. Block reiterated his bearish view in an e-mail yesterday, saying the earnings provide further evidence the company is a “fraud.”
“Certainly it’s a name you need to be wary of, not because of the business itself but because of the onslaught by short-sellers,” Tim Ghriskey, chief investment officer at New York-based Solaris Asset Management LLC, which helps manage about $1.5 billion in assets, said by phone yesterday. “A lot of customers just don’t want to deal with this.”
Kim Titus, a spokesman for NQ Mobile, declined to comment.
Block wrote in the Oct. 24 report that investors should sell NQ Mobile, triggering a 47 percent plunge. He said in an interview with Bloomberg Television the next day that the company will end up like Sino-Forest Corp., the Toronto-listed Chinese plantation operator that filed for bankruptcy protection in 2012 after Muddy Waters claimed that it exaggerated its revenue.
“NQ’s contorted excuses for being unable to generate operating cash flow, and its announcement of yet another highly suspicious acquisition further bear out that it’s a fraud,” Block wrote in an e-mail yesterday.
The company’s earnings fell short of a 32-cent average of four analyst estimates (NQ:US) compiled by Bloomberg. NQ Mobile reported negative cash flow from operations of $2.26 million for 2013, compared with a positive cash flow of $9.96 million in 2012, it said yesterday. It acquired 58 percent of Tianjin HuaYong Wireless Technology Ltd. in a series of deals between 2013 and the first quarter of 2014, according to the statement.
NQ Mobile said April 10 it will report on an internal investigation initiated in October when it files its annual report.
“They did miss the earnings,” Frederick Ziegel, an analyst at New York-based Topeka Capital Markets Inc., said yesterday in a phone interview. “Maybe some people were disappointed that the audit didn’t come out yesterday.”
The Bloomberg China-US index slumped 1.2 percent to 99.85, paring its weekly gain to 1.5 percent. AutoNavi Holdings Ltd. (AMAP:US) surged 3.0 percent to $20.65, a four-week high. The Chinese mapping company accepted Alibaba Group Holding Ltd.’s takeover offer that values it at $1.5 billion.
The iShares China Large-Cap ETF (FXI:US), the largest Chinese exchange-traded fund in the U.S., fell 1.5 percent to $36.14 while the Standard & Poor’s 500 Index retreated 0.9 percent.
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