NQ Mobile Dips on Q4 Earnings Miss - Analyst Blog

Shares of NQ Mobile Inc. NQ dropped 8.69% in after-hours trade on Thursday after the company's break-even results which lagged the Zacks Consensus Estimate of 11 cents as well as earnings of 9 cents per share reported in the year-ago quarter.

Quarter Details

Revenues for the quarter surged 126% on a year-over-year basis to $67.9 million and surpassed the Zacks Consensus Estimate of $63.0 million. Higher services revenues (up 95.6% year over year) and growth in product revenues from Enterprise mobility (up 287% year over year) primarily aided total revenue.

Among service segment, revenues from Mobile Value Added Service increased 35.4% year over year buoyed by higher Mobile Game revenues. New game launches and growth user base of FL Mobile's game platform primarily boosted segment results.

Advertising revenues soared 532.4% year over year as the company successfully monetization efforts of its advertising platforms. Products and services related to the Enterprise mobility segment increased on a year-over-year basis primarily due to expansion in its enterprise business and client wins.

Although the company's gross profit increased 62.8% from the year-ago quarter to $33.1 million, margins came in at 48.8% compared to 67.8% in the year-ago quarter. Higher contribution from low-margin mobile games and advertising revenues impacted margins.

NQ Mobile reported operating loss (including share-based compensation but excluding other one-time items) of $2.3 million compared with $0.4 million operating income reported in the year-ago quarter. Higher-than-expected operating expenses (up 77.4% year over year) impacted operating results. The company reported marginal loss of $0.03 million compared to a net income of $4.9 million in the year-ago quarter.

NQ Mobile exited the quarter with cash and cash equivalents of $179.7 million compared to $34.3 million in the previous quarter. The company had $175.4 million of convertible debt in its balance sheet. The company used $13.4 million of cash in operations compared to cash generated by operating activities of $22.2 million in the previous quarter. During the fourth quarter, NQ Mobile repurchased shares worth $4.7 million.

Guidance

For the first quarter of 2014, NQ Mobile expects its revenues to between $75 million and $76 million, higher than the Zacks Consensus Estimate of $72 million. Moreover, the company expects fiscal 2014 revenues in the range of $320–$325 million, higher than the Zacks Consensus Estimate of $279.0 million.

Our Take

NQ Mobile reported mixed fourth-quarter results wherein the top line beat the Zacks Consensus Estimate but the bottom line missed the same. The company's better-than-expected user growth in FL Mobile's gaming platform and new game launches remain the growth catalysts. The company's association with Sprint and Samsung is another positive for the company.

However, the company's margins are impacted due to higher expenses and higher contribution of low-margin businesses which is affecting the overall results.

Currently, NQ Mobile has a Zacks Rank #3 (Hold). Investors can look at stocks such as  Accenture ACN, Arrow Electronics ARW and Hewlett-Packard HPQ which sport a Zacks Rank #2 (Buy).