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Published by zerohedge

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Published by: zerohedge on Oct 24, 2013
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 Terms of Service:
By downloading from, or viewing material on, this website you agree to the following Terms of Service. You agree that use of Muddy Waters LLC’sresearch is at your own risk. In no event will you hold Muddy Waters LLC or any affiliated party liable for any direct or indirect trading losses caused byany information on this site. You further agree to do your own research and due diligence before making any investment decision with respect tosecurities covered herein. You represent to Muddy Waters that you have sufficient investment sophistication to critically assess the information,analysis and opinion on this site. You further agree that you will not communicate the contents of this report to any other person unless that personhas agreed to be bound by these same terms of service. If you download or receive the contents of this report as an agent for any other person, youare binding your principal to these same Terms of Service.
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NQ Mobile: China Fraud 2.0
 NQ is a massive fraud. We believe it is a “Zero”. At least 72% of NQ’s purported Chinasecurity revenue is fictitious. NQ’s largest customer by far is really NQ. Its real business withcarriers and SPs is a fraction of what NQ purports. NQ’s online payment portal does not work – it is cosmetic only, designed to make investors think that NQ is a real company. NQ’s prepaidcard channel is a bad joke. We estimate that NQ’s real market share in China is about 1.5%,versus the approximately 55% it purports. We estimate that NQ’s paying China user base is lessthan 250,000, versus the approximately six million it purports. This fraud and the undisclosedrelated party transactions amount to securities fraud. We have already provided the SEC withinformation concerning NQ. NQ’s Antivirus 7.0 is unsafe for sale to consumers, and we consider it to be spyware. Weengaged a group of top-tier specialized software engineers to dive deeply into the application’scode. The engineers found that the application creates serious vulnerabilities, making users’ phones prone to data compromise and cyber attack by hackers or the Chinese government. Inother words, users phones are much more susceptible to compromise or attack with AV 7.0 thanwith nothing at all. NQ’s applications send far more data than necessary to its server in China.This data includes information on all URLs a user visits and location information (among other sensitive items). The uploaded data is not sent securely (let alone in accordance with industrystandards), despite passing through the Chinese government’s firewall, which is believed to viewand store all passing data. NQ sends this data to a third party analytics firm in China.Downloads are even less secure. The application does not require signature, making the phonehighly vulnerable to third parties uploading malware. Our engineers successfully staged such anattack. After their analysis, the engineers speculated that these vulnerabilities could be deliberate because the techniques vary so widely from industry standards. NQ’s purported international revenue is even more questionable than its PRC revenue. Aleading Android analytics provider estimates that NQ’s global annual app revenue is well unde$1.0 million. NQ generates de minimis revenue in the United States. The agreements NQ hasannounced with various US partners seem to have resulted in attachment rates of only 2% to 3%. NQ’s purported days sales outstanding (“DSO”) from are 198 days– much of which supposedlycomes international revenue. Even in the most emerging of markets, NQ should be getting paidin 30 to 45 days. NQ’s involvement with Telefónica is massively exaggerated. It is one of 3,000developers on Telefonica’s Blue Via platform. No developer has ever been expelled from the platform. NQ’s future is as bleak as its past. Its expansion into gaming and advertising is merely anattempt to prolong the fraud. NQ’s lies about its security app market share have worn very thin,and the Company is trying to hide the ball by switching emphases. Co-CEO Omar Khan offersthe clearest explanation of why NQ’s expansion will fail. If NQ were really a “platform” thathad the lowest user acquisition costs in the world, as Mr. Khan claims, then there could be astrategic basis for the expansion. In reality, NQ’s acquisition costs are closer to being the highestin the world, and it should not be called a “platform” with a straight face. This is merely a wayto claim to be in a business in which NQ hopes its fraud will be less obvious.
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