NetQin Mobile: Anti-virus value?

by Paul Goodwin, editor Cabot China & Emerging Markets Report

Mobile phones have changed the world. But the smartphone revolution has had its drawbacks, one of which is that hackers, spammers and data thieves are all attracted by the vulnerabilities of these devices.

And that’s where NetQin Mobile (NQ) is finding a fertile market niche. Founded in 2005 in direct response to the tidal growth of cellphone usage, the company makes software that offers protection from mobile malware and spyware via scanning, and from data theft and privacy intrusion via a firewall.

The company claims to have “the most comprehensive virus database in the world,” and says that it’s the first to identify three out of every four global threats to mobile networks and users.

Since Dr. Xuxian Jiang, the head of NetQin’s NQ Mobile Security Research Center, is also a core member of the Cyber Defense Lab at North Carolina State University, that’s a pretty credible claim.

NetQin’s software-as-a-service (SaaS) “freemium” strategy involves giving away basic protection services for free, while offering various premium options for pay. For-pay options include security, productivity software and personalized cloud services.

At the end of 2010, the company had about 72 million registered user accounts. Now that number has risen to well over 100 million user accounts (in over 200 countries and regions) and is growing at a rate of 266,000 users every day with 24 million added in Q4 2012.

This growth has ramped NetQin’s revenues up quickly, from $4 million in 2008 to $41 million in 2011. Earnings per share jumped into the black in 2010 with EPS of six cents per share.

That soared to 49 cents per share in 2011, and 2012 estimates are for 65 cents. As a business that’s scalable without incurring additional overhead, the company’s after-tax profi t margins are unusually high, reaching 51% in Q4 2011.

We’ve liked the story and fundamentals of NetQin for a while, but it’s the company’s hiring of Omar Khan to serve as co-CEO that has tipped the scales to positive.

Khan, whose previous job was heading up the mobile development and delivery campaign at Citigroup, is a major player in the mobile world.

He was formerly at Samsung Mobile, and before that at Motorola. He will serve alongside Chairman and CEO Dr. Henry Lin. Having a mover and shaker like Khan coming onboard is a very bullish sign.

Khan’s significance lies with NetQin’s global expansion program, which is targeting North and South America, Europe, Japan, Korea and India.

All of these areas are heavy mobile NQ usage zones, where the attractiveness of NetQin’s services could prove substantial.

NQ’s float is just 17 million shares out of a total share count of 46 million. That’s because management owns 62% of the stock.

But as that stock reserve begins to trade, increasing liquidity, the stock will become more attractive to institutional investors, especially once the stock cracks into double figures. We think the stock is buyable on any pullback.

Learn more about this financial newsletter at Paul Goodwin, editor Cabot China & Emerging Markets Report.

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