Inside NetQin Mobile Inc. (NYSE: NQ) - By iChinaStock
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Inside NetQin Mobile Inc. (NYSE: NQ) - By iChinaStock

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China-based NetQin Mobile Inc. (NYSE: NQ) sells mobile security services via freemium model. Its primary users are feature phone and low-end smartphones, mostly to Chinese customers but also some ...

China-based NetQin Mobile Inc. (NYSE: NQ) sells mobile security services via freemium model. Its primary users are feature phone and low-end smartphones, mostly to Chinese customers but also some internationally. Qihoo (NYSE: QIHU) is a key competitor.

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  • 1. INSIDE INSIDE  NETQIN MOBILE NYSE: NQ REPORT BY iChinaStock.com profiles Chinese firms that are publicly-listed or may list soon in overseas markets © March 2011 iChinaStock
  • 2. INSIDE SUMMARY   NetQin Mobile Inc. uses a freemium model to sell mobile securityservices. NetQin claims that its users are virtually all “smartphone”users, but many definitions of the term would likely classify theirusers as feature-phone or low-end smartphone users.   NetQin’s three main services are:   Mobile security   Mobile productivity   Personalized cloud services   Initial stock price range from $9.50 - $11.50 USD. At the midpoint,NetQin will raise $75 million at a $475 million valuation. Aims to listwith the ticker name “NQ” and Piper Jaffray as its underwriter   IMPORTANT NOTE: It is difficult to obtain accurate statistics on China’s mobilemarket. NetQin appears to have commissioned to companies, Sino-MR and Frost &Sullivan, to provide “3rd party statistics,” but the quality and objectivity of the reports isquestionable. Still, much of the data in this report (and NetQin’s F-1) are from thesesources, accompanied by additional analysis from iChinaStock.
  • 3. INSIDE TIMELINE Nov. - Partnership with PhoneGuard to launch in North American markets CCTV exposé alleges Dec. - NetQin Anti-virus NetQin conspires with Feilu (Chinese version) and NetQin Oct. - NetQin Mobile Guard to plant viruses on Mobile Manager (Chinese (Chinese version) a free customer’s phones, delays version) preloaded on Nokia mobile security software-- NetQin IPO NetQin founded and and Amoi smart-phones. launched NetQin submits updated NetQin 1.0 (Chinese listing application to SEC version), an Anti-virus Jun. – Sequoia, Linsha River Sept. - ~30 million subscribers invest $3 million in Qin in more than 200 countries with proposed financing ofsoftware for mobile phones, $75 million launched Network and regions 2005 2007 2009 2011 2006 2008 2010 ~200,000 subscribers in 100 Oct.- Number of users exceeded ~10 million subscribers in 200 countries and regions, NetQin 2.0 60 million countries and regions (Chinese version) launched Apr. - $20 million funding from investors, Sublicense to Options Media Group in North America NetQin was warned and deducted credit by telecom partner China Mobile due to its inadequate fee notices for users
  • 4. INSIDE NETQIN USERS 90.0   86.0   80.0   71.7   70.0   NetQin Users (Millions) 60.0   50.0   Registered  users   40.0   35.6   MAU   30.3   MPU   30.0   25.4   20.0   15.2   12.0   10.0   5.5   3.2   3.7   1.0   1.1   0.0   2008Q4   2009Q4   2010Q4   2011Q1  (MAU= monthly active users and MPU= monthly paying users )Source: NetQin F1 file
  • 5. INSIDE MARKET SHARE I Frost & Sullivan: Market Share of Activated Users* by Provider Key: •  Unit: 10,000 •  Percent The consulting firm Frost & Sullivan reports that NetQin had 68% market share with 49 million “activated users” in China. NetQin “activated users” includes users of any of NetQin’s security products. IMPORTANT NOTE: This data is suspect as much of Frost & Sullivan’s report displays questionable objectivity and the firm previously presented an award to NetQin. It was likely commissioned by NetQin to produce the report, as is the case with most of the “3rd party statistics” on NetQin. *Activated users is the total amount of users who activated mobilesecurity software after installation Source: Frost & Sullivan
  • 6. INSIDE MARKET SHARE II iResearch: Market Share for Mobile Security Products Kingsoft Mobile Guard 4.8% 360 Mobile Safe (by Qihoo) 360 mSafe (by Qihoo) 55.6% 6.1% NetQin Mobile Guard Other 8.5% 9.5% iResearch used a sample of 5338 “representative users” in Nov-Dec 2010 to measure market share for mobile security products. The mobile product in question for NetQin here is its “NetQin Mobile Guard.” This data was likely commissioned by Qihoo (NYSE: Qihu), a competitor to NetQin. Source: iResearch iUserTracker
  • 7. INSIDE MARKET SHARE III Enfodesk: Market Share for Mobile Security Products (Q4 2010) Source: Enfodesk
  • 8. INSIDE PRODUCT AVAILABILITY Symbian Mobile Anti-Virus Android Free  &   Paid Mobile  Manager Windows NetQin Mobile Free Mobile  Guardian iPhone BlackBerrySource: NetQin official website. Note English and Chinese products vary in some instances.
  • 9. INSIDE SMARTPHONE OR FEATURE-PHONES? NetQin claims that, “Substantially all of our users are smartphone users, which webelieve have attractive demographic characteristics.” The problem is that there isno one industry-standard definition of “smartphone,” but NetQin seems to bestretching the definition. NetQin produces applications for the most advanced mobile operating systems(OS) like Apple’s iOS and Google’s Android, but does not disclose the percentageof its users for each mobile OS. iChinaStock believes that the majority of NetQin’s users are using feature-phonesor ‘low-end smartphones’ (e.g., Nokia phones running Symbian). NetQin hasreached agreements with many such handset manufacturers so that theirproducts come pre-installed on the phones. Because these phones lack a mature app paid marketplace or mobile paymentoptions, NetQin is still largely dependent upon mobile payment service providersand telecom partners to bill its customers, though it is attempting to reduce thatdependency.
  • 10. INSIDE Viruses by Mobile Operating System (2010) Android   Windows   Blackberry   iPhone   2.40%   Mobile   0.30%   0.10%   0.70%   According to NetQin, the vast majority of viruses on mobile are found on the Symbian and Java 2 Platform, Java 2 Platform (J2ME). It is Micro Edition (J2ME) therefore likely that these 27.30% Symbian operating systems are the focus 69.10% for NetQin’s products. Source: NetQin “Cloud Safe” Data Analyis Center
  • 11. INSIDE PRODUCT DISTRIBUTION   Pre-installation: NetQin, Nokia, Samsung, Sony Ericsson mobile phone manufacturers all have models that come pre-installed with NetQin. NetQin plans to continue with pre-installation partnerships in overseas promotions   Products are available as a direct download on the official NetQin website, which is available in multiple languages. After negative media publicity and accusations of installation of viruses onto users phones through pre-installed software, Nokia temporarily removed its NetQin applications on their online store, but has since restored it re-allowing its customers access products through this channel. Source: NetQin F1 filing
  • 12. INSIDE Millions USD FINANCIALS  8      6.3      6      5.4      3.6      4      2.3      1.5      1.5     Revenue    2      1.1      1.2      0.9      0.1      -­‐     Profit  (Loss)    (2)   (1.1) (1.3) (1.3) (1.4)  (4)   (0.4)  (6)    (8)    (10)    (12)    (10.5)   Note: In Q4 NetQin experienced a loss of $10.5 million. NetQin explains that was due to a significant increase in operating expenses: a major non-cash, share-based compensation expense and adjustment cost for management and administrative costs. This was a non-cash equity adjustment cost and will not become a regular business expense that affects operating results. Source: NetQin F1 file
  • 13. INSIDE REVENUE STREAMS Mobile Operator NetQin Reducing Dependence on Mobile China Mobile, China Payment SPs Unicom, China Telecom 90.0%   80.0%   Mobile Payment Service 70.0%   Provider (SP) 28.0%   60.0%   Primarily Tianjin Yidatong and NetQin’s Beijing Technology 50.0%   subsidiary 48.0%   China  Mobile   40.0%   Tianjin  Yidatong   30.0%   52.7%   10.0%   “Qin Credits”, NetQin’s 20.0%   Virtual Currency 10.0%   20.0%   21.4%   Monthly, Six Months, Yearly 0.0%   2008   2009   2010   Third-Party Payments (PayPal, Alipay, Debit, Credit •  “Yidatong charges us at a lower fee rate than other mobile payment service providers through which we cooperate with wireless carriers.” Cards) •  “We have become less dependent on any specific mobile payment service provider or wireless carriers, such as Yidatong or China Mobile, as we establish more diversified payment channels. ” Source: NetQin F1 file
  • 14. INSIDE FREEMIUM MODEL NetQin’s apps typically operate on a freemium model: free to install, but certain premium services are for paying users only. Principal services include mobile phone safety, cellular performance, personalization and cloud services. Source: NetQin F-1 filing
  • 15. INSIDE DOMESTIC COMPETITORS NetQin was a huge innovator in China when initially providing virus protection for mobile devices. In 2005,NetQin launched the first mobile phone anti-virus software, but over the past two years, as traditional antivirusvendors have set foot into the field of mobile security in China, NetQin is facing competitive pressure 360 Mobile Safe is a free mobile security product by Qihoo 360 (NYSE: QIHU). iResearch’s user tracker reports that it had the largest market share (58.2%) of active users for any single mobile security product in China as of January 2011. Qihoo uses the traffic from that product to generate revenues. Qihoo’s free services are a serious threat to NetQin. mSafe Mobile Security was founded in 2006 and is available to consumers free of charge. In January of 2010, Qihoo 360 (QIHU) acquired mSafe Mobile Security. (Symbian / Windows Mobile / Linux/ iPhone) Kingsoft Mobile Security is a free product. (Symbian/ android) Rising Anti-Virus Software for Handheld Devices is a free product. (Symbian / windows)
  • 16. INSIDE FUNDING •  JUNE 2007 | - Sequoia Capital and GSR Ventures invest $3 million in NetQin •  OCTOBER 2007 | Fidelity Asia Investment invests in NetQin (amount undisclosed) •  APRIL 2010 | One of the original investors in NetQin, GSR Ventures, and Ceyuan Ventures invest $20 million in NetQin •  NOVEMBER 2010 | HTC invests $2.5 million in NetQin •  DECEMBER 8, 2010 | Gaintech, a subsidiary of Taiwanese chip maker MediaTek, invests $2.2 million in NetQin Source: NetQin F1 file
  • 17. INSIDE NETQIN-FEILU SCANDAL On March 15th 2011, China’s largest broadcaster, CCTV ran an exposé alleging thatNetQin conspired with another mobile software provider, Feilu to plant viruses oncustomer’s phones. The user’s would then be prompted to use NetQin’s securityservices to eliminate the virus. The allegation came just as NetQin intended to IPOand probably caused its subsequent delay. NetQin subsequently admitted that it was one of the investors in Beijing Feiliu, butdenied any attempt to spread malware. Beijing Feiliu held a press conferencequestioning CCTV’s report as an “elaborate plot” by its competitor Qihoo 360(NYSE: QIHU) to slander the company.
  • 18. INSIDE IPO STATUS April 19 | According to foreign media reports, the NetQin will visit theNYSE on May 5.  April 9 | NetQin announces initial IPO price range from $9.50 - $11.50USD. At the midpoint, NetQin will raise $75 million at a $475 millionvaluation Funds will be used for: 1. R & D projects 2. Marketing Operations 3. Possible Acquisitions
  • 19. INSIDE CORPORATE STRUCTURE NetQin Mobile Inc. (Cayman Islands) 100% 100% NetQin International Ltd. NetQin US Inc. (Hong Kong) (United States) Offshore 100%   100% l PRC Contractua (1) ents Arrangem NetQin Mobile (Beijing) Co., Ltd. Beijing NetQin Technology Co. Ltd. 51%(2) Fuzhou NetQin Mobile Information Technology Co. Ltd. Source: NetQin F1 file
  • 20. INSIDE NETQIN MOBILE ANTI-VIRUS Anti-virus (Free) Anti-Lost can “locate and lock” lost phones. That includes Anti-Lost position tracking, destruction (Premium) of private documents, phone lock, phone alarm and other functions Note: Screenshots from the official NetQin Chinese-language website.
  • 21. INSIDE NETQIN MOBILE MANAGER (SYMBIAN) Mobile Manager provides services such as black list/backup contacts/privacy eraser/private space and so on. After choosing certain contacts, a record of their calls and text messages will be encrypted and saved into a password protected area.Private Space (Premium) Note: Screenshots from the official NetQin Chinese-language website.
  • 22. INSIDE NETQIN MOBILE GUARD (SYMBIAN) NetQin Mobile Guard (Free) Includes network monitoring, speed-boot, systemclean-up, a mobile backup and more. Note: Screenshots from the official NetQin Chinese-language website.
  • 23. INSIDE NETQIN SPACE (SYMBIAN) NetQin Space (Free) Mobile PC Requires the user to have “NetQin pass" to synch their PC users can schedule meetings and access their PC and mobile phone calendar via NQ Space. Note: Screenshots from the official NetQin Chinese-language website.
  • 24. INSIDE ABOUT ICHINASTOCK Snowball Finance is a financial media platform that includes two sites. One is iMeigu.com, a Chinese-language site that covers all US-listed stocks. The other is iChinaStock.com, an English-language site that covers Chinese stocks listed in the US. Each site provides stock quotes, business news, and analysis. Snowball Finance has also established my.iMeigu.com, a Web 2.0 platform for global investors to share news and insights on stocks they follow. Snowball Finance also publishes the iChinaStock 30 Index, a representative sample of Chinese stocks on the NYSE and NASDAQ. © March 2011 iChinaStock