There’s a bit of a tendency for some newsletter publishers to use military imagery in their letters, to try to convey an image that you’re like a Navy SEAL, sneaking up on your target to dispatch a terrorist leader with maximum prejudice (or, as the case may be, buy a stock and make some money, but real cool-like). That’s what first popped in my mind when I saw the ads for Keith Fitz-Gerald’s new newsletter called Strike Force — and it’s even got a little crosshairs logo in the “o” … I feel cooler just looking at it.
Yes, I know, insert your own joke here about a subscription service being named for a fictional band of street urchins. It’s OK, I can take it.
But anyway, this is one of those “super premium” newsletters — at least in price. We don’t know how it will do, of course, but they’re charging close to $3,000 (oh, wait, it’s On Sale! Only $695! I guess we’ll find out after a few months of performance if they’re ever going to actually charge the “retail” price for this letter.)
And Keith, in a faux interview ad for the letter, tells us that this next investment idea of his might be the stuff of which legends are made. Or as they put it:
“We asked if Mr. Lin’s new security system could soon be installed in FIFTY BILLION devices, making it the biggest technology of our lifetime, taking his company’s stock from $5 to $300. This is what we learned …”
The basic pitch is that there is such a massive move toward networked devices and mobile data, that the security challenge is massive and this tiny company that’s focused on mobile security will get rich as their technology is installed in billions of networked devices.
Here’s Fitz-Gerald’s pitch, after he describes the huge number of interconnected devices, from smart phones to refrigerators to vending machines, who will need security to protect them from hackers:
“So what happens when one company is the first to build a fortress of impenetrability around those 50 billion connected devices? And what happens if you invest in that company early on – just before all those billions of connections create billions in profits?
“This is what could happen…
“You’re set up for one of the biggest hockey-stick winners you’ll ever see!
“The company I’m telling you about today is already a global leader in mobile security.
“They’ve got more than 100 million subscribers in 100 countries, and for this achievement, they’re already a $5 stock on the NYSE.
“So what happens next? Here are the scenarios going forward:
“Worst case, in our view: They hold onto their global market share as people move from basic cellphones to smartphones. This could mean a billion subscribers in a couple years, and a $50 stock. That’s 1,000% growth based solely on people migrating from cellphones to smartphones that can tap a vending machine and get a soft drink.
“As for the best case: The company grabs the same big share of the 50 billion mobile connections we’ll be seeing. That could make them a $300 stock. And if you’re doing the math in your head, yes, that’s a 6,000% gain on the money you invest now…”
And, to further the argument:
“… the U.N. tell us there are already almost five billion cellphones out there and we know the world population just topped seven billion!
“Five billion of these, and a lot of them are vulnerable. In China alone, there are 277 million people that could be hacked. And a lot of them are being hacked! This global security outfit we’re targeting has reported that some 2.5 million subscribers were hit with malicious viruses in the first quarter of this year.
“That means that in China alone this year, 10 million people could be slammed with stolen identities, credit card loss, unknown service charges, their calls secretly recorded, their text messages stolen, their photos winding up on the Internet…
“So yes, this is very real. Mobile technology isn’t going to stop just because it attracts criminals. Don’t believe me? Try ripping a cellphone out of a teen’s hands!
“That’s why mobile security is a huge growth industry.
“And that’s why it’s imperative for every device made from January 3, 2012 onward be made with a first-rate security system embedded.
“As we see it, they’re practically required to beef up their security!”
We’re also told that this is a company that went public on the NYSE in May. So who is it?
Well, that is, thankfully plenty of info to toss into the mighty, mighty Thinkolator … let it churn for a moment … and there you have it: This is almost certainly NetQin (NQ)
Which is a large operator in the mobile antivirus industry, though that industry itself is still quite small and unprofitable compared to the overall computer and internet security sector, and NetQin looks tiny compared to sector giants like McAfee or Symantec (SYMC), or even to smaller firms like Sourcefire (FIRE).
I know almost nothing about NQ and had never heard of them before this morning, but they are a real business, they did receive a glowing review from a US lab testing their mobile security software for Android devices (they did better than the other solutions that were tested), and they are profitable and carry a reasonable valuation. If you combine the last two reported quarters after the IPO with the estimates for the next two quarters, you’d put yourself in the middle of a year of roughly 50 cents in earnings, so that’s a current year PE of between 11 and 12. Big players like Symantec are currently cheaper (SYMC has a forward PE of under 9), but certainly NQ has the potential to grow much more rapidly if they do well.
NetQin positions itself as a provider of mobile software and services, with their antivirus sometimes preinstalled on phones and sometimes available from carrier-specific app stores. I didn’t see exactly how much of their revenue comes from mobile security stuff, since they also earn money by providing secure downloads for other app sellers and by selling other premium software and cloud services (mostly productivity stuff, it sounds like — calendars and such) that’s not necessarily security related — so I don’t really understand the business model very well. I say that after a short look — I see that they have over 100 million users of their software, but a small percentage of those seem to be paying customers, so I just don’t know how it breaks out in the income or in their planning, I’m not trying to imply that they’re doing anything wrong or silly.
You can check out their investor materials here to get a better handle on them if you like — for the second quarter they say that they had 102 million registered users and revenue of about $8.8 million, so that’s about 8.5 cents per user in revenue, it must be some kind of freemium/upgrade system that gets folks in for a security scan or basic level of service and upgrades them to one of their productivity or security systems or services.
Oh, and from my reading of the ad the January 3, 2012 date is completely made up. That’s the date by which “they see it” as “imperative” that everyone has this kind of security for their mobile devices. They’re not going to have that kind of security on all those phones, I can tell you that for sure — I’m quite confident that there has never been a company that’s gone from 100 million registered users to five billion in six weeks, even if you presume that they’re just trying to get free users.
Doesn’t mean the mobile security market isn’t huge, of course, I just see no reasoning behind the January 3 date other than, “if we can’t invent a deadline and some urgency, why would you subscribe to this newsletter and buy this stock right now, when you’re panicked about the euro crisis and mad at the super duper committee?” If you know of a real reason for the January 3, 2012 date, well, I’ll humbly withdraw my snarky comment.
But anyway, that’s what we can tell you to get started — Fitz-Gerald also teases a few other picks in this inaugural teaser for his Strike Force, and I’ll try to get to those after the holiday mania, but for now the Thinkolator can just quickly strike and tell you that he must be pitching NQ. Whether or not this mobile software company belongs in your portfolio, well, that’s your call — let us know what you think with a comment below.
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