NQ Extends Slide as Sohu Falls on Plan: China Overnight

Chinese equities sank in New York as NQ Mobile Inc. extended its three-day plunge to 62 percent after Muddy Waters LLC accused it of fabricating revenue, while Sohu.com Inc. tumbled on plans to boost marketing expenses.

The Bloomberg China-US Index of the most traded Chinese stocks in the U.S. dropped 1.2 percent to a seven-week low of 100.87 yesterday. NQ sank 17 percent to a three-month low while Sohu retreated the most in five years. Phoenix New Media Ltd. slumped 15 percent while Suntech Power Holdings Co. led declines among solar manufacturers.

NQ Mobile fell the most on record last week after Muddy Waters said the company inflated revenue and lied about cash balances in an Oct. 24 report. NQ denied the allegations, holding a two-hour conference call on Oct. 25 to discuss details of its financial statements. In an earnings call yesterday, Sohu said its games unit Changyou.com Ltd. will “significantly ramp up” marketing expenses this quarter to expand its user base.

“Sohu’s game revenue growth is declining as users are leaving desktop computers to mobile devices, which forced the company to increase marketing spending,” Tian X. Hou, the founder of T. H. Capital LLC, said in a telephone interview from Beijing. “Its video business will continue burning money on content acquisition and market share in the fourth quarter.”

The iShares China Large-Cap ETF, the largest Chinese exchange-traded fund in the U.S., climbed 0.3 percent to $36.55 in New York. The Standard & Poor’s 500 Index gained 0.1 percent as weaker-than-forecast data on factory output and housing fueled bets the Federal Reserve will maintain stimulus at its policy meeting.

Marketing Expenses

Sohu tumbled 16 percent to $68.11, sinking the most since November 2008. Trading volume was 4.6 times the three-month average compiled by Bloomberg. American depositary receipts of Changyou plunged 20 percent to $28.50, slumping the most since its U.S. listing in April 2009.

Beijing-based Sohu will increase marketing spending on its Changyou unit by $53 million in the final three months to expand the user base of its online games, Chief Executive Officer Charles Zhang said on a conference call yesterday.

Sohu reported net loss of $65 million for the third quarter because of a special dividend paid to certain shareholders of its Sogou search engine business, the company said in a statement yesterday. Operating profit fell 18 percent to $52 million, compared with the average $56 million estimate of nine analysts compiled by Bloomberg. Sohu forecast fourth-quarter revenue of as much as $390 million, compared with $375.9 million average of seven analyst projections.

Total Downloads

NQ Mobile’s American depositary receipts sank to $8.80, the lowest level since July 3. Trading volume was 8.2 times the 90-day average compiled by Bloomberg.

NQ Mobile may have 1.15 percent share of total downloads of mobile security software in China, T.H. Capital wrote in a note yesterday, citing its data. The company may have 13 million downloads out of a total 1.1 billion in the industry, according to the report. Muddy Waters said in the Oct. 24 note NQ Mobile’s market share in China is about 1.5 percent, versus the approximate 55 percent it reported.

“So far responses from NQ haven’t been convincing enough and there are still many questions raised by Muddy Waters that need to be answered,” Henry Guo, an analyst at ABR Investment Strategy LLC in San Francisco, said by phone yesterday.

Phoenix New Media, a TV and Internet news outlet based in Beijing, slid to $9.06 in New York, slumping the most since August 2011. Thirty-day volatility on its ADRs surged to 86 yesterday, compared with a six-month average of 58, according to data compiled by Bloomberg.

Solars Drop

NetEase Inc., a web games developer based in Beijing, slumped 10 percent to $65.36, losing the most since August 2012. The company is scheduled to report third-quarter results on Nov. 13 after U.S. markets close.

Suntech Power Holdings Co., which China unit was forced into bankruptcy in March, lost 9.6 percent to $1.22 in a fourth day of declines. Trina Solar Ltd. sank 8 percent to $14.81, the largest retreat since Aug. 7.

The Shanghai Composite Index was little changed at 2,133.87 yesterday, after sinking 2.8 percent last week. The Hang Seng China Enterprises Index in Hong Kong advanced 0.8 percent yesterday to 10,258.42, following a 4.4 percent drop last week.

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