INSIDE

INSIDE

 NETQIN MOBILE

iChinaStock.com profiles Chinese firms that are publicly-listed or may list soon in overseas markets

REPORT BY

© March 2011 iChinaStock

NYSE: NQ

INSIDE

  NetQin Mobile Inc. uses a freemium model to sell mobile security services. NetQin claims that its users are virtually all “smartphone” users, but many definitions of the term would likely classify their users 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 list with the ticker name “NQ” and Piper Jaffray as its underwriter

  IMPORTANT NOTE: It is difficult to obtain accurate statistics on China’s mobile market. 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 is questionable. Still, much of the data in this report (and NetQin’s F-1) are from these sources, accompanied by additional analysis from iChinaStock.

SUMMARY

INSIDE

NetQin founded and NetQin 1.0 (Chinese version), an Anti-virus

software for mobile phones, launched

2005

2006

2007

2008

2009

2010

2011

Oct. - NetQin Mobile Guard (Chinese version) a free

mobile security software--launched

Sept. - ~30 million subscribers in more than 200 countries

and regions

NetQin submits updated listing application to SEC

with proposed financing of $75 million �

~10 million subscribers in 200 countries and regions

Apr. - $20 million funding from investors, Sublicense to Options Media Group in North America

~200,000 subscribers in 100 countries and regions, NetQin 2.0

(Chinese version) launched

Oct.- Number of users exceeded 60 million

CCTV exposé alleges NetQin conspires with Feilu

to plant viruses on customer’s phones, delays

NetQin IPO

NetQin was warned and deducted credit by telecom

partner China Mobile due to its inadequate fee notices for users

Dec. - NetQin Anti-virus (Chinese version) and NetQin

Mobile Manager (Chinese version) preloaded on Nokia

and Amoi smart-phones.

Jun. – Sequoia, Linsha River invest $3 million in Qin

Network�

TIMELINE Nov. - Partnership with

PhoneGuard to launch in North American markets

INSIDE

NETQIN USERS

Net

Qin

Use

rs (

Milli

ons)

15.2  

35.6  

71.7  

86.0  

5.5  

12.0  

25.4  30.3  

1.0   1.1   3.2   3.7  

0.0  

10.0  

20.0  

30.0  

40.0  

50.0  

60.0  

70.0  

80.0  

90.0  

2008Q4   2009Q4   2010Q4   2011Q1  

Registered  users  

MAU  

MPU  

(MAU= monthly active users and MPU= monthly paying users ) Source: NetQin F1 file

INSIDE

MARKET SHARE I

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.

Frost & Sullivan: Market Share of Activated Users* by Provider

Key: •  Unit: 10,000 •  Percent

*Activated users is the total amount of users who activated mobile security software after installation Source: Frost & Sullivan

INSIDE

MARKET SHARE II

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.

iResearch: Market Share for Mobile Security Products

Source: iResearch iUserTracker

360 Mobile Safe (by Qihoo) 55.6%

NetQin Mobile Guard 8.5%

Kingsoft Mobile Guard 4.8%

Other 9.5%

360 mSafe (by Qihoo) 6.1%

INSIDE

MARKET SHARE III Enfodesk: Market Share for Mobile Security Products

(Q4 2010)

Source: Enfodesk

INSIDE

NetQin �

Free  &  Paid �

Mobile Anti-Virus�

Mobile  Manager�

Free� Mobile  Guardian �

Symbian �

Android�

Windows Mobile�

iPhone �

BlackBerry�

Source: NetQin official website. Note English and Chinese products vary in some instances. �

PRODUCT AVAILABILITY

INSIDE

SMARTPHONE OR FEATURE-PHONES? NetQin claims that, “Substantially all of our users are smartphone users, which we believe have attractive demographic characteristics.” The problem is that there is no one industry-standard definition of “smartphone,” but NetQin seems to be stretching 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 percentage of its users for each mobile OS. iChinaStock believes that the majority of NetQin’s users are using feature-phones or ‘low-end smartphones’ (e.g., Nokia phones running Symbian). NetQin has reached agreements with many such handset manufacturers so that their products come pre-installed on the phones. Because these phones lack a mature app paid marketplace or mobile payment options, NetQin is still largely dependent upon mobile payment service providers and telecom partners to bill its customers, though it is attempting to reduce that dependency.

INSIDE

Viruses by Mobile Operating System (2010)

Symbian 69.10%

Java 2 Platform, Micro Edition (J2ME)

27.30%

Android  2.40%  

Windows  Mobile  0.70%  

Blackberry  0.30%  

iPhone  0.10%  

Source: NetQin “Cloud Safe” Data Analyis Center

According to NetQin, the vast majority of viruses on mobile are found on the Symbian and Java 2 Platform (J2ME). It is therefore likely that these operating systems are the focus for NetQin’s products.

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

INSIDE

Source: NetQin F1 file

 1.1      1.2      1.5      1.5      2.3    

 3.6    

 5.4      6.3    

(1.1) (1.3) (1.3) (1.4) (0.4)

 0.1      0.9    

 (10.5)    (12)  

 (10)  

 (8)  

 (6)  

 (4)  

 (2)  

 -­‐    

 2    

 4    

 6    

 8    

Revenue  

Profit  (Loss)  

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.

FINANCIALS Millions USD

INSIDE

Mobile Operator （China Mobile, China

Unicom, China Telecom）

Mobile Payment Service Provider (SP)

（Primarily Tianjin Yidatong and NetQin’s Beijing Technology

subsidiary）

“Qin Credits”, NetQin’s Virtual Currency���

（Monthly, Six Months, Yearly）

Third-Party Payments (PayPal, Alipay, Debit, Credit Cards)

REVENUE STREAMS

Source: NetQin F1 file

52.7%  

20.0%   21.4%  

28.0%  

48.0%  

10.0%  

0.0%  

10.0%  

20.0%  

30.0%  

40.0%  

50.0%  

60.0%  

70.0%  

80.0%  

90.0%  

2008   2009   2010  

NetQin Reducing Dependence on Mobile Payment SPs

China  Mobile  

Tianjin  Yidatong  

•  “Yidatong charges us at a lower fee rate than other mobile payment service providers through which we cooperate with wireless carriers.”

•  “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. ”

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

INSIDE

DOMESTIC COMPETITORS

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)

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 antivirus vendors have set foot into the field of mobile security in China, NetQin is facing competitive pressure

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

INSIDE

NETQIN-FEILU SCANDAL

On March 15th 2011, China’s largest broadcaster, CCTV ran an exposé alleging that NetQin conspired with another mobile software provider, Feilu to plant viruses on customer’s phones. The user’s would then be prompted to use NetQin’s security services to eliminate the virus. The allegation came just as NetQin intended to IPO and probably caused its subsequent delay. NetQin subsequently admitted that it was one of the investors in Beijing Feiliu, but denied any attempt to spread malware. Beijing Feiliu held a press conference questioning CCTV’s report as an “elaborate plot” by its competitor Qihoo 360 (NYSE: QIHU) to slander the company.

INSIDE

IPO STATUS April 19 | According to foreign media reports, the NetQin will visit the NYSE on May 5.  April 9 | NetQin announces initial IPO price range from $9.50 - $11.50 USD. At the midpoint, NetQin will raise $75 million at a $475 million valuation Funds will be used for : 1. R & D projects 2. Marketing Operations 3. Possible Acquisitions

INSIDE

CORPORATE STRUCTURE

Source: NetQin F1 file

NetQin Mobile Inc.

(Cayman Islands)

NetQin International Ltd.

(Hong Kong)

NetQin Mobile (Beijing) Co., Ltd. Beijing NetQin Technology Co. Ltd.

Fuzhou NetQin Mobile Information Technology Co. Ltd.

NetQin US Inc.

(United States)  

100% 100%

100%

100%

Offshore

PRC Contractual

Arrangements(1)

51%(2)

INSIDE

NETQIN MOBILE ANTI-VIRUS

Anti-Lost (Premium) �

Anti-virus (Free) �

Anti-Lost can “locate and lock” lost phones. That includes position tracking, destruction of private documents, phone lock, phone alarm and other functions �

Note: Screenshots from the official NetQin Chinese-language website. �

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.�

Note: Screenshots from the official NetQin Chinese-language website. �

Private Space (Premium) �

INSIDE

NETQIN MOBILE GUARD ���(SYMBIAN)

INSIDE

Note: Screenshots from the official NetQin Chinese-language website. �

NetQin Mobile Guard (Free)

Includes network monitoring, speed-boot, system clean-up, a mobile backup，and more.

NETQIN SPACE���(SYMBIAN)

INSIDE

PC users can schedule meetings and access their calendar via NQ Space.

Note: Screenshots from the official NetQin Chinese-language website. �

NetQin Space (Free)

Requires the user to have “NetQin pass" to synch their PC and mobile phone

PC Mobile

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