Technology

Qihoo 360: China’s Internet Darling du Jour

China
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Qihoo 360 Technology Co. Ltd. (NYSE: QIHU) on Monday morning reported adjusted earnings per American Depositary Share (ADS) of $0.40 on revenues of $151. 67 million for its second fiscal quarter ended on June 30. The numbers are well above consensus estimates.

Over the past 12 months, shares of Qihoo 360 are up more than 200%, compared with gains of about 46% at Sina Corp. (NASDAQ: SINA) and about 20% at Baidu Inc. (NASDAQ: BIDU), two other booming Chinese Internet players.

These companies do not exactly compete head-to-head in the vast Chinese market. Baidu is primarily a search provider, and Sina’s Weibo is the country’s answer to Twitter. Sina is also the country’s leading Web portal. Qihoo 360, in addition to taking a serious run at Baidu’s search business, offers a browser and Web security tools. All three depend on advertising for the largest of their revenues.

Qihoo 360, Sina and Baidu easily topped analysts estimates for second-quarter earnings and revenue, and Qihoo 360 this morning issued an outlook that estimates revenue at $181 million to $183 million in the third quarter, while the consensus estimate is around $163 million.

As in the United States, the major Chinese Web companies are focusing on gaining a leading position in the mobile market. It is here that Qihoo 360 may hold an edge. The company already derives about 40% of its revenues from services, including online gaming, and in its quarterly report noted “strong momentum” in its mobile games.

Add to that a rumored attempt to acquire Sohu.com Inc. (NASDAQ: SOHU), a Baidu competitor, that currently gets about a quarter of China’s search market. The deal fell through, but in today’s earnings report the company said that it plans to continue to invest in “product and technology development … particularly in mobile Internet and search technology where we see tremendous opportunity for future expansion.”

Shares of Qihoo 360 are up 12.3% in premarket trading at $82.00, well above the 52-week range of $20.01 to $76.00. Analysts have not been paying attention apparently. The consensus target price according to Thomson Reuters is just $53.20, a price the stock put in the rear-view mirror more than a month ago.

 

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