Chinese Internet companyQihoo 360 Technology (
) still lags well behind the leader in China's search engine
market, but the company showed last week that it's determined to
make a game of it.
Qihoo provides Internet and mobile security products. Although
it established its reputation in China with mobile security
software, the company has spent the past couple of years
investing heavily in new mobile gaming and search technology.
Its search engine launched in August 2012 as a direct
competitor toBaidu (
), China's No. 1 search engine. Although Baidu dwarfs Qihoo in
market cap and annual revenue -- Baidu had $5.2 billion in
revenue last year vs. $671 million for Qihoo -- the battle for
market share is becoming increasingly competitive.
According to data from CNZZ, a Chinese research firm, Qihoo
handled about 25% of China's Web search traffic in January vs.
Baidu's 58.3% share.
Staking A Place In Search
By the end of last year's third quarter, Qihoo had already hit
its year-end goal of 20% of China's search traffic. The company
aims to grow that figure even more this year.
"Our goal is to achieve 30% search traffic at the end of 2014.
As we deepen our reach within the PC search market, we are also
capturing additional share (in) mobile search," Chief Executive
Hongyi Zhou said on a conference call following Qihoo's
fourth-quarter earnings report last week.
The company also looks to keep expanding its base of search
During the fourth quarter, Qihoo reported that online ad
revenue more than doubled from a year earlier to $142.4 million.
Most of that came via advertising appearing on users' startup
Qihoo has been aggressive in its efforts to monetize its
search business. In January it made headlines when it hired John
Liu away fromGoogle (
) China, where he served as a vice president. Liu, installed as
Qihoo's chief business officer, will work to build more revenue
out of Qihoo's search traffic.
Qihoo also has plans to rapidly expand its sales force.
"We will continue to build our search advertising sales
network, including the direct sales force and agency networks,"
CEO Zhou said on the conference call. "We certainly are very
pleased with our results in search traffic and the monetization
thus far, and we're seeing even greater potential ahead of
The company handles about 15% of search ads sold in China,
Jefferies analyst Cynthia Meng noted in a report. She expects new
products in Qihoo's search pipeline this year to "further
diversify its ad placement channels and attract more ad
Qihoo also sees a big opportunity in mobile gaming. At the end
of 2013, it had more than 800 games running on its game platform.
The total number of paying gaming accounts grew to about 700,000
vs. 560,000 in the prior quarter.
"Our game platform continues to attract game developers and
the user activities under one scheme," CEO Zhou said. "We are
pleased with the overall market and achieved robust growth in
this segment despite the cooling off in PC games and increased
competition in mobile games."
Games Move To Mobile
A rising number of gamers in China has switched to mobile from
traditional desktop gaming. In a report, analyst Tian X. Hou of
T.H. Capital noted that mobile gaming revenue in China grew 59%
to $515 million between the third and fourth quarters of
"Qihoo is well-positioned to enjoy robust growth in the mobile
game industry," Hou said. "Based on our assessment of industry
data, we believe Qihoo could outperform the industry
The story regarding mobile search is a little fuzzier for
Qihoo. Following the company's Q4 earnings report, Zhou conceded
that the company doesn't have any revenue from mobile search
Analyst Hou notes that Qihoo's search monetization is "still
in an early stage when compared with peers," though Qihoo's
growth "is more rapid" than that of its peers.
Qihoo posted fourth-quarter revenue of $221.6 million, up from
$103 million the prior year and above views for $209.7 million.
Earnings more than tripled to 70 cents a share vs. analyst
estimates for 43 cents.
Growth was driven by "solid performance" from both online
advertising and Internet value-added services, CFO Zuoli Xu said
on the conference call.
Qihoo gave revenue guidance of $226 million to $228 million
for the first quarter of 2014, above Wall Street's consensus
estimate of $203 million.
Analysts polled by Thomson Reuters expect the company to post
Q1 earnings of 31 cents a share, up from 14 cents a year earlier.
Profit for all of 2014 is seen climbing 34% to $2.33 a share.
Qihoo shares touched a record high of 124.42 on Friday and
currently trade near 117. Qihoo, Baidu,NetEase (
) andNQ Mobile (
in IBD's The New America on Wednesday) were among Chinese tech
firms pulling back in the stock market this week after customs
officials in China reported a drop in February exports.
Hou calls 2014 a "critical year" for many Internet companies
in China because of growth opportunities in mobile platforms and
other sectors. Major Internet companies plan to spend a lot of
money on investment and marketing. "Qihoo, as one of the major
online traffic distributors, will benefit significantly from such
budget flow," Hou said.