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Qihoo: A Chinese Internet Powerhouse

Posted on Friday, Sep 30th 2011

Thomson Reuters data shows that 21 Chinese companies with VC backing raised $2.2 billion last year when they went public in the United States. From 2000 to June 2010, mainland Chinese companies raised $188 billion in 495 deals on leading global stock exchanges, including the NYSE, Nasdaq, LSE, and the Hong Kong Stock Exchange. During the same period, worldwide there were 1,114 deals raising $366 billion. Ernst & Young estmates that China will lead the IPO market in the coming years. Beijing-based Internet player Qihoo 360 Technology, is one recent entrant to the NYSE who raised $200 million as part of their IPO funding round.Qihoo’s Financials

Founded in 2005, Qihoo (NYSE:QIHU) is the number one provider of Internet and mobile security products and services in China. With more than 378 million monthly active Internet users as of June 2011, the company boasts of a user penetration rate of 92% in China and is known to the third-largest Internet company in the country. Most of their products offered under the “360” brand are free. However, some such as the 360 Anti-Virus, 360 Mobile Safe, 360 Online Shopping Bodyguard are revenue sources. But it is not just security products that have helped Qihoo to be successful. Qihoo’s strong income stream is attributed to their presence “in a lot of pots.”

Qihoo’s Internet browser, 360 Safe Browser, has 44.1% penetration in China with 172 million monthly active users as of March of this year. It is the second-largest browser in the country after Microsoft. Of these users, nearly 57% users access Qihoo’s Personal Start-up Page. Qihoo sells access to this user base to third-party service providers such as online gaming companies and group buying sites in return for a revenue sharing agreement. Qihoo also began selling services themselves, such as technical support, and repair services for computer users.

Qihoo’s rapid growth is illustrated in this graph, courtesy of tradingstocks.me.

Through their multiple revenue streams, Qihoo has managed to deliver strong revenue growth. Last year, revenues increased 79% over the year to $58 million with earnings doubling to $9 million.

In the recently ended quarter, Qihoo’s revenues of $35.1 million grew 177% over the year and were ahead of the market’s target of $29.12 million. EPS of $0.11 beat the Street’s projected earnings of $0.06 per share. By segment, online advertising revenues grew 216% over the year and 63% over the quarter to $26.8 million. Internet value-added service revenues, derived largely from Web games, grew 159% over the year and 32% over the quarter to $8.1 million.

For the current quarter, Qihoo expects revenues to be $41 million-$42 million.

Qihoo’s Mobile Offering Includes Gesture Browsing
As part of their mobile strategy, the company recently launched a full suite of mobile browsers that support both iOS- and Android-based devices. The browsers feature improved options such as gesture browsing, which lets users control the experience with customized touch-based gestures and multi-tab browsing. Additional features include bookmarking through access to the cloud and letting users synchronize their mobile devices to their PCs.

They also launched Kouxin, a free, real-time cross-platform mobile messaging application for Android, iOS, and Symbian smart phones. The app supports multiple OS and lets users send and receive texts, pictures, and voice messages free of carrier charges. Users can also participate in group chats and have access to location-sharing features. Kouxin is a freely downloadable app. Qihoo sees Kouxin as a logical next step to their mobile social networking initiatives.

Qihoo’s stock is trading at $17.69 with a market capitalization of $2.18 billion. Since its IPO, it touched a high of $36.21 in March of this year. The stock debuted at $14.50 a share, also in March of this year.

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