Investing

Qihoo 360 IPO, Someone Got This Very Wrong (QIHU, DANG, YOKU, UTA, CCME)

Qihoo 360 Technology Co. (NYSE: QIHU) is not just another Chinese IPO for American investors.  This one brought the growth theme of China, the internet, and security all in one offering.  It might also be bringing up worries of a bubble in Chinese companies wanting to sell shares to Americans.

If you have seen all the newly public Chinese companies which either have had accounting issues or which fall under those speculated or rumored to have possible accounting issues, then at least some concern is merited.  Maybe this was just  opportunity knocking.

Qihoo is said to be China’s third most popular internet company due to its secure browser.  Ecommerce China Dangdang (NYSE: DANG) and Youku.com Inc. (NYSE: YOKU) would likely have been followed by many more Chinese internet IPO filings had it not been for some concerns being brought up over reverse merger companies.  Both of those were legitimate IPOs, but as Herb Greenberg points out on CNBC it is hard for a US investor to really know which companies are which.  Youku.com has held up rather well, while China Dangdang is considerably off its highs.

Today was no reverse merger.  Its size and influence in the market seems real.  Still, when you see 100% gains on an IPO day it is not without question from US investors as to whether something is wrong with the IPO pricing or whether the pre-IPO caution is just a huge misunderstanding.  It came on the same day that we awarded The Mr. Dumas Accounting Award to  Universal Travel Group (NYSE: UTA) for delaying its 2010 year-end results on a date “‘to be determined” with “an apology for any inconvenience.” China MediaExpress Holdings, Inc. (NASDAQ: CCME) was another recent China implosion.  Qihoo 360 is no Universal Travel Group, but how can the bulk of American investors have any idea about that?

Qihoo 360 closed out today at $34.00 and that was after its $14.50 per ADS IPO came in about $2.00 above plan.  This was 12.11 million ADSs, and you might as well just go ahead and assume that the overallotment shares of 1.81 million more were exercised.  UBS Investment Bank and Citi were the joint book-runners and Stifel Nicolaus Weisel and Cowen & Co. were co-managers.  After an IPO doubles, it seems a sure bet that the overallotment capital would not be taken.

The company’s claim is that as of January it had 339 million monthly active Internet users with an 85.8% user penetration in China.  It also claims to be the number one provider of Internet and mobile security products in China by user base.  Both figures were according to iResearch.

After a close of $34.00 and a daily range of $26.70 to $34.40 versus a $14.50 pricing, where did this one go wrong?  Maybe the caution in China is  overblown.  Maybe the IPO underwriters all told the company that the IPO had to be priced extremely low.  Or maybe the underwriting group just got the entire after-market demand wrong.  Lastly, maybe this is just what happens when the market keeps rising every day whether the news is good or bad.

JON C. OGG

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